Paladin Tokenomics

General Research
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We’re proposing a 3 tiered PAL structure built around Holy PAL (hPAL) that will enable long term incentive alignment between Paladin stakeholders, protocol growth, PAL utility and wider ecosystem impact in governance.

Goals :

  1. Align different stakeholders to Paladin ;
  2. Create a financial engine for governance ;
  3. Enable positive feedback loops between speculation and protocol usage
  4. Have a system flexible enough to adapt to the next stealth projects

Context :

Paladin has been live for five months and has pushed the bounds on what’s possible without any token incentives or mercenary capital. Governance has now decided to enable transferability, but releasing a token for the sake of having a priced asset is meaningless in the long run. The core team has designed a tokenomics architecture that will incentivize holders to align with the protocol.

Paladin’s mission is to democratize activism. To do so, the protocol needs to become a bridge from the speculative economy to the participatory economy. The following tokenomics are a draft in that direction.

Architecture :

PAL will be available under 3 tiers granting different levels of rewards depending on the degree of alignment.

  • Tier 1 - PAL (Speculative layer)
    This is the token as is and it will have no voting rights or privileges, it will be used to provide liquidity.

  • Tier 2 - hPAL (Contributor layer)
    This is a staked token confering 1:1 voting power.
    Token Holders are free to unstake at any time, however there will be a 10 day cooldown period.
    Initially a small inflation of 2.5% will be dedicated to hPALs

  • Tier 3 - locked hPAL (Aligned Contributor Layer)
    Locking hPAL (6 months to 2 years) will give access to extended voting power (up to 1.5x), The Chest (if lock is over a year), a higher inflation bonus (up to 15% when locked 2 years) and the fee switch.

What is The Chest ?

Governance is a resource intensive activity that takes energy, time and money. Paladin products simplify the time and energy it takes to take meaningful action. The Chest captures this philosophy to its purest form. It was designed as the ultimate weapon for protocol politicians.

We see the Chest having two effects : the first is creating more opportunities for governance users by lowering barriers to Paladin tools. Holders of hPAL will be to redirect their share of the Chest to governance loans on Paladin, boost purchases on Warden, [CENSORED] and [CENSORED]. As long as you intend to keep participating in governance, locking PAL to have a controlling stake in the Chest will enable you to access more influence in DeFi. This way we hope that Paladin will solidify and offer a new kind of resource for governance: influence.

All of this leads to the second possibility, the Chest and Paladin toolsuite becoming a baseplate for future governance integrations and developments.

While we want to see many tokenholders be active in the governance game we recognize the reality that many holders just want exposure to a growing ecosystem. With this in mind we want to enable a market for chest rights that’ll give holders the opportunity to generate revenue. This would also include revenue potential from PAL vote lending.

Protocol fees will initially be accumulated to the treasury to optimize revenue and then be split evenly with the Chest once its live. Afterwards, the distribution of protocol fees will be controlled by hPAL lockers (Chest / Treasury / Lockers).

Sustainability :

  • At launch (just after the LBP), PAL will have both staking and locking live, as well the inflation incentives and the boosted voting power.
  • Incentives are currently estimated to last 2 years with a 300,000 PAL budget.
  • In a few months (pending audits) The Chest will be activated and activists will be able to contend for the accumulated protocol fees.
  • LM will be automated and a boost system controlled by hPAL users will be introduced by Q4 2022.

Next Steps :

  • Community feedback on Research Post
  • Technical implementation of Staking + Locking mechanism
  • Vote on implementation of Paladin Tokenomics
  • Activation of the Chest (Q2/Q3-2022)

Please give your input as this implementation is going to be one of the most impactful on the future of the project. After feedback this research post will be adapted into a Protocol Upgrade Request (PURe).

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This is super exciting - I am glad to see you thought about this in a thoughtful manner and from various perspectives; from contributors to speculators.

Are you able to still delegate your voting power with hPAL and locked hPAL?

How is the the voting power bonus (up to 1.5x) calculated? Is this a function of the value locked or the duration it is locked for?

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Yes, delegation will be implemented on hPAL (& locked hPAL), as this will replace PAL as the Governance token (and we don’t want tolose our awesome Delegates :slight_smile:)
And for the multiplier of voting power, the current idea is to have a fixed value, that is activated over a given lock duration, and constant during all the lock.

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Thanks and congratulations to you guys for this draft.
Tokenomics are very interesting.

I have some points though that I didn’t understand 100%:

All these benefits will be granted at once or in a progressive manner as shown on the diagram ?

I don’t understand exactly what it allows.

As soon as the blurred elements are lifted, I will start the propaganda of our future tokenomics :sunglasses: :shield:

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A nice economic model here, it is the result of team efforts
hPal is so nice in the circulation

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Ok so I got the answers to my questions and I repost them here for those with the same questions:

Concretely, being in the Chest allows you to pay less for borrowing voting rights and pay less to buy Boost!

It is therefore the ideal place to maximize all the governance strategies offered by Paladin! Icing on the cake, we can also benefit passively from the different fees collected by Paladin which will be managed by the hPal lockers and the Chest’s right loan.

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The 3-Tier model has all the ingredients to reward loyalty and not to add financial incentives that promote or incentivize price speculation. It’s also important that the final staking framework does not add any inflation to Pals protocol.

In regards to Tier-1 the only note I would like to add is, that I am a big fan of protocol owned liquidity. Also something for further consideration is using a protocol for active liquidity management (example: Gamma).

The proposed 3-Tier model provides a very good starting point that marks excellent reference points for Paladin. The challenge now becomes how Paladin could improve the given model and add innovative features that can even further incorporate the Ethos of its ecosystem. I would like to propose the following improvement ideas:

  • Staking can give “priority access” to newly created marketplaces on Paladin. For example, when a new asset is added to Paladin, access for the first month will only be granted to users staking a certain amount of PAL/hPAL.
  • Tier-2 for users who would like to unlock their tokens before the 10-days cool down, a „speed up fee“ could be charged.
  • Offer discounts on all (present and future) Paladin commission(s)/fees depending on how much tokens the user is staking (tier discounts).
  • Mint an exclusive Paladin NFT only for users that stake for the max. period. These NFT’s will be like “gift vouchers” with no immediate value. It will be the community who will later decide what these NFT’s will be used for (example: a Paladin Airdrop).
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Thank you for all of these insights. A lot of fresh ideas.
Here’s my general thought on the improvements mentioned (I speak as an individual, not as the core team):

  • A privilege access is great once you have enough traction, I feel like adding one now would reduce user acquisition more than create hype. There is definetely a threshold where this becomes relevant, any idea when ?

  • A speedup / ragequit fee has been talked of (for the locked part), and I am generally in favor. Most implementations do it by slashing, which is dangerous because in bank runs, users believe they are in a race to 0. I believe your approach is smarter because the fee would be in ETH / USDC, which would enable the treasury or the locked users to have some kind of external floor value stopping the bank run.

  • I’m generally not in favor of discounts as they create negative sum games for depositors (who earn less revenue), the Chest actually solve this by doing a subisidy instead of a discount.

  • Paladin NFTs are something I would LOVE to do. We have a few drafts of concepts we currently don’t have the time to do. But in due time I do see us either hiring or making this happen via a grant (contributor profile reflected by a dynamic PFP giving you on-chain perks).

Do bear in mind that the tokenomics were built in a very flexible philosophy.
My current main concerns are about making sure the Chest is relevant, aligning the right stakeholders at the right tiers and making sure locking is a positive sum event for users.

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Thanks for the Feedback :pray:

Another unsual but potentially less inflationary tokenomic possibility not entirely based on token emissions is “options vaults”.

Options vaults enable users to earn income in a way that is not dependent on token emissions. This is done through the automated selling of out-of-the-money (OTM) options to market makers, typically via strategies such as covered calls or cash-secured puts. In doing so, these vaults collect premium, which its compounded back into the vault.

Since Options is not my expertise, I would recommend researching this with UMA for possible use further down the road if that’s something of interest.

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Is this inflation figure a global variable (i.e X% inflation per year, split across hPAL stakers) or a local variable (i.e every hPAL stake is privy to inflation equal to X% per year)

Could we see the math here? My inclination is towards establishing a longer inflation schedule to minimize unknown future governance risk, although I assume the 2 year period coincides with the max-2-year-initial stake, which would make sense.

Re: 3-Tier Model
Very clever. Think this structure clearly captures the positives of the vote-escrow model without preserving the negatives.

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This is a very good question and a point we are very open to discuss and build upon.

The way we are approaching is as a fixed yield depending on the layer you commit to. Because of this, we’re suggesting a budget of 300,000 PAL (=0.15*2,000,000), with 2M being the circ. supply post LBP and aknowledging that LM emissions and the stacking vs locking ratio might impact this budget (we will adjust accordingly). This is a small cost for the DAO which will allow us to enhance the approach as we go.

Why a fixed yield and not a dynamic shared budget ? The inflation is a transitory method to boostrap the locking cycle (until the Chest is live and protocol generates substantial revenue). It is necessary because we simply don’t believe users should lock with total uncertainty, as a DAO we have to guarantee the worthiness of locking if we expect users to align on the long term.

Eventually all inflation should be distributed through LM to bootstrap pools and incentivize protocol use.

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Thanks for starting this exciting discussion !
I have a few suggestions/comments:

Not sure about the design here, as users who lock 1 year will have access to the chest, but for 6 months only and would need to relock to always keep 1 year voting, so if a user wants to enjoy the chest for a year, he needs to lock for 1,5 years. Same for a users who lock 2 years, he will have access to the chest for a year (need to relock a 3rd year at the end of the first one to enjoy the chest for 2 years) + and same for fee switch activation

However something like Stake DAO liquid lockers might be a good fix for this as it would allow users to always stay max locked.

Really nice to see that the lockers could vote about receiving part of the protocol fees at some point, but I agree that the best is probably to start by splitting the fees 50/50 between the treasury and the chest to grow both resources, as the inflation can be used the first months/years to incentivize lockers.

I really like the idea about lockers being able to spend the collected fees from the Chest on Paladin ecosystem as it create a very good loop, but considering that most of the collected fees will be in governance tokens, I believe that only a part of the fees should be available for spending, while the other part could be used to build a strong voting power that could be either delegated by the Chest to hPAL lockers for free depending on their share of the chest, or used to vote on Paladin pools (but the treasury can already do that), or even used to generate more revenues by increasing the offer on Paladin, Warden and the rest of the ecosystem.

I guess a 50/50 split could be good too here as long as the fees split remains 50% chest / 50% treasury, which would represent:

  • 25% of all the generated fees available in the Chest for spending on the Paladin ecosystem by activists hPal lockers
  • 25% of all generated fees used to accumulate and grow the chest value and governance power but with the possibility for activists hPAL lockers to use the chest boosting and voting power for free
  • 50% to the Paladin treasury

Awesome ! Can’t wait to see the #PALWAR begin :eyes:

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On the last point about saving chest fees, I think the current design already enables what you’re suggesting. Using the fees would actually have two big benefits, 1) give activists access to more voting power, and 2) better synergize with the network. For example with Paladin lending it’d be more interesting for you to use the dapp because the chest fees could buy much more voting power compared to the amount you’d have access to in the chest. Better yet the increased borrowing volume would push up the APY, attract more deposits, and then full circle give the activist more voting power to borrow (for free if they have their chest rights :slight_smile: ).

Protocol owned voting power has definitely been a tricky topic, which is why it was important to stress neutrality as a protocol. But I think leveraging the chest as a product subsidy is the most credible approach to this issue.

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I agree with Tomo on that one, there is no reason the protocol should accumulate voting power as it undermines its ability to leverage its own products.
Having now “hard power” outside of leveraging its own dapps is a very interesting approach as is also disincentivizes sharks that are not ready to lock.

Otherwise we’re going to end up with resource redistribution proposals for holders one day or another…

I will publish a revamped version of the proposal with better maths for the inflation this week.

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Hey Tomo, thanks for the feedback !

This might be true at the beginning, and I guess it would stay this way if the chest is spending 100% of the fees received.
But let’s imagine that Paladin generates 320K AAVE/year (so 46.5M$ just in Aave the first year, let me dream ok ?)
In the 1st scenario, 160K Aave are sent to the treasury (which would remain neutral) and 160K are sent to the chest to be spent in Paladin ecosystem by hPal holders, so the chest would be spent in one year
However, In the 2nd scenario:

  • 160k are sent to the treasury (still neutral)
  • 80k are sent to the chest to be spent (decided by hPal holders)
  • 80K are accumulated on the chest , which means that year two, the chest has enough voting power to submit a proposal (i think it changed with the v3 but still)
    So year two, hPal holders would still have 80K Aave to spend on Paladin ecosystem, but they would also have access to the chest voting power (which would be neutral as long as no hPal holder uses it, but then it could be used to vote on any proposal decided by the hPal holders depending on their share of the chest)

So for example if someone has 100% of the locked hPal, he could submit a proposal for free without any delegation or holdings, and you’re probably thinking that he could do it also by spending Aave to borrow on Paladin, but after the vote, the 80K Aave are still here, so it’s increasing the real value of locked hPal because of the chest backing value in asset + voting / boosting power + generated fees

The treasury of the protocol would remain neutral, and the chest too if not controlled by hPal holders

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Amazing, I can’t wait to read this ser

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