Been thinking about this for a few months and just can’t get past the thought that this is the best way to ensure success, especially early on.
The protocol is based around POL. You generate POL based on the price of the token so you want the token price as high as possible at all times to maximise POL. What makes the token attractive to buy and lock? The yield. But currently the yield generated from lending is going to be both small while POL is low early on, and not guaranteed as it relies on lend/borrow fees. This seems to make the token high risk/low reward, potentially sending it quickly into a death spiral if it gets dumped so low that you can no longer incentivise lenders. This can possibly be fixed using the protocols key flagship feature....oTKN. If you provide a minimum target locker yield by boosting it with oTKN (exactly like is being done on the lending side) you then have yield certainty for lockers and a much higher more attractive apy. The token is hugely more attractive.
A minimum target yield on the token locks via adding oTKN emissions to lockers also reduces sell pressure from the oTKN emissions on the lending side as it'll be much more worthwhile locking those tokens to generate even more tokens Vs just dumping them due to the low yield that locking the token would give them. You may get a bit more sell pressure from the token locking side but that's offset by less selling from the lenders dumping on token holders heads and the huge additional buying due to the higher apy the token lockers will get and the additional buyers this will likely bring in. Lockers still get whatever USDO the fees generate so can potentially extract that to pay themselves a yield while locking up the oTKN portion of their weekly yield to earn more yield.
More attractive token = higher price
Higher price = less oTKN emissions for lending, reducing potential sell pressure from lenders
Higher price also = more POL per oTKN emission, maximising the value the protocol gets from the token treasury as it is being sold off at a higher price
Higher POL = more fees = less oTKN emission to token lockers because a bigger portion of the minimum yield will come from fees, and less from oTKN
Higher POL also means the token itself is inherently worth more due to the increased POL backing it
The argument I have seen before is that it is bad to give out yield using your own token. That is true, for an unlimited supply ponzi token that is simply giving out free money and inflating it to zero. This is NOT the same because you aren't giving out free money you are generating POL from it (both at a faster rate than before, AND at a better price per token), and as a result of the POL and token price going up (since the token is now much more attractive and valuable) your emissions to lenders will actually go DOWN. And of course during all this, the fee generated from all that POL results in higher apy for lockers and that also reduces the emissions from needing less oTKN to hit the minimum target apy.
It also solves the issue where as the token price goes up, the yield for locking it in terms of apy is going to go down, for example if the yield was 10% based on a token price of $1 and the token then goes to $2, the yield is suddenly only 5%, which greatly limits growth potential because it takes time for the POL to be generated to bring in more fees to get that APY back up again, during this time people likely dump due to the low APY, taking the token price back down, reducing the amount of POL being generated. Yes that kinda creates a price floor because as the token drops the APY goes back up, but the entire point is to maximise POL generation, so you dont want the token dropping! This way the yield remains high even as the token price goes up because you aren't just handing out USD from fees, you are supplementing it with oTKN who's value per oTKN has obviously gone up just as much as the token, so the yield remains attractive even as the price goes up, removing any limits on growth that the purely USD, fee based rewards have. It enables rapid exponential growth all round.
It especially solves the problem of low yield for lockers early on and helps get things flying right from the start. Yes I know there is some oTKN left over from the first LBP which will be distributed over the first 4 weeks, but that doesn’t achieve the same thing as this proposal, it doesn’t provide a minimum target APY, it’s a relatively small amount of oTKN, it’s temporary and it’s not being adjusted lower as the fees generated by the POL start to grow or higher to take full advantage of POL generation during any alt season that may come. So the previous LBP oTKNs are just a small bonus for old holders and don’t affect the points of this proposal.
It should be relatively quick and easy to implement as most of the code is already there for giving a minimum target yield to the lenders, it just needs applying to the lockers too, with the emission adjusted weekly to account for whatever % was generated from fees (i.e. higher fees = lower oTKN emission that week and vice versa to maintain a minimum target APY).
And with that kinda control over the APY you could do periodic boosts for promotional events etc e.g. "to celebrate xyz the locking apy will be boosted for the month of April by an extra 10%". All the while you are generating more POL from the oTKN, which in itself is obviously also adding more value to the token.
At the moment I can see a huge risk that when people see the apy for the first few weeks of locking, it'll be very low and result in a mass dump which kills the protocol before it's even begun. Yes that dump will increase the APY, the problem is the dump also means you generate much less POL per token AND your emissions have to go up to maintain the target APY for lenders, resulting in a potential death spiral of higher emissions that get dumped, adding more sell pressure. This adjustment to add a minimum target APY for lockers by using oTKN prevents that possibility because lockers will be guaranteed to get a good apy and will know what to expect in advance so it is de-risking people locking their tokens, which will futher attract new buyers. And if the yield from fees does happen to be high... You simply have lower oTKN emissions and higher USDO for the same apy.
This also allows the project to take full advantage of any alt season by ramping up the APY when the market is mooning (i.e. higher oTKN emissions), extracting the maximum amount of POL from the market at the highest prices as quickly as possible before a bear market hits, and giving extra fuel to the buying frenzy that alt season brings.
In my simple mind it seems like a win-win-win-win-win scenario with very little potential downside (worst case scenario, you just turn the oTKN emissions to lockers back off if needed) and it greatly removes some of the biggest risks to getting things moving early on.
Been thinking about this for a few months and just can’t get past the thought that this is the best way to ensure success, especially early on.
The protocol is based around POL. You generate POL based on the price of the token so you want the token price as high as possible at all times to maximise POL. What makes the token attractive to buy and lock? The yield. But currently the yield generated from lending is going to be both small while POL is low early on, and not guaranteed as it relies on lend/borrow fees. This seems to make the token high risk/low reward, potentially sending it quickly into a death spiral if it gets dumped so low that you can no longer incentivise lenders. This can possibly be fixed using the protocols key flagship feature....oTKN. If you provide a minimum target locker yield by boosting it with oTKN (exactly like is being done on the lending side) you then have yield certainty for lockers and a much higher more attractive apy. The token is hugely more attractive.
A minimum target yield on the token locks via adding oTKN emissions to lockers also reduces sell pressure from the oTKN emissions on the lending side as it'll be much more worthwhile locking those tokens to generate even more tokens Vs just dumping them due to the low yield that locking the token would give them. You may get a bit more sell pressure from the token locking side but that's offset by less selling from the lenders dumping on token holders heads and the huge additional buying due to the higher apy the token lockers will get and the additional buyers this will likely bring in. Lockers still get whatever USDO the fees generate so can potentially extract that to pay themselves a yield while locking up the oTKN portion of their weekly yield to earn more yield.
More attractive token = higher price
Higher price = less oTKN emissions for lending, reducing potential sell pressure from lenders
Higher price also = more POL per oTKN emission, maximising the value the protocol gets from the token treasury as it is being sold off at a higher price
Higher POL = more fees = less oTKN emission to token lockers because a bigger portion of the minimum yield will come from fees, and less from oTKN
Higher POL also means the token itself is inherently worth more due to the increased POL backing it
The argument I have seen before is that it is bad to give out yield using your own token. That is true, for an unlimited supply ponzi token that is simply giving out free money and inflating it to zero. This is NOT the same because you aren't giving out free money you are generating POL from it (both at a faster rate than before, AND at a better price per token), and as a result of the POL and token price going up (since the token is now much more attractive and valuable) your emissions to lenders will actually go DOWN. And of course during all this, the fee generated from all that POL results in higher apy for lockers and that also reduces the emissions from needing less oTKN to hit the minimum target apy.
It also solves the issue where as the token price goes up, the yield for locking it in terms of apy is going to go down, for example if the yield was 10% based on a token price of $1 and the token then goes to $2, the yield is suddenly only 5%, which greatly limits growth potential because it takes time for the POL to be generated to bring in more fees to get that APY back up again, during this time people likely dump due to the low APY, taking the token price back down, reducing the amount of POL being generated. Yes that kinda creates a price floor because as the token drops the APY goes back up, but the entire point is to maximise POL generation, so you dont want the token dropping! This way the yield remains high even as the token price goes up because you aren't just handing out USD from fees, you are supplementing it with oTKN who's value per oTKN has obviously gone up just as much as the token, so the yield remains attractive even as the price goes up, removing any limits on growth that the purely USD, fee based rewards have. It enables rapid exponential growth all round.
It especially solves the problem of low yield for lockers early on and helps get things flying right from the start. Yes I know there is some oTKN left over from the first LBP which will be distributed over the first 4 weeks, but that doesn’t achieve the same thing as this proposal, it doesn’t provide a minimum target APY, it’s a relatively small amount of oTKN, it’s temporary and it’s not being adjusted lower as the fees generated by the POL start to grow or higher to take full advantage of POL generation during any alt season that may come. So the previous LBP oTKNs are just a small bonus for old holders and don’t affect the points of this proposal.
It should be relatively quick and easy to implement as most of the code is already there for giving a minimum target yield to the lenders, it just needs applying to the lockers too, with the emission adjusted weekly to account for whatever % was generated from fees (i.e. higher fees = lower oTKN emission that week and vice versa to maintain a minimum target APY).
And with that kinda control over the APY you could do periodic boosts for promotional events etc e.g. "to celebrate xyz the locking apy will be boosted for the month of April by an extra 10%". All the while you are generating more POL from the oTKN, which in itself is obviously also adding more value to the token.
At the moment I can see a huge risk that when people see the apy for the first few weeks of locking, it'll be very low and result in a mass dump which kills the protocol before it's even begun. Yes that dump will increase the APY, the problem is the dump also means you generate much less POL per token AND your emissions have to go up to maintain the target APY for lenders, resulting in a potential death spiral of higher emissions that get dumped, adding more sell pressure. This adjustment to add a minimum target APY for lockers by using oTKN prevents that possibility because lockers will be guaranteed to get a good apy and will know what to expect in advance so it is de-risking people locking their tokens, which will futher attract new buyers. And if the yield from fees does happen to be high... You simply have lower oTKN emissions and higher USDO for the same apy.
This also allows the project to take full advantage of any alt season by ramping up the APY when the market is mooning (i.e. higher oTKN emissions), extracting the maximum amount of POL from the market at the highest prices as quickly as possible before a bear market hits, and giving extra fuel to the buying frenzy that alt season brings.
In my simple mind it seems like a win-win-win-win-win scenario with very little potential downside (worst case scenario, you just turn the oTKN emissions to lockers back off if needed) and it greatly removes some of the biggest risks to getting things moving early on.
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