RFC: Prize Liquidity


The V4 design requires that we maintain prize liquidity reserves to fulfill all prizes that are awarded. Prize distributions are targeted to specific amounts, but do have variance. Similarly Aave yields vary, and future deposits to the prize pool are unknown. This post is a request for comment on the topic of prize liquidity reserves that governance should continue to provide to sustain the V4 multi-chain prize pool. It’s imperative that we maintain the ability for all winners to be able to claim the prizes they have won without interruption.

Current Prize Liquidity Status

The images below show the prize liquidity currently held in reserves, and the liquidity recently generated from Aave that is waiting to be moved to the reserves. This liquidity transfer happens every 14 days or so. The Ethereum reserves recently being “flushed” and the Polygon yield will be moved within a few days.

Sourced from Pooly bot, the symbols represent the chain, and all numbers are effectively USDC

If we add up all of this prize liquidity we get a total of 200,463. There is one accounting consideration and that is the executive-team has kept the teams compensation in prize liquidity. (In the future this should be considered for sponsorship - delegated to 0x0) That amount is 19,904 USDC.

-Note, this does not include the MATIC, AVAX, and stAAVE rewards we have accumulated. That’s a separate topic.

Claimable Prizes

drcpu provides this helpful daily data update on claimable prizes which takes into consideration prizes that have passed the 60 day expiry. This data does not include gas consideration, specifically Ethereum where some prizes are unlikely to be claimed. In general we observe that around 90% of total claimable prizes are claimed.

The data shows 88,755 currently claimable.

Subsidy and outlook

Without going too far into the details, we are seeing a ~6k USDC per day burn of the treasury subsidy with the current prize distribution. There is a PTIP pending to reduce this to ~2k USDC per day, all things held equal. While the future burn rate remains an unknown, it is clear we will need a buffer to continue to operate this prize liquidity network.

Balancing Liquidity

200,463 USDC in liquidity
-19,904 USDC exec-team budget
-88.755 USDC claimable

Prize Liquidity Reserves: 91,804

At 6k per day burn rate we have ~15 days of runway. Note that it’s prudent to have a buffer because of the variance in prizes, yields, and deposits. While the proposed prize tiering will significantly reduce our burn rate, it’s imperative that we start the process now to buffer our prize liquidity reserves. We might assume a governance process can take ~10 days + a day or two for the exec-team to balance the liquidity.

In terms of bigger-picture protocol operations the treasury USDC is currently deposited as “sponsorship” in V4. Moving treasury deposits to buffer prize liquidity will have the same net effect for the protocol - generating yield from Aave V2.

The amount
As the exec-team lead I am requesting we move 400k USDC from treasury “sponsorship” to the prize liquidity reserves. There are many unknowns going forward - prize tiering, resulting prize distribution, Aave yield, depositors, etc. In this situation I think it is prudent to go with the knowns - we need a buffer to guarantee we can efficiently pay out all prizes won.

I estimate that if current conditions were to continue, 400k in prize liquidity would last us 2 months. Ideally we get more depositors and we adjust the prize tiering to reduce the subsidy spend such that it lasts more like 6 months. An in-between result of 4 months feels like a reasonable buffer to me.
Keeping in mind the process of governance and the limited risk to the treasury with no downside in yield.

The Question

Do you approve of moving 400k USDC from treasury “sponsorship” to prize liquidity reserves?
  • Yes I approve
  • No, I do not and can explain why

0 voters

This proposal would withdraw treasury held PTaUSDC from the prize pool and transfer it to the executive-team gnosis on Ethereum. The team would then balance the liquidity across all chains in an optimal way dependent on current prize pool conditions.

Please post any questions, comments, or concerns in thread. With momentum FOR we will move this to PTIP and an onchain vote.