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0/ While yield farming’s core intent is to foster the growth of a community, a lot of the liq. mining programs we’ve seen in action have led to the opposite.
In my recent Delphi Daily, I share my thoughts on whether or not vested rewards can fix this. https://www.delphidigital.io/reports/do-vested-rewards-work/
In my recent Delphi Daily, I share my thoughts on whether or not vested rewards can fix this. https://www.delphidigital.io/reports/do-vested-rewards-work/
1/ Significant inflation without vesting hasn’t worked great so far.
Take a look at @CurveFinance which currently has insane inflation (~2M $CRV released per day), and no vesting which leads to dumping. Not to mention, @yearnfinance vaults farm and dump it immediately for $YFI.
Take a look at @CurveFinance which currently has insane inflation (~2M $CRV released per day), and no vesting which leads to dumping. Not to mention, @yearnfinance vaults farm and dump it immediately for $YFI.
2/ This has led to a pretty interesting situation where Curve’s product is pretty well regarded within the community right now...but everyone is staying far away from its native token $CRV.
Curve’s volume is up ~10x in the past 90 days. Meanwhile, $CRV is down ~90%.
Curve’s volume is up ~10x in the past 90 days. Meanwhile, $CRV is down ~90%.
3/ Fortunately, fast experimentation in this space allows projects to learn and benefit from the mistakes of others.
Since Curve’s launch, there have been dozens of new projects who have tweaked aspects of their liq. mining programs.
Pay attention to the trend below.
Since Curve’s launch, there have been dozens of new projects who have tweaked aspects of their liq. mining programs.
Pay attention to the trend below.
4/ 60% of $DODO ’s total supply was reserved for incentive programs (for both LPs + traders). Both rewards came with a lock up for 14 days, after which they vested linearly over the next 6 months.
Despite the lock up, @BreederDodo got ~$100M of liquidity from 3K+ wallets.
Despite the lock up, @BreederDodo got ~$100M of liquidity from 3K+ wallets.
5/ @powerpoolcvp originally had 15% of total $CVP supply unlocking near-term w/ 85% set to be released soon after from liq. mining.
Our team published a proposal where the 5% of total supply currently circulating will only rise by an additional 7-12% in the next 12M via vesting.
Our team published a proposal where the 5% of total supply currently circulating will only rise by an additional 7-12% in the next 12M via vesting.
6/ Despite the holders whose tokens are now locked up voting, the proposal passed with overwhelming support (95% of votes approved). https://twitter.com/powerpoolcvp/status/1312890074393083904?s=20
7/ Yet another example: $HEGIC announced liquidity rewards (which were supposed to be vested) wouldn’t be vested at all.
Almost immediately, the community started complaining and $HEGIC started dumping. Just a few hours later, HEGIC announced they’d be returning to a lock-up.
Almost immediately, the community started complaining and $HEGIC started dumping. Just a few hours later, HEGIC announced they’d be returning to a lock-up.
8/ It’s clear that vesting rewards are something projects and communities believe is an answer to the issues of incentivizing opportunistic farming.
That being said, vesting rewards have not been embraced as a viable solution by all in the space. https://twitter.com/teo_leibowitz/status/1315763819898118145?s=20
That being said, vesting rewards have not been embraced as a viable solution by all in the space. https://twitter.com/teo_leibowitz/status/1315763819898118145?s=20
9/ Friends with both @zhusu @hosseeb and I really enjoy chatting with them about the space, but I disagree with their stance on vested rewards.
I feel as if they don't fairly account for the benefits vested rewards can bring to a new protocol. https://twitter.com/hosseeb/status/1309595729350991872?s=20
I feel as if they don't fairly account for the benefits vested rewards can bring to a new protocol. https://twitter.com/hosseeb/status/1309595729350991872?s=20
10/ A brief vesting period allows the project to gain traction and start executing on the vision it’s trying to convey to its token holders.
@synthetix_io , a pioneer in successful yield farming, is a great case study to look at here.
@synthetix_io , a pioneer in successful yield farming, is a great case study to look at here.
11/ Starting in March 2019, users could stake $SNX to mint synths and in return received 1 year escrowed SNX every week.
As someone who was a strong believer of Synthetix early on, their escrow has kept me coming back to Mintr more than a year after I started using it.
As someone who was a strong believer of Synthetix early on, their escrow has kept me coming back to Mintr more than a year after I started using it.
12/ This has resulted in me interacting with the SNX community more and more.
In addition to this, seeing all the updates and features the @kaiynne + the team were consistently adding helped strengthen my belief in their ability to execute.
In addition to this, seeing all the updates and features the @kaiynne + the team were consistently adding helped strengthen my belief in their ability to execute.
13/ Vesting rewards does more than just help a community form though.
By not creating a large supply glut on the market from incentives, the token can be in a good position to appreciate in price if the product continues to progress.
This has follow-on effects.
By not creating a large supply glut on the market from incentives, the token can be in a good position to appreciate in price if the product continues to progress.
This has follow-on effects.
14/ This price appreciation does more than just increase brand awareness for the project, it actually increases the APY your supporters and long-term farmers are earning.
It also potentially provides your project and its treasury with more ammo for future initiatives!
It also potentially provides your project and its treasury with more ammo for future initiatives!
15/ So while I can see their point of vested rewards “increasing the cost of capital for the protocol” when whales hedge, I don’t think it accounts for the benefits vested rewards can actually bring.
16/ Regardless, I don't think vesting rewards alone are the be-all and end-all solution for proper incentive alignment in liquidity mining.
There have to be some tweaks made. I share some more ideas within the post, but here are a few quick ones:
There have to be some tweaks made. I share some more ideas within the post, but here are a few quick ones:
17/ For example, projects could have rewards that compound the longer you leave them in.
Or a monthly interest rate multiplier that resets if liquidity is removed or rewards are harvested (most likely to sell).
Or a monthly interest rate multiplier that resets if liquidity is removed or rewards are harvested (most likely to sell).
18/ For a recent proposal our team put together for @AragonProject + $ANJ community, we suggest rewards be charged a gradually declining withdrawal fee.
This fee would go back to the reward pool, enabling rewards to be constantly redistributed from short-term stakeholders to LT.
This fee would go back to the reward pool, enabling rewards to be constantly redistributed from short-term stakeholders to LT.
19/ A more complex version could introduce some level of identity/reputation mapping to addresses participating in these programs.
Linking reputation to yield becomes a lot sticker because reputation can’t be transferred and can only be earned through that specific project.
Linking reputation to yield becomes a lot sticker because reputation can’t be transferred and can only be earned through that specific project.
20/ The design space for these programs should and will keep evolving, and I can't wait to see how it plays out.
At the end of the day though, these incentives aren't the solution to every problem.
At the end of the day though, these incentives aren't the solution to every problem.
21/ Teams should leverage these programs as a valuable tool, but there still needs to be a useful product to win people over.
A product they would use with or without those rewards in the long term.
Check out my full post for more ideas and examples: https://www.delphidigital.io/reports/do-vested-rewards-work/
A product they would use with or without those rewards in the long term.
Check out my full post for more ideas and examples: https://www.delphidigital.io/reports/do-vested-rewards-work/
