With the launch of V2 and major milestones such as multi-collateral on track the team has been thinking a lot about creating an engine for hyper-growth. We’ve been experimenting with a number of programs such as liquidity mining, liquidity acquisition, referral program, grants program and many others and have learnt a lot about what works and what doesn’t work.
Most of these programs are dependent on token emissions and as such we are proposing tokenomics to assist in ensuring supply lockup and not to negatively impact the price (and thus avoiding a downward spiral).
There’s a lot in this proposal so at a high level we are proposing the following items:
- Implement a vote-escrow model, or vePERP
- Update the growth level programs to work in tandem with vePERP. These programs are liquidity mining (incentivise LPs) and liquidity acquisition (borrow stables)
- Implement governance controls for fee distributions in Perp V2
- Implement new governance process in line with industry standards
At a high level we want to implement the vote escrow model popularised by Curve - or vePERP. At a high level we propose the following:
- Maximum 1 year lockup
- 1 years worth of fixed emissions
We have opted for 1 year lockup as it allows us to re-evaluate our options and modify the program if necessary to align to goals and to learn what works and what doesn’t. Assuming the program is successful, we aim to continue it after this 1 year period.
To start with we would propose updates to the liquidity mining program as well as introducing a new program:
- Liquidity Mining: we would update the existing liquidity mining program. The goal of this program is to incentivise people to market make on Perp.
- Liquidity Acquisition: the main goal of this program is to acquire stable-coins and other collateral that the market making entity can then utilise to inject more liquidity into Perp v2.
Currently the liquidity mining program pays market makers with PERP. Based on discussions with other stablecoin providers and partners, there is an interest in creating a mechanism where DAOs are able to incentivise and create demand for their token as collateral.
We propose at a high level to allow for the following:
- vePERP holders are able to vote on the gauge that distributes PERP to each vault
- DAOs then swap their reward token (could be a stablecoin or the native governance token) for PERP
- These reward tokens are distributed to market makers who use the collateral specified (e.g. TFL would incentivise market makers who use UST only)
- Finally, DAOs would take the PERP and lock it into vePERP to get more rewards redirected to their vault
A diagram below outlines it at a high level:
An interesting point here is that this is not simply limited to stablecoins. This could apply to other types of collateral such as stETH or even LP tokens (e.g. Curve, Saddle)
Similar to the existing liquidity mining module we’d propose that each market will have a percentage of the total rewards allocated to it and be proportional to the volume facilitated on a weekly basis.
As a simple example, if there were 1000 PERP rewards, we may allocate 10% to say the BTC market which would be 100 PERP. If a market maker facilitated say 1,000 USD in the week and the total volume facilitated was 10,000 USD for that week, then they would receive 10% of the 100 PERP, or 10 PERP.
We propose that the allocation of the percentages stays with the foundation team for the time being to allow us to be nimble in how we incentivise markets. We’d propose in a later stage to aim to decentralise this distribution.
As outlined in the proposal for the creation of a market making entity (Proposal: Market Making Entity), the entity aims to borrow stablecoins in order to market make on Perp with the goal of creating very deep liquidity. This program outlines the mechanism to do so. It is similar to the liquidity mining program but with some key differences:
- vePERP holders are able to vote on the gauge that distributes PERP to each vault.
- Lenders lend collateral to each vault. This collateral will be locked up for a period of time.
- Lenders are paid in PERP depending on the gauge. They can then lock up this PERP to redirect more rewards.
- The market making entity receives this collateral and starts market making on Perp V2. At the end of the duration they repay the loan.
A high level diagram illustrates the flow below
Additionally, we’d propose implementing the Curve formula in order to boost the yields to lenders which is the following:
To support the two programs outlined above we propose to have a fixed weekly inflation schedule that goes over a 1 year period
Note that the blue line (left axis) is the weekly distribution whilst the red (right axis) is the cumulative PERP distributed. We have scaled up the weekly distribution in line with some assumptions around launching new markets.
We propose to start with the foundation team controlling the following parameters:
- The breakdown of emissions going into the liquidity acquisition and liquidity mining programs
- The breakdown of percentages of rewards going into liquidity mining incentives (e.g. we may want to incentivise an alt market for more liquidity vs a BTC market)
The initial controls will allow the foundation team to continue its practice of experimentation and adapting to changing situations quickly. The ultimate goal is to quickly react and optimise the liquidity spend.
We are open to feedback but there are 2 potential paths in the future we could take to decentralise this component:
- Similar to the formation of the GrantsDAO and token listing committee, these controls will be handed over to a sub DAO, with members being elected by token holders
- Implement a gauge mechanism that allows token holders to vote
We propose creating a set of parameters that are controlled by governance with regards to fee distribution:
- LP Fee Percentage: the percentage of fees that go to LPs
- Insurance Fund Percentage: the percentage of fees that flow to the insurance fund. After the insurance fund threshold is hit, then funds will flow to the treasury. This number is simply 1 - LP Fee Percentage
- Insurance Fund Threshold: a USDC dollar value that once is hit, funds will stop flowing into the insurance fund and will then flow into treasury
- vePERP Distribution Percentage: once the insurance fund threshold is hit, this is the percentage that is sent to vePERP holders
For illustration purposes the two scenarios are below
In scenario 1, the balance in the Insurance Fund is less than the Insurance Fund Threshold, and as such fees are only distributed between the insurance fund and the market maker. This distribution to the market maker is the LP Fee Percentage and conversely the Insurance Fund receives the Insurance Fund Percentage.
In scenario 2, the balance in the Insurance Fund is greater than the Insurance Fund Threshold. Fees are now distributed 3 ways - to the market maker, the DAO treasury and the vePERP holder. The DAO treasury and vePERP holder receives the Insurance Fund Percentage distribution and this is split according to the vePERP distribution percentage.
Note that DAO treasury and how it is utilised is up to tokenholders
The rationale for implementing the above is to allow for as much flexibility as possible by governance to react to different scenarios.
All governance will be handled by PERP and vePERP holders. In line with industry standards we propose the following methodology:
- Take the total amount of voting power, which is the sum of circulating PERP and vePERP
- Introduce a minimum quorum requirement of 10% of the total voting power calculated in (1)
Additionally, for a proposal to be valid we propose the following updates to the process:
- Proposals must be posted in the governance forums with a comment period of a minimum of 7 days
- Proposals can then be created in Snapshot. These votes must have a minimum of 7 days in duration before being passed. The minimum quorum must be met in order for the proposal to pass
For an explicit example:
- If there is 1M circulating PERP and 9M vePERP, then the quorum of 10% is 1M votes required. These votes can be in any combination of PERP and vePERP