V5 Tokenomics Proposal

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PoolTogether V5 Tokenomics

The following is a proposal for a PoolTogether V5 incentive structure. This structure is intended to harmonize stakeholder behaviour. Readers may wish to read the Big Head Growth Strategy for additional context.

We need tokenomics that:

  • Align stakeholder behaviour to the benefit of everyone
  • Are sustainable.
  • Can be communicated as a meme.

Stakeholder Behaviour

We want to encourage behaviours that support the desired core stakeholder behaviours:

  • Users swap into prize tokens (PUSDC, PWETH)
  • Users hold their POOL prizes
  • Users swap their POOL prizes into more prize tokens to compound their chances of winning
  • Liquidators arbitrage yield by swapping POOL for prize tokens

The two behaviours that support the above are:

  • Providing prize token liquidity: USDC/PUSDC, WETH/PWETH etc
  • Providing POOL liquidity: POOL/WETH, POOL/USDC, etc

Let’s go into more detail.

Swap into Prize Tokens

The Big Head Growth strategy emphasizes distribution channels via AMMs. This allows users to swap into prize tokens from any aggregator, wallet, etc.

This means we need liquidity routes from large-cap tokens to prize tokens. I.e. for Prize USDC we need a path from USDC → PUSDC.

Supporting behaviour: encourage prize token LPs for pairs such as USDC/PUSDC

Hold POOL Prizes

When users win POOL, they should hold the POOL token. This reduces the circulating supply, meaning there is more yield volume per-POOL token.

We can further encourage holding by making POOL deflationary.

Supporting behaviour: POOL is burned

Swap POOL into Prize Tokens

When a user wins POOL, they may wish to swap it for more prize tokens. This increases TVL and the volume of yield moving through the protocol.

This means we’ll need a liquidity route from POOL to prize tokens (i.e. PUSDC). We can both support the swap from POOL and drive more volume to the above LP position by encouraging users to LP POOL against a large-cap asset such as WETH or USDC.

Supporting behaviour: encourage LPs for pairs such as POOL/WETH

Yield liquidators Swap POOL for Prize Tokens

Yield is consolidated into POOL by liquidators. Liquidators can employ several strategies to arbitrage yield:

  • Liquidators may want to hold POOL and spend it to acquire prize tokens. This lowers arbitrage gas costs.
  • Liquidators may want to flash swap for the prize tokens, so that they don’t need to hold anything other than ETH.

Either way, Liquidators will need to acquire POOL. Fortunately the above supporting POOL/WETH behaviour will streamline this path, making it easy to swap into POOL from any large-cap asset.

Sustainable Tokenomics

Good tokenomics align stakeholder behaviour by distributing value. Sustainable tokenomics means the value distribution can continue in perpetuity.

Value is represented by the POOL token, so we need to identify where POOL tokens are captured so that we can redistribute it.

Once we’ve captured the POOL tokens, we need to decide how to distribute them.

POOL Capture

PoolTogether V5 captures POOL in two important ways: prizes and the reserve.

Prizes

Prizes in V5 are auto-claimed; any address that holds prize tokens will automatically receive any prizes that it wins.

If a smart contract wins prizes and cannot access them, then the POOL tokens are effectively burned.

Reserve

The reserve is a portion of prize liquidity that the Prize Pool retains in order to cover RNG costs and to backstop prize liquidity in the event of statistical variance in prizes.

Over a long enough timeframe the variances average out and the expected value of the reserve will increase. This means that tokens held in the reserve become inaccessible.

Reserve Accrual

Liquidity is split across the prize tiers and reserve using simple “shares” math. Each tier has a certain number of shares of the liquidity and the reserve has a certain number of shares. As the number of tiers increase, the portion that is allocated to the reserve decreases. This means at low volumes the reserve fills aggressively to ensure there is sufficient liquidity for the RNG. At higher volumes, the portion going to the reserve decreases.

Let’s chart the number of POOL tokens captured by the reserve per year given:

  • TVL of $100m
  • APR of 2.5%
  • POOL market cap of $2m
  • Each prize tier has 100 shares and the reserve has 200 shares
  • Number of tiers is 6

1604Ă—980 41.1 KB

You can see how after about eight years nearly the entire circulating supply of POOL is captured. Of course, in reality TVL and APR will fluctuate, and the POOL market cap will likely more closely reflect the TVL.

Regardless, this illustrates the potential token sink that the reserve offers.

POOL Distribution

Above we identified two supporting behaviours that we want to encourage:

  • Prize token liquidity providers: USDC/PUSDC, WETH/PWETH etc
  • POOL liquidity providers: POOL/WETH, POOL/USDC, etc

We can sustainably incentivize the above behaviours by:

  • Allow prize token LPs to stake their LP tokens and earn the POOL that is accrued by the underlying prize token
  • Allow POOL LPs to stake their POOL and receive a portion of the POOL captured by the reserve.

Prize Token LPs

Prize token LPs are users who supply like-asset pairs to an AMM such as Uniswap or Curve. The user would supply a pair like USDC/PUSDC so that it’s easy to swap in and out of prize tokens.

The user would not incur impermanent loss due to the similar nature of the assets, and they would accrue swapping fees. However, in many AMMs the POOL tokens that are won by the LP pair would become inaccessible forever; they would effectively be burned.

We can encourage LPs further by rewarding them with the POOL tokens that were burned by the LP position. The users would then earn POOL in addition to swapping fees.

Incentive: Prize Token LPs could stake their LP tokens and earn the POOL that is burned by the LP position

POOL LPs

Users who LP a POOL token pair such as POOL/WETH would capture fees from the swapping volume, but would be subject to impermanent loss.

We can encourage these LPs by rewarding them with POOL proportional to the amount captured by the Prize Pool reserve. Technically the reserve isn’t burned because there is a chance it will be used as a backstop for prizes, but long-term it will likely grow and become inaccessible.

Incentive: POOL LPs could stake their LP tokens and earn POOL in proportion to the POOL that is captured by the reserve.

Note that this does not have to equal 100% of the reserve; it might only be a fraction.

An Example

Let’s look at an example. Assume:

  • $100m TVL
  • 2.5% APR
  • LPs receive 30% of what is captured by the reserve

Then we see that:

  • There is $2,500,000 of yield per year.
  • $714,286 is held in reserve (assuming 5 tiers and 100 shares per prize tier and 200 shares for reserve)
  • 30% of $714,286 is $214,286

If the LP stakers stabilize at around 10% APR, then that means this incentivizes $2,142,857 in POOL/WETH liquidity.

Strong Meme

In a nutshell, the core protocol is burning(ish) POOL in several ways. The redistribution of that value is externalized; this affords governance the opportunity to evolve the incentives as needed. While the incentives may change due to changing flavours of AMMs or strategies, one thing will remain the same:

The core protocol burns POOL. When POOL is burned, everyone wins!!

Summary

The core protocol burns POOL through prizes and the reserve. We can offset the burn with emissions that encourage the user behaviour that we desire, but ensure that the system is still net deflationary to encourage holding POOL.

Next Steps

Give your feedback and thoughts!

The plan is to design the Reward system so that we can support the above incentives. If people have any feedback, we’ll be glad to fold it in.

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:+1:

I think given the system choices made by GS this is a crucial component. There’s going to be a lot of hesitation to play to win POOL. I’ve cautioned about this numerous times. The minimum solution is to enable the lowest friction of autocompounding possible. Let’s see the prize hooks in action. Can you share more on how you see this working?

Like you say, swapping from POOL prize back to deposit token requires liquidity from POOL to prize tokens (say PUSDC or PWETH). Most people don’t know what the heck we are talking about. But don’t worry, the ticket liquidity I see as an easy problem and already have 50k USDC earmarked for it in the funding for the Executive Team that just passed its vote. It will be LOW fee pairs, specifically of deposit asset <> ticket token. The ticket side of the LP will burn POOL prizes received. The low fees on ticket liquidity will make the route from something like POOL/WETH to WETH/PWETH an easy hop.

Incentivizing people to LP POOL/TICKETs is not needed in terms of volume/liquidity but I also don’t think it will work as you are describing. The amount of POOL burned is only on one side of the pair. That’s only 50% of the potential average yield of simply playing in the pool and no random chance of a bigger upside. The incentive needs to be more clear in those economics.

This sounds like a can of worms and I would love to see it opened with more data or projections if you can indulge us.

POOL burned in the prize pool reserve means less POOL given out as prizes.

I have a hard time getting excited about anything that gets between yield generated by people pooling together and those same people receiving that yield as prizes. I feel this idea of the reserve accumulating dead prize value is a troubling design. The idea to repurpose it is nice, but as a player Im turned off. The priorities here are mixed up imo.

I think there’s additional trouble because of the variability. Can the POOL in the reserve actually ever be accounted for as burned? We have a lot of POOL around that is “probably bured” but what does that do for economics? Have you looked at scenarios where the prize pool is not up only in yield? What about when deposits phase out, does it start to eat the reserve?

Liquidity for tickets I don’t see as an issue that needs a proposal at this time. If it’s two or three big head tickets on Optimism we got it covered. If you see bigger needs than that right now then let’s take a look.

Liquidity for POOL is an issue and always has been. Especially relevant now when we have big prizes being generated that potentially cannot be redeemed for their full value. A $50k prize right now is about all POOL liquidity can support before it gets quite ugly. This is one of the major reasons Im advocating for not doing an annual grand prize.

I see two proposed solutions.

1 - Deploy treasury non-POOL to support the price of POOL. Oof we have tried this. It’s basically a way for POOL to swap for treasury. It hasn’t worked. The more we put out the more people sell. Having been involved in this for years now, I advise against at this time.

2 - Use the reserve that is maybe burned as a counter to incentivize POOL/WETH liquidity. This is clever but also not a good idea imo. You are just taking depositors yield and trying to support POOL price with it. POOL liquidity generally demands 35% APR, its not cheap to rent. And renting is not great. Renting with depositors yield, kinda worse.

What I suggest is chilling on it. If the core economics of the protocol are good then the token can find new direction momentum.

With new direction we can find solutions where and when they are needed. There is a lot of POOL currently deployed as POL in a wide range up from the current price on both Optimism and Ethereum. I fear if we try to build out this big solution before the ship is sailing smoothly then it will be a faster wind blowing us to POOL and TREASURY zero.

:+1:

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Incentivizing people to LP POOL/TICKETs is not needed in terms of volume/liquidity but I also don’t think it will work as you are describing. The amount of POOL burned is only on one side of the pair.

The core incentives are the fees on swap volume. The POOL incentives are extra; they ensure they are receiving the maximum incentives for all of their tokens, and can be done so in a sustainable way through burned prizes.

I would love to see it opened with more data or projections if you can indulge us.

Here is the Google spreadsheet I used to calculate the behaviour of the reserve. It excludes prize variance because the long-term EV of prize tiers is their own liquidity. The prize tier and reserve shares are hardcoded to 100 and 200, respectively.

You can see how the reserve compounds.

LP Rewards vs Using the Treasury to LP

In terms of runway using yield is much more sustainable than using our treasury; and if we can strengthen POOL I don’t think we’ll need 35% APR.

It’s also important for us to train people to LP; once volume starts moving through AMMs ideally the fees will be incentive enough to encourage LPs. We need LPs for volume though, and volume needs LPs. Incentives help kick-start that.

Doing it ourselves isn’t sustainable, we need to get others to do it.

(I’d also prefer that the exec team doesn’t actively manage liquidity positions for the protocol, but that’s another story)

Example:

Assuming:

  • TVL: $10m
  • APR: 2.50%

Then:

  • Estimated annual grand prize is $16,000
  • Annual Reserve: $71,429
  • Total LP TVL: $178,571 assuming LPs receive 50% of reserve and LP stablize at APR of 20%

$180,000 would be a huge improvement for our Optimism liquidity, and as we push volume through those pairs my guess is that the growing fees would also encourage LPs.

Our Uniswap V3 Optimism liquidity is only $16k right now. Slippage is ~5% on ~$500. It would help immensely to have additional LPs, and for it to be enabled by our community and others.

For more detail see the Prize Liquidity and Incentives Spreadsheet

Let’s Execute

I think we need to bring out all the guns for V5. I don’t think we should chill on this and burn runway in order to see how it goes. Let’s throw as much fuel onto this fire as possible.

There is an important psychological element to this as well; people love incentives. And if they are non-inflationary it’s even better. If they improve prize token distribution even better for PT.

It’s also important to note that while it may cost us to bootstrap LPs now once the volume is flowing then there may be sufficient organic incentives for us to reduce or eliminate incentives. This is an engine we’re trying to startup; to train people to LP so that volume can be directed there. Last year PT did hundreds of millions of volume; imagine if that was on AMMs.

As more volume flows through the system, more LPs show up, and liquidity rises the whole system becomes more efficient and overhead is reduced. At high TVLs liquidation overhead reduced to less than 1%. Using POOL allows overhead to be reduced as the market gets more efficient, vs having token holders arbitrarily taking a cut of the yield.

Once the engine is turning over, we could even give depositors a full base APR since no more incentives are needed.

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You are saying that we should assume 50% of this $71k value in the prize pool reserve will be never awarded as prize.

For every $16k grand prize the prize pool awards it captures $35k+ of value? Are there any better outcomes for depositors?

Here is what I see with the proposal to allocate POOL emissions based on dead POOL in the prize pool reserve. Please correct me if Im wrong

  • Depositors usdc and weth yield, is sold at a discount to liquidation bots for POOL
  • We should assume 14% of that yield ($35k/$250k) will never be awarded as prizes and is forever inaccessible in the reserve.
  • We should take that amount of POOL ($35k) from treasury and use it to rent weth/pool and usdc/pool liquidity

Feels bad man.

We should have a reasonable amount of support for a grand prize. I’m not convinced we should hold ourselves to be accountable for that liquidity on Optimism. There is always arbitrage and/or bridging. But Ok, lets say we do want to. I believe 5% slippage on a grand prize is a reasonable max we could aim for. To provide liquidity for 5% slippage on a $16k prize we should not need $180k in liquidity. Our mainnet liquidity currently would nearly support it on its own.

I also do not think we can assume 20% to rent liquidity. All previous data says it’s more like 35%. Happy to see evidence otherwise.

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Hey friends, tx for sharing your fruitful discussions even if I have to admit I do not understand everything. I try to reformulate to make sure I understand, please do not hesitate to correct me.
I see three utilities for the POOL token:

  • governance → L1 only, no interest of poolers it seems to move voting to L2 - where winning will actually occur for now. Tx @Lonser and zk4adam for sharing emerging technical solutions (scopelift, SnapshotX)
  • prize token → no real incentive to keep for now so I would say, most winners swap POOL → other ERC20 token, POOL price shall decrease. This is pending PTBR-7: Generation Software Q4 2023

** Holding prize assets
** LPing prize assets
** Holding POOL

  • “Liquidation” of prize pools

PS: About automated view of tokenomics, I like this one :slight_smile:

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Thanks for putting together this proposal, @Brendan. This is definitely an important discussion, especially as POOL transitions from a governance token to more of a utility token used within the protocol.

I’ll include the TL;DR here, as I know not everyone wants to slog through my long post.

TL:DR

  • Proposal adds a lot of unnecessary complexity
  • Will be confusing for core users, who tend to be less experienced crypto and DeFi users
  • POOL as prize token introduces more risk for savers, since price can fluctuate both up and down, and this introduces downside with sufficient sell pressure
  • Burn narrative is largely driven by human intervention [i.e., LPing native tokens/prize tokens (tickets)] and wasn’t a core design of the hyperstructure, as shared before launch: The PoolTogether Prize Savings Hyperstructure
    • Not keen to be so largely focused on POOL price and turning POOL into the core product. We’re getting further away from competing with TradFi and just creating an OHM-like structure with all of the advantages and disadvantages that come along with that model.
  • Just a year ago, there was a lot of talk about POOL as ownership and that “Bottom line IMO is that it’s too early to enrich POOL token holders,” yet we’re shifting value to POOL token holders at the expense of depositors’ yield and diminishing the ownership component. Source.

Audience

There are two core audiences active within the protocol at this point:

  1. Depositors. People who deposit into the protocol with the goal of saving money and winning prizes. Not all depositors are POOL holders by default, and not all depositors will choose to hold POOL.
  2. POOL holders. Community members who have and hold, or may in the future have and hold, the POOL token. These community members can delegate their voting power or choose to self-delegate and vote directly on Ethereum mainnet. In time, governance power will be diminished and deprecated, based on my understanding.

From my perspective, this proposal is designed with POOL holders in mind and future depositors who choose to hold their POOL winnings. There’s a certain balance between these two audiences that should be considered during any tokenomics discussion, imo.

Stakeholder Behaviour

Depositors

Maybe I’m reading this incorrectly, but don’t points 3 and 4 conflict with one another?

  • I can’t both hold POOL and swap POOL for more prize tokens. I can hold some POOL and swap some POOL for prize tokens, but one of these is the opposite of the other. Maybe the intent was for depositors who win to hold some POOL and use some POOL to swap for prize tokens.
    • If I do choose to primarily hold POOL, my unified prize asset is now disconnected from my chance to win, which removes utility and requires me to perform a swap to get the necessary prize token to increase my chances to win. More steps = more complexity for the end user. You can automate this, but I believe this would require a user to opt-in, which means going to a frontend somewhere and agreeing to have your POOL swapped for more prize assets. I think this isn’t accounted for in the native token/prize token LP scheme.

And if depositors who win choose to swap POOL for prize tokens (tickets), it still results in POOL sell pressure. If an annual grand prize is awarded, it’s likely that the winner incurs a larger-than-average price impact and they are exposed to the risk of POOL volatility. Much of this proposal assumes that POOL price only increases as more of the supply is either removed from circulation or burned (by design).

  • This either provides upside or downside for depositors, but if the goal is to build a global prize savings network, then introducing downside risk moves the protocol further away from No Loss–it becomes no loss on principal (depending how you enter and exit the protocol) but you could suffer loss depending on the time between winning a POOL prize and swapping it for your desired asset OR if you hold POOL. I imagine many users will either deposit or swap into a vault and then not check back in for a while since the whole thing is automated.
  • If I’m primarily interested in saving, as a user I am unlikely to LP prize tokens. I’d assume a lower fee tier for a like-kind pair. We haven’t specified that detail, but let’s say it’s 1 bps (0.01% fee tier). You halve your chance to win because you’re not fully deposited in PT v5, and the yield you earn from the pair likely won’t make up for the potential winnings, espeically as the grand prize rises higher. I see this more of a public good rather than a yield opportunity. Larger fee tiers add a greater fee to enter and exit the system, which moves further from no loss ethos.

I think a lot of this complexity comes from the use of POOL as the unified prize asset, which doesn’t have much liquidity on Ethereum mainnet and barely any on other networks. Moving POOL to other networks and locking up more POOL (e.g., removing from circulating in reserve contract or through burns) also introduces greater governance risks because governance becomes more centralized and if a malicious proposal were put through, it is likely that the votes necessary to vote it down won’t be there.

  • This primarily impacts the treasury, but as treasury holdings diminish, this risk lessens, as POOL holders control the treasury and not the protocol, a change introduced with v5.

If another token that had deep existing liquidity on chain (e.g., USDC, DAI, etc.) were used as the unified prize asset, you avoid much of the liquidity problem. As it was outlined in the The PoolTogether Prize Savings Hyperstructure:

Any token can serve as the prize token, but using POOL has certain advantages: most notably it allows us to leverage the protocol’s existing treasury, it aligns incentives between existing POOL token holders and prize winners, and intrinsically ties the POOL token to total protocol yield.

While POOL as the unified prize asset presents certain advantages, it also provides certain disadvantages (e.g., on-chain liquidity, difficult to understand for less experienced crypto users, potential downside risk, etc.).

  • Some users have already raised concerns about POOL as the unified prize asset. Some examples here and here and here. And Leighton also shared this thought in the past “My working assumption is most people will want to receive their prizes in an asset other than POOL. Perhaps the asset they deposit or some other asset they like. So the key is to make sure users can do that… win their prizes and recieve them in whatever asset they desire.” Source.
    • Since POOL becomes the intermediary step–the goal you shared in the past–the depositor who wins receives POOL directly in their wallet, which is great! But now they need to know what to do with it, and if they swap their POOL for another desired asset, they incur the fee associated with the tier on whatever AMM is chosen plus gas and price impact (i.e., slippage). This is in addition to the portion that is used to incentivize boths to liquidate the yield into the prize token. A portion of all yield generated goes to the reserve, too, as you’ve highlighted.

POOL holders (POOL liquidity) and Depositors (Prize Token Liquidity)

On the first point, you likely don’t need much liquidity to enable smaller swaps from native assets to vault tokens, but the incentive to LP needs to be equal to or greater than the potential yield earned if you deposited the whole amount into PT v5, unless you use a Balancer 80/20 pool, where 80% is the prize token and 20% is the native token.

  • As I shared above, this is more of a public good than anything else and should be funded as such, if implemented.

For POOL LPs, any large shifts in POOL and/or WETH price is going to create a larger degree of impermanent loss (IL). The incentives would need to be greater than the potential IL, and providing liquidity is a complicated process. To be successful, you likely need to use a liquidity management protocol like Arrakis (if you go the Uni v3 route) or a Balancer pool. It is not easy to be a successful LP.

  • This also seems like a public good, with greater downside for POOL LPs. You really just need to build up one large LP position between POOL and an asset with deep liquidity, so trades can route through existing pairs. With that said, you introduce IL for POOL holders and this moves farther away from the no loss ethos.

The Reserve

It does seem like 25% to 35% of the annual yield goes to the reserve, which serves the following two purposes:

  • funds the incentives to submit draw
  • provides a cushion when there is insufficient tier liquidity for prizes
    The reserve cannot be withdrawn by anyone; it can only be used to incentivize draws and supplement prize liquidity.

Source: PoolTogether v5 docs

Am I correct in assuming grand prize liquidity would flow from the reserve or is that incorrect?

From my understanding, this provides the incentive for a bot to run the RNG draw, which pushes the draw to the target networks AND it provides liquidity if prizes awarded are greater than the available yield in POOL. This solves a core issue we had in v4, where the subsidy from the treasury represented a large amount of the awarded prizes for the first year after v4 was launched.

If I an correctly assuming grand prizes would likely be awarded from the reserve, it doesn’t necessarily mean all POOL held in the reserve is inaccessible.

The Burn Narrative

This aspect of the tokenomics and the general discussion in the beta chat is somewhat offputting, imo. The yield comes from depositors yield, which is then used in an auction for POOL, with a liquidation bonus to incentivize bots (i.e., a certain discount on yield assets that enables bots to realize a profit). Fees are expected within the protocol to automated certain processes.

However, the burn narrative comes from contracts winning POOL that cannot move the POOL. You can incentivize activity that burns more POOL, with the goal of seeing an increase in POOL price. Imo, this turns the protocol into a vehicle to increase the price of POOL over time, with human intervention causing an increase in the degree of POOL burned through native asset/prize token LPs.

If POOL does not increase in price, then the system is prone to break from what I can tell. Removing more POOL from circulation doesn’t necessarily increase price. I’ve shared this before in the beta chat channel on Discord.

  • People who have held POOL for a long time will likely sell at some point in the future once on-chain liquidity improves. As @underthesea shared, we’ve seen this activity whenever POL has seen an increase in the ETH held in the position on Uni v3. This means sell pressure.
  • If we’re assuming most users won’t want to hold POOL but will want to swap into their desired asset, which does correspond to behaviour associated with saving, then there is more sell pressure.
  • People who run bots can buy a decent amount of POOL and just use that to liquidate yield. They aren’t necessarily buying POOL every day and their goal is to buy POOL to sell in the vAMM, which then goes to winners. See above comment.

Most of the conversation assumes up-only outcomes, but this only works if POOL is used for emissions from the start of v5’s launch, not a token that has been distributed over the last several years.

POOL token price would be associated with the available annual yield that “backs” the token, so speak, which doesn’t have the same impact on price as the stated in the proposal, unless I’m missing something.

And this statement is part of a larger thought, which I’ll share because I have a question about this.

Why does the reserve need to be so aggressive, where it captures ~31.25% of the available circulating supply at all times? This represents a large portion of yield that isn’t awarded as prizes, unless this is where grand prize awards come from.

Overall Thoughts

This seems to add a lot of complexity and dependencies on people willing to LP, with the goal of increasing the price of POOL. We used to prohibit price talk in the PoolTogether Discord server, but now there are people sharing openly on Discord and the forum that the price of POOL will go up. Given the past caution about price talk and regulatory action, I’m disappointed that we’re turning the POOL token into the protocol’s core product, with an emphasis on POOL price.

Much of the complexity in the tokenomics proposal comes from the lack of existing POOL liquidity. To create incentives, POOL holders can vote to distribute POOL from the treasury (4.04m+ POOL, which is greater than the circulating supply) to keep POOL deflationary, but you’ll eventually transfer the POOL in the treasury into the reserve according to my understanding of this proposal and that doesn’t quite make much sense to me.

In my opinion, this misaligns incentives between POOL holders and non-POOL holders (i.e., a majority of depositors).

I think much of this could be solved by changing the prize asset from POOL to another token with deep existing liquidity across networks, but that then swings the benefits to non-POOL holders (majority of depositors) and not to POOL holders.

However, POOL holders weren’t involved in the decision to remove governance control from the token over time and move to utility token model, where POOL became the unified prize asset. I would conclude, then, that changing the unifying prize asset would also be a decision made by Generation Software and not POOL holders given the movement to a more autonomous protocol with v5.

I would be curious if any outside group audited the economic model for v5 and if any user research was done prior to deciding POOL should be the unified prize asset.

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I love this discussion and I’m really excited to see the thought that’s been put into these V5 mechanics. Really great work @Brendan and the GS team so far.

I wanted to chime in to make a few comments about how what’s being discussed here might interact with what ScopeLift is building via Flexible Voting, which—I’ll remind everyone—PoolTogether has available as a DAO, having adopted it with the recent Governor upgrade.

First, we are actively working on a solution that will enable cross chain voting. We built a proof of concept with a grant from the EF and have been since been building out a production ready MVP on top of Wormhole and Optimism. We’re hoping to put this system in production (in a “beta” state) in the next couple of months. From there we will continue to improve it, adding features and networks, etc…

To emphasize the point, this means holders of POOL on Optimism will be able to participate in governance as soon as a couple of months from now. There are a bunch of technical caveats to that, so I don’t want to oversell it, but that core fact is true, and it will truly represent a first in the DAO ecosystem when we get there.

Second, because of Flexible Voting, it’s possible to build contracts such that users can do things with their POOL (LP on an AMM, stake for rewards, etc…) and still participate in governance with those tokens.

Finally, these two things can be combined together. I.e. it should be possible to enable users to (for example) LP on Optimism and participate in Governance there.

Perhaps in the long run, PoolTogether will be completely autonomous. I’m not sure if this is explicitly a goal or not. Either way, for as long as governance remains one aspect of POOL’s value prop, I think making it possible to participate in governance while holding/using POOL in different contexts would be of value.

ScopeLift would love to chat more with various PT stakeholders to see how we can help make this a reality. As I’ve said before, we were very impressed with the PT community and the v5 upgrade as we worked with the DAO on the governance upgrade. We’d love to collaborate more if there’s an opportunity for a win-win.

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1. POOL as the prize asset

While I’ve shared some concerns in the past, I support POOL as the prize asset as I see growth in POOL price as the fastest way to grow the protocol. I believe that prioritizing POOL holders in some way can help build back the confidence that was lost during this bear market where holding POOL meant holding a share in a fast shrinking treasury. I think in order for this to work we need to continue to be very conservative when it comes to allowing new POOL to hit the market. We need as many ways as possible to encourage participants within our ecosystem to hold POOL.

2. What would prevent someone who’s just earned POOL from wanting to sell?

  • Price Speculation.
  • Solid opportunities to earn LP’ing.
  • Needing POOL to fill bots.
  • Single sided POOL staking
  • desire to participate in governance

I think we need to have as many of these doors open as possible and ensure anybody who wants to speculate on POOL or use the system has opportunities to win it or buy it without massive slippage.

  • We should build our liquidity with the assumption that POOL will be in higher demand and be ready to meet these high demands.
  • We should avoid any new POOL to contributors in all scenarios. No more grants/coordinape POOL. Perhaps fund these initiatives with other assets or POOL acquired in buybacks.
  • We should develop a system where those earning POOL from an LP or POOL pool are incentivized to be long term aligned and be part of driving growth.

3. How to incentivize LP’s and potentially POOL pool participants to be long term aligned?

One suggestion for this would be to follow a model that Across is currently using for LP incentives.

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Across uses a rewards multiplier that increases the longer you stay in the pool without claiming rewards. If you claim your rewards or leave the pool your multiplier resets and you will have to build back your share in the rewards. This ensures that participants are long term aligned and will not continuously dump their rewards. This model will work well with our system to ensure more POOL is being retained and helping to drive up the price. Even better if the source of the POOL being rewarded comes from the market to keep things sustainable as @Brendan has suggested in taking some from the reserve. Across uses this model for both single sided assets and Balancer LP tokens.

4. Grand Prize
I’m wondering if there is anything that can be tweaked to beef up the grand prize? I believe that if users are forgoing interest and a 25-30% cut is going to the reserve and to bots then the prize really needs to be life changing in order to attract depositors. I don’t think a single large prize in the first year is enough to attract a lot of depositors if it may only be $16,000. Our mindset should be that we are all in in the next 1-2 years and I personally would not forgo my interest for a slim chance at $16K. I used V3 often but did not use V4 much aside from when there was some good OP incentives.

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It doesn’t- I don’t think anyone has actually looked at the reserve formula. People are making assumptions then running with it.

The yield is divided using shares: each prize tier gets X shares, and the reserve gets Y shares. If there are N prize tiers, then the reserve portion is:

Y / (NX+Y)

For example, if prize tiers have 100 shares and the reserve has 100 and there are 4 tiers, then the reserve portion is:

``100 / (4*100 + 100) = ~20%```

As yield increases, the number of tiers increases. At $10m TVL there will likely be five tiers, as estimated in this Google Sheet.

``100 / (5*100 + 100) = ~17%```

As TVL increases the reserve portion decreases, as less is needed to cover the RNG.

We are currently running simulations to see what an appropriate X and Y are.

No, that’s not correct. Each prize tier pulls from its own liquidity. That’s why the long-term expected value from a prize tier is just the liquidity that has accrued to that particular tier. Reserve is just for variance.

Removing POOL from circulation allows us to sustainably incentivize behaviours we want using emissions that aren’t inflationary. It’s not about price.

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I’m with Tuna on this one. We need users to have a reason to hold POOL. Having as many incentives to hold POOL as possible is critical.

This will alleviate any concerns about POOL being used as a Prize Asset. POOL should be a boon to earn and hold, not a burden in the way of receiving USDC (or whatever asset you deposited).

I think these discussions are invaluable. From those fully supporting this proposal, lukewarm about it or totally opposing it.

I’m in the supporting camp. I think this is exciting and enables flywheel growth for POOL and PT V5. Let’s start this engine!

Would these changes be introduced alongside the official V5 launch? @Brendan

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I don’t see any price talk in the Discord. Those rules are still upheld. There isn’t anything illegal about trying to strengthen the value proposition of POOL.

Also, thinking that if there was legitimate regulatory action to take against the protocol we’d be spared by no price discussions in Discord is a bit naive. Again, I haven’t seen any price talk here, the Discord or elsewhere. Giving utility and a value proposition to a token is not price discussion.

You talk a lot about incentives being swayed to POOL holders from non-POOL holders.

You even mention the enrichment of POOL token holders. What enrichment? Holding POOL since it’s launch in any given year as been detrimental to any person trying to get “enriched” by it.

It’s disheartening to see you “disappointed” in the community trying to breathe life into POOL after being hammered the last 2 years. You’re putting everybody wanting to see POOL succeed in the same camp as pump and dumpers.

As a user of V5, I want to see the protocol flourish. That’s the first priority. And if we can leverage POOL to help it SUSTAINABLY grow then I’m all for it. I trust the team that delivered on their V5 promises and that they did their due diligence here as well.

I’m fully onboard with this tokenomics proposal. Having a strong token is not immoral or illegal, lol. SHEESH.

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We would start working on the code now and plan to have it audited around mid-November.

Twab Rewards

However, given the mixed response to this post, the GS team is instead going to focus on the baseline functionality that everyone can agree on: having an incentive mechanism for depositors.

We’re going to port the old V4 Twab Rewards contract to V5, which means we’ll have the same incentive structure as V4. The code has already been written and audited, so it’s just a matter of updating it and creating a UI.

Stretch Goals

If we have extra time, then we’ll see about a simple staking contract for LPs. I believe encouraging LPs is a critical component of V5; we need liquidity routes from POOL to prize tokens and elsewhere.

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