PIP-14: Tokenomics 2.0

TL-DR: Develop a new system to transform hPAL as the liquidity booster of DeFi

Quest has successfully found PMF, averaging over 200,000$ of weekly volume and a historical 5M$ of campaigns processed, with a v2 is set to become the absolute best solution technically speaking. We believe intertwining Quest with tokenomics will enable us to become a market leader on voting incentives while driving significant interest in the PAL token.

3 weeks ago, we presented a design to the community, and received substantial public and private feedback. We iterated the research post into a proposal in order to start developing it.

Proposed architecture summary:
The Vote Flywheel (VF) is a system built to significantly boost the quality of use of Quest for aligned stakeholders, both on the creation side and on the voting side without changing the UX for current users.

This is achieved by enabling hPAL holders (locked PAL) to control the allocation of PAL emissions to the Vote Flywheel, which will enhance the APR available for Quest voters without increasing the costs for Quest creators.

VF is built on top of a gauge that allocates the emissions in various sub-systems. The Emission Allocator is where the DAO will deposit the program’s budget. Stakeholders will be able to choose in which sub-systems they want to allocate budget. Initially, we will only have one sub-system, Vote Flywheel. No additional sub-systems are planned for the short future, but any community member can come and offer a new opportunity. It can be summarized as followed:

The Vote Flywheel:
The Vote Flywheel is the main part of the tokenomics, and the sub-system is likely to drive more and more emissions as new stakeholders join us.

Stakeholders participating in this sub-system will benefit from hPAL Boost, usable in two instances:

  • At the Quest creation level, you will benefit from a LOOT bonus on top of your rewards, pro-rata of your hPAL Share. It will be possible to delegate/lend your hPAL boost to other creators;
  • At the Quest voting level, your hPAL will maximize the rewards you can earn (base + a modular amount of LOOT).

LOOT is a PAL derivative we added into the system for two reasons:

  • We believe this flywheel only works if we inject revenue sharing into it, and give it unlimited growth potential;
  • We are exploring a vesting type system where you have to wait a few weeks to get the whole amount of rewards, but can instantly redeem and keep part of the already released PAL & real yield;


  • 3 months of development

Next steps:

  • Let governance decide on the actual system implementation (Vote Flywheel and LOOT);
  • Second proposal on the total budget of the program, which is likely to be the largest DAO spending ever;
  • Third proposal for LOOT to decide where the real-yield will come from (Warlord fees to begin with, most likely) as well as the parameters of our custom boost system;
  • Finally, we will need to introduce a Quest whitelisting framework.

Voting options:
For / Against / Abstain

  • For
  • Against
  • Abstain
0 voters
1 Like

Regarding the quest voting level, will it be for all quests or only created quests with PAL rewards and why actually make this ?

On another topic, will it be possible to mint LOOT directly to be able to gain revenue sharing directly ?

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Every Quest that us WL will be able to receive PAL emissions. We’ve yet to determine the exact framework for this, but an optimistic framework like the one Balancer is adopting could be well adapted.

With what could LOOT be minted ? In the current envisioned configuration (we’ll open a specific proposal on the topic), LOOT would be minted by the DAO by depositing PAL and stables/eth in the Allocation Contract, and can only be otbained by using Quest to begin with

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Thanks for the answer. So far I think it’s a great design for the future of Paladin

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If no other comment arise, vote will be posted tomorrow

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The direction seems good I do would like to see more implementation details.

I think it would be interesting similar to how Maker DAO is now implementing a veModle with an unstaking penalty. Maybe it would be interesting to explore that model as well?

It is still pretty new but interesting to take a look and see what can be learned and improved?

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Thanks for posting this proposal and sorry for my late feedback.

I didn’t comment on this post before and that’s my bad, but shared some opinion about it on another post before (& privately when trying to understand it) so I thought about this proposal quite a lot.

I believe there are good ideas, but the current design is not optimal and can be dangerous for the DAO if things go wrong. First of all I think this proposal is quite important and shouldn’t have been posted in the summer, where it’s likely to get very little vote involvement from the community.

The research topic was posted on July 13th, had little forum feedback, and demonstrated a problem being the total amount of emissions spent being too high with this new proposal + the treasury strategies budget.

In the research post, the idea was to give a choice to hPAL lockers to either vote for external quests & potentially get paid or vote for the treasury allocation which wouldn’t give any incentives, most likely leading to a drastically reduced treasury budget, which also reduces the revenues earned by farming.

The problem was basically pushed back for later by splitting the topic & proposing an extension of the Paladin Quests budget, which would last approximately the development time for the new tokenomics. It means that if approved, this treasury budget used for Paladin Quests will end when the new distribution would start, leaving two choices: Reduce Paladin Quest budget or increase the overall PAL spending. The non sustainability risk of the Paladin Quest budget is one of the reasons I’m not in favor of the current design.

While I like the idea of having a gauge design controlled by hPAL lockers, there are many considerations to take into account:

  • Market health

We’re deep in the bear market, and this proposal is about distributing PAL (in the LOOT form) to any project Quest created on Warden. While this could indeed work if everyone has skin in the game, there is also a chance that this extra budget is just used to subsidize part of their bribe cost, which would increase the selling pressure and could kill the PAL price in a few weeks considering the current liquidity. Moreover, projects can avoid skin in the game with bribing hPAL lockers (will get to this point later).

  • Emissions value

The issue with launching emissions around current price means that the total $ value would be very low, meaning that additional emissions are not significant for big projects. This is also the case for other projects such as Bunni, for which the total weekly emission without discount is around 6k$, which has to be split by projects.

For Paladin, assuming 50K PAL/week (similar to what’s currently emitted for Paladin Quests), and with the current price, it would create 4,45k$ worth of additional incentives weekly, which would be split by projects as well.

Assuming it would be available for Quests on all layers, and considering the current Quest amount, the max PAL / projects remain low, which can also impact any bribe market for hPAL lockers.

  • Risks of misalignment with hPAL bribes

One of the reasons for this tokenomic proposal is to create utility and revenues for hPAL lockers but as explained above with a low emission, then the bribed amount will be lower if projects care about profitability. Additionally, since there isn’t any reference on bribes, hPAL lockers might have trouble knowing if interesting.

Moreover with the current market conditions, hPAL lockers will be happy to earn real yield and might keep voting in favor of it even if projects not aligned sell their extra rewards to subsidize costs, because of the bribes earned. Projects could also avoid buy & lock by bribing.

  • Details missing on gauge mechanism

The proposal mentions a gauge that allocates emissions for sub-systems, but I’m not sure if the functionalities are the same as other existing ones.

  • Would hPAL lockers need to revote each week ?
  • After which period can you switch a vote ?
  • How can the implementation of a new sub-system be created ?
  • Does it affect the max amount of emissions spent to EmissionAllocator ? (I guess)
  • Could the EmissionManager handle two different types of emission (i.e gauges sub-system would probably require emissions/second or block, while a sub-system for grant budgets for example could distribute monthly) ?

It would be more efficient for sure, but also quite complex with the current treasury state.

Before considering distributing revenues to stakeholders, the focus should be about paying back the loans and building a stable treasury enabling it to pay third parties which are working/will work for the DAO.

Considering this is highly unlikely to be achieved in the next 3 months - dev time of the tokenomics - not sure to follow, why push the proposal now especially if you believe it won’t work without ? (which is possible as it would then be fully dependant on PAL price & emissions)

Good idea ! It’s great to explore a vesting system as it can delay the selling pressure and reduce it with the penalty. However, same as the gauge system, it’s missing some information to vote for a design proposal, such as the vesting duration, the minimum redeemable, if there is a possibility to bypass the vesting by doing “claim & max lock” or something similar etc

TLDR: Not fully against the global idea but not in favor of the current design for the following reasons:

  • Risks about Paladin Quests budget & farming revenues sustainability
  • Complexity to add real yield to LOOT before end of the year
  • Potential misalignment of involved parties
  • Several parameters to be discussed & defined

For all the reasons explained above, I voted “Rework Tokenomics”, trying to give more time for the community to jump in the discussion now that the holidays period will end. Some might come up with improvements of the overall design as well.

I don’t have a full alternative to propose yet, which is why I initially waited before commenting to just say i’m against, and also waited to see if projects would be interested & ask questions but since the proposal is already in vote and ending soon, I’m sharing some thoughts about this proposal and potential ideas that I’d like to explore:

  • Framework to onboard aligned projects as partners, creating guarantee for the DAO that projects are buying & locking (for example; could include a portion of deal OTC with the DAO for a % of the amount acquired, if the remaining is already bought & locked, which align projects & reduce the DAO liabilities)

  • Potential Safety Module contract similar to Aave SM Upgrade proposal with gauges on a wrapper to avoid dilution of the rewards created, and create an insurance for the protocol at the same time

  • Modelisation of the strategic asset emission power capacity to reduce the Paladin Quest budget by voting on the gauges where the DAO holds POL by taking AIP-42 changes into account.

These are only early thoughts. Looking forward to continue this discussion and sorry again for my late answer

Quorum PIP-14: 803,777 votes


Thank you for the thoughtful comment.

I understand these are complex topics, but there is a very clear need for Paladin to push out tokenomics considering the duration needed in prod, and we’ve been publicly discussing this topic for the past 46 days. Dropping such message 24h before the end of the vote is sub-optimal to say the least. I do not believe a lot more stakeholders would’ve contributed if published at another time but remain entirely open to feedback even after the proposal passes, we can ammend if something better comes up.

Something that must not be forgotten is, despite summer, we still need to pay the devs, pay up our debt, emit tokens according to our PoL strategy, and in general have PAL be tradable. So no, Paladin as a protocol does not go on holidays.

No, the link between PoL farming and tokenomics was outright removed for this very reason. You are right in thinking that we likley have a max cap of PAL we can emit per week, but as mentioned, this is a different topic as this proposal is to decide on a system and not the emission amount. We could easily start with a system with low emissions and modify accordingly.

What happens if we emit too much via both these programs? PAL dumps. Wait isn’t this exactly what is happening right now, just with emissions? There are 2 fixes to this, either stop emissions (and PoL strats) or create an actual utility for the token.

The system described does not have gauges.

Yes, we are, but who knows where we’ll be in 3 months, 6 months or more. The point is to develop a system. There is no fixed release date. Look at Yearn or Alchemix, everyone is timing their product launch.

Just to be clear, Quest is currently doing 62,000$ of weekly volume. A 4.5k$ would boost by 7.2% the incentives, that seems like a very fair amount which should have the appropriate effect.

There was no mention of a bribe market in the proposal

Are you discovering how bootstrapping a project works? Yes, you need a starting line, it will never be obvious from round one. This has been the case for absolutely every successful product in DeFi. Alpha doesn’t lay bare in front of your eyes.

This is litterally the description of vote incentives… What you seem to misunderstand is THIS IS IRRELEVANT TO THE SYSTEM. Projects do not farm PAL, they only control its allocation in a quest. Only voters get the PAL, and if they make money in bribes + farm more PAL, what will they do? likely lock it. That’s called aligning users.

hPAL voters can vote weekly but their vote is sticky (they don’t have to revote weekly), and I’ll let @Kogaroshi confirm the cooldown per vote.
A new sub-sytem can be created by coding it in solidity and creating a proposal to integrate it into Paladin on the forums. In theory, we will decide on the max emissions in total, and sub-systems would share it depending on their weekly allocation. Emissions trickle per block, so if you want a monthly budget, it trickles over a month.

We estimate that the debt will be fully paid back by end of year, so, at most 1 month after tokenomics launch. I’m not sure it is clear that we are rushing the proposal, we are presenting it after careful research and a fair discussion period.

Again, this was willingly split into a different upcoming proposal to focus on passing the actual system so we can start developing it…

So, just to be sure I udnerstand correctly:

To be determined in the emission amount proposal?

Was never written nor de we intend to push for this to happen before

Which is an inherent problem to gauge systems without vesting or alignment emission systems

The topic of the 2 next tokenomics proposal.

So, just to be clear, you aren’t against the system, you’re just worried about the actual parameters? If so, you’re in luck, we have the next few months to agree on them!

Paladin does not need an insurance layer, there is close to nothing to exploit in Quest since all users retain ownership of their gov tokens and we only manage rewards on a weekly basis.

This has nothing to do with this proposal, but is very relevant for the next Strategic asset management proposal.

Thank you for all these questions, I am glad to see we aren’t that far off in how this system could work.

Do you have estimations about this ?

Ah ?

I never said it was mentioned, but it is implied that hPAL holders can receive bribes for their emission power.

They do if they vote for their own Quests

Maybe, or they might sell it, you being very optimistic but can’t predict that.

Hard to predict that too, seems unrealistic to pay back the full loans in a few months.

From my understanding, the vesting terms are part of the system and should be included in this proposal since it’s about LOOT redeemability and VF system, as the two next proposals mentioned are on differrent topics, unless you count that as boost system parameters. In which case, weird to vote a system not fully explained and understood.

Splitting the proposals doesn’t fix the issue, but looking forward to see the solutions proposed for this issue.

Every protocol has risks and can use insurance. Moreover, Paladin has several protocols including some which take users deposits, so yes it can make sense.

Seems you already posted the next treasury management proposal, which proposes to reduce the PAL liquidity if I understood it correctly. The tokenomics associated liquidity risks then could be increased. Concerned by these proposals tbh but thanks for the answers.