I want to kick off a discussion on reserve rates.
In early April the reserve rates on all governance owned prize pools were set to 50% of the interest accrued (0% of the COMP accrued) this has led to $550,000 of reserves accruing in that time (see here). A few major things have changed since that time that I believe warrant revisiting reserve rates.
1). POOL distribution rates are being reduced by 50%
2). Treasury diversification has passed giving the protocol a $6 million reserve of stable-coins
3). At least temporarily, macro market conditions have changed leading to a decrease in underlying interest rates earned
Setting Reserve Rates
Overall, I’m of the opinion that we should lower reserve rates to optimize for larger prize sizes in the early stages of protocol growth. We are in a crucial period of time to establish the protocol as the leader in the no loss prize savings and having large headline prizes is important to both attract capital and build the brand. My opinion on this has changed since early April based on the fact that 1) treasury diversification has given the protocol a strong base of stablecoin reserves. 2) POOL distribution reductions means we should have less of an issue with aggressive yield farming.
Overall, I see an opportunity for us to aggressively focus on building the largest possible prizes. I believe PoolTogether can have a viral moment where we reach a tipping point where the prizes become exciting enough to draw all of DeFi and people outside of DeFi in. Lowering reserves rates makes this goal much more attainable.
Uses of Reserves
In the interest of tackling one issue at a time, I only want to briefly touch on this but I think we can also use reserves in more interesting ways to drive growth. Specifically, I think the ideas of 1) using a portion of the reserve to buy back POOL and distribute that to POOL pool depositors is good and 2) using a portion of the reserve to fund Gitcoin grants could have a very strong community and marketing impact.
Maintaining the 50% reserve rate for COMP and UNI prize pools make sense. Especially because the majority of those prizes are in the value of the COMP accrued not the interest earned.
For the Dai and USDC prize pools, I’d advocate something in the 0-15% range to optimize for the largest prizes.
Separately I think we should consider the best ways to utilize reserves to drive growth. I only want to plant the seed for this discussion as I believe it will take a bit more work and time to sort that out.