PERP Buyback to Support Affected v1 Users and Boost User Confidence to prepare for the BULL run of PERP!

Background and Problem statements:

During the market downturn in the past few months, the entire crypto industry has been facing a liquidity crisis. Users confidence collapsed, leading to massive sell-offs.

Despite best efforts from the PERP team to keep v1 running, it couldn’t escape shutdown as funds were being withdrawn at a high rate. The team responded by shutting down the v1 exchange and put the decision of how to distribute the remaining funds to a vote: Sunsetting Perp V1

The stake holders voted to make whole 99% of wallets (option2), which resulted in the remaining 1% wallets taking massive losses from hundreds of thousands to millions of dollars. Among the affected wallets, a group of mid-size low leverage users were especially outraged and felt that their funds are being taken away in an unjustified manner: Use PERP to provide max(op2, op4) to Perp v1 users) They have been actively spreading the injustice and their negative experience as well as filing for law suits that could further damage the credibility and the user confidence of PERP.

In the v1 documentation, it’s mentioned that PERP will be sold to compensate affected users during exchange shortfall.


Source

However, the PERP price is already too low at below $1/share at the time of this writing, and selling PERP to compensate at such a low price would result in a significant dilution. But if Perp doesn’t compensate the affected users, it will be perceived as they are not honoring their own documentation, and thus risk losing even more credibility and user confidence. This puts PERP holders in a very difficult spot. As Hana recently stated “The lifeblood of a DeFi project is its users and community.” Proposal: Community DAO Without users confidence, there will be no future for PERP.

Proposed Solution:

Herein, we propose a solution to this dilemma via a long-term PERP Buyback Plan that benefits both the PERP holders and the affected v1 users (credit to LeeKB):

The plan will use a portion (17.5%~25%) of the monthly treasury fee income to buy back PERP tokens (with a minimum locking period of 6 months) regularly over many years to fulfill its promise in the documentation to compensate the affected users with PERP.

The PERP price will receive a monthly price boost as a result of the buy back. The affected users who care enough to stake any amount of PERP in the new vePERP staking system will receive vePERP from the buyback each month with a locking period of at least 6 months as the compensation. Users who do not bother to lock any PERP to claim the compensation is basically taking PERP off the market and giving free money to the PERP holders. The locking period for the affected users can be longer than 6 months if the affected users choose to, so that they can earn more rewards from the staking system…

The source of the fund used to buy back PERP is coming from the treasury fee income, which is the portion of the trading fee income that got overflown into the treasury, and it’s only a tiny fraction (<2.5%) of the total trading fee income under the current fee structure. Thus this will NOT affect the LPs/insurance fund/stake rewards. Please refer to Proposal: Fee Distribution for the detail fee structure.

Benefits:

  • Regular monthly price boost to PERP.
  • Unclaimed PERP will be burnt to further boost PERP price
  • This tells the rest of the crypto community that Perpetual Protocol is indeed honoring its documentation to compensate affected users with PERP.
  • Adding tremendous credibility to the Perpetual Protocol platform.
  • Align interest of the affected users with PERP holders, so they can spread positive news rather than negatives.
  • Reinvigorate user confidence to both the Perpetual Protocol as well as the Crypto community as a whole.
  • The return of users confidence will likely result in further price increase of PERP.
  • The PERP price increase will likely prompt prospective investors on the side line to put more money to buy PERP (i.e. BULL run!)

Edit: Added Option C regarding the full compensation, as suggested by some community members. The full compensation amount is calculated by 6.987*op1 of the affected users - op2 of what they have already received. The ratio of 6.987 is from dividing op2 by op1 for users who were fully compensated. (They all have this constant ratio of 6.987 for op2/op1). Thus 6.987 * op1 is a quick way to calculate the full amount for the affected users.

Proposals:

Option A: Use 17.5% monthly treasury fee income to buy back PERP over the years to cover all op4>op2 users, for their op4-op2 amount.($3.59M), pro rata to compensation amount.

Option B: Use 25% monthly treasury fee income to buy back PERP over the years to cover all remaining users who did not benefit from op2, for the amount of (MAX(all options) - op2). ($5.2M) , pro rata to compensation amount.

Option C: Use 40% monthly treasury fee income to buy back PERP over the years to cover all remaining users with 100% full compensation. ($34.08M). Use even distribution among the affected addresses so that small size users get paid off faster in accordance to the spirit of op2.

Option D: Do not compensate.

The amount of buybacks/compensations are calculated below:


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Detailed Distribution Plan:
If Option A~C passes, the following plan will be executed step-by-step:

Step 1. The affected users will have to first stake any amount of PERP (can be 0 PERP) in the new vePERP system and choose a lock period of at least 6 months in order to be eligible to receive vePERP compensation.

Step 2. In the beginning of each month, certain % (determined by the winning option) of the USDC from the monthly treasury fee income will be used to buy back PERP token at market price at the time.

Step 3. Distribute the PERP to the eligible affected users’ accounts using the _deposit_for function according to the distribution method described by the vote option that passed. Users who are not eligible to receive compensation at the time of the distribution will be considered forfeiting that month’s PERP payout. The amount owed to them in USDC will still get lowered for that month regardless whether they are eligible to receive the PERP or not at the time.

Step 4. The unclaimed PERP will be either burned to a dead wallet with no private key or being redistribute to the eligible affected users to speed up their pay offs.

Step 5. Repeat step 2-4 until the USDC amount owed to the users reduces to 0 or less. If certain affected users were paid off earlier, they will be taken off the compensation list so the next round of pay off will be focused on the remaining affected users.

Note: At the end of the locking period, the affected users will have to re-lock any amount of PERP into vePERP for at least another 6 months in order to be eligible to continue receive the monthly distribution. The affected users are responsible in picking the right locking periods with some buffer to avoid the locking period ends on the same week as the vePERP distribution to avoid not being able to receive the compensation

Summary:

All in all, this is a win-win solution to both PERP holders and the affected v1 users, and it could have a far reaching implication for the entire Crypto community on its path to regain user confidence and reignite the excitement of DeFi!

Update:
The vote is currently in progress. Please cast your vote and do what is right! Snapshot

26 Likes

Good idea of using small % of trading fees to compensate over a long time, so that the PERP holders won’t get diluted.

8 Likes

It’s unfortunate that last time the PERP price was tanking so PERP compensation was not a good idea. Let’s do the right thing this time to compensate the impacted the users and get the bull run juices flowing! PERP to the moon!

1 Like

Option C should be 40% treasury income.

Treasury income will increase when Perp gains success.

Taking away almost all of treasury income is too aggressive.

1 Like

Thank you for your input. As proposed by some community members, if we change the distribution method to spread evenly across the addresses to ensure the smaller size users get paid off faster, 40% of treasury income can still work out. Having smaller size users reimbursed first is consistent with the original intent of option 2, so I also support that idea. I updated the proposal to reflect that idea.

3 Likes

I appreciate and support any community initiative, so thanks for posting. I recommend making a few changes that I think will help make this more convincing and easier to sell to PERP holders.

First, I would reference the original gov post so people know what the options you are mentioning are.

Second, “treasury income” is not clear–I would call this treasury fee income. Also, “small fraction (1.75%~2.5%) of the trading fee income” may not correspond to “17.5% treasury income” etc. Treasury fee income is received as overflow from the insurance fund, so it could be as much as 10% of fees (the other 10% goes to PERP stakers), or it could be zero. The overflow threshold is related to how much open interest is on the protocol, so if OI is growing fast, overflow could be 0. So it would probably be easier to say, a certain % of treasury fee income, or % of monthly treasury fee income. You can also refer to this post Proposal: Fee Distribution

This is a misleading statement.

Option 4 applied the theory of how an AMM works, but the outcome of Option 4 is virtually impossible in practice since it required each trader to unwind exactly 1% and to do so in strict sequence of small to large.

“the team decided to have a vote instead” this is entirely false: Option 4 was part of the vote itself, and a vote was and is the standard practice and method by which all major decisions are made, assuming they are not either a critical emergency or involving possible use of asymmetric information for financial gain.

Option D: Do nothing and suffer reputation damage and legal consequences that serve as a hindrance to the full 20X recovery of PERP’s price.

I suggest simply saying “Do nothing”. Adding the stuff at the end is sensationalist and speculative.

4 Likes

Thank you LeeKB for your input and support. Yes, we’re only asking a fraction of that 10% max fee. The 1.75~2.5% of the total trading fee income is the maximum that we would get. Sometimes it would be 0% as you said if there’s no overflow. It’s important to put in that perspective so that the PERP holders know how really little we’re asking. Will update the terminology based on your inputs.

Option 4 is the closest to vAMM as you can get compared to the other 3 options. Even Yenwen agrees it’s the most fair:
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I will just add a reference to the MAX(op2, op4) proposal so that the voters have access to all the debates that have already gone through on this topic already.

Simply saying “Do nothing” understates the consequence of choosing that option. There’re real reputation damage to PERP as a result, and there’re real legal activities going on behind the scene. It’s a fact that affected users have expressed in discord they will spread their negative experience to “every corner of the world” and “as many people as possible”.
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There’re more of these in other social media platforms, but I wouldn’t list here one by one.

Those emotions are real and it’s an indication of the degree that they are being wronged. It’s unlikely for someone to lose their money simply because of “risk” or “bad luck” to have such strong emotion. The fact that their money are effectively being taken to compensate big whale positions and making small users whole is the part that is the most unfair of all:

If the team is really sincere in compensating the small users as in op2, why won’t they use their own fund to do so instead? They can do option 4 style unwinding, then add in additional fund to make small users whole. The amount to make the bottom 99% whole is only $0.73M (sum of op2-op4 for the bottom 99%) compared to the $3.59M that we are now requesting. Why is there such a large discrepancy? Because under op2, $2.86M (sum of op2-op4 for top accounts) went to the big whale accounts that should’ve been liquidated! $0.73M+$2.86M=$3.59M exactly! That’s the amount of money that came from our mid-size users’ wallets IN ADDITION to the price slippage that we already suffered. Why do our mid-size users have to cover for the big whales AND make small users whole, while we are just groups of small family/friends users who bunched up anyway? I really hope at this point you can see why the affected users are so emotionally unstable, because this is so outrageous!

Anyway, I do want to respect that the vote options to be neutral, so I will use “Do not compensate.”, but I will keep my comments here so that the voters are fully aware of what they are choosing for.

11 Likes

I’m a small users in v1 who got compensated fully, and I support this vote. However, is it just me to think that the option C’s amount is quite large? But if the fund is coming from the treasury and thus not affecting the stakers or the LP/insurance fund, then I guess I’m not opposed to it.

Just an honest question though, how is the Perp team earning their salaries? Is the treasury income a main source of their income? or is the treasury just some sort of reserve? @LeeKB

1 Like

No, these are community funds. The core team is funded by investor funds and LPB funds, all from 2020. You can ask more in Discord, since it’s OT here :wink:

Thanks for clarifying. In this case, I guess the percentage is reasonable.

1 Like

Yes, we will need some positive news for PERP, If this can help clear the dark cloud surrounding PERP lately (and De-fi in general), it’ll be a pretty noble cause for such a low cost using fund that doesn’t impact the Perp holders.

1 Like

Currently this proposal appears to be to distribute funds directly to the v1 PERP users, which I think is okay. Although I know other possible distribution methods have been discussed, e.g. mint a new token that receives treasury fee income, put it in a uniswap v3 pool. But I haven’t heard any concrete ideas yet and especially any ideas that don’t require dev resources.

This proposal currently has the positive features of being simple and not requiring dev resources.

1 Like

I believe LeeKB proposed a very good idea on Discord of using the new vePERP stake system as the distribution method. This way nonchalant users who don’t care about getting compensated simply just don’t claim, all that money will add to PERP as a whole to benefit all perp holders. Essentially the perp holders get a steady price pump each month (and part of that pump is free money if the users do not bother to claim). This aligns the affected v1 users together with the interests of Perp holders very well towards the future success of PERP. A true win-win solution! @LeeKB you should propose your idea here so I don’t steal your thunder.

5 Likes

I’m not interested in any credit, just finding a solution that everyone can live with.

There is a pencil icon next to the title that will let you change it if you want to, however the new idea is very different so if we change the title and content of the OP, the comments below will not make sense anymore. So it might be better to create a new proposal?

1 Like

Thanks @LeeKB. I’m able to change the title now. I incorporated your idea while maintaining the background story/main idea of using the treasury fee income. So I believe we don’t need to distract everyone by using a separate proposal as the core idea is still the same. I also added the “detail distribution plan” section so that all the details can be flush out.

2 Likes

Great idea! I’m glad the community are coming together to form such an innovative idea. This is as good of an idea as it can get. If this doesn’t pass, I don’t know what else will. Strongly in support of this!

5 Likes

Finally there’s actually a win-win proposal on the table that benefits the PERP holders quite significantly.

2 Likes

wow it’ll take >10years to fully compensate affected users.

1 Like

If Perp becomes successful and trading volume double or triple, it should be paid off much quicker.

1 Like

Yes, this aligns the affected users well with the Perp stake holders, if the users wanted to have their loss compensated sooner, they should spread the good news instead of negatives, and even be part of the active community to make Perp a better platform.

2 Likes