PIP-16: Tokenomics 2.0 - Emission budget

Paladin Improvement Protocol (PIP) PIP - Approved
1

TL-DR: Define a budget for the Vote Flywheel over the next 3 years

Context:
With PIP-14 passing, Mithras Labs has started developing the Vote Flywheel with the hope of pushing out this major update before the end of year.

Before the deployment of these new tokenomics, we still need to iron-out four important parameters and processes that will define its success:

Rationale:
We are requesting a 3 year budget for the Vote Flywheel, as stakeholders will be able to lock as long as for 2 years and we need to provide them the guarantee that they will know what they get into for the full duration of their lock. In one year, we will be able to review the program and decide whether or not we want to continue / modify or cancel it. The DAO will be able to stop and recover the budget in case of an emergency.

We’ve been simulating the amounts needed for this program and have come up with a recommendation of 50,000 PAL per week. This results in a 2.6M PAL yearly budget and a total budget of 7.8M PAL over the next 3 years.

In order to justify this budget, we have simulated various data points we believe are key to understanding how efficient the tokenomics will be (data up to date on 15/09/23).

  • First we looked at the amount of emissions controlled both in $ amount and PAL.

1508Ă—311 41.7 KB

Here we see that a max locker will control his principal’s equivalent in 54 weeks of emissions at the current number of lockers. This is an important onboarding metrics for news users as the opportunity needs to be high enough for the lock to be worthwhile.

Comparing this with more mature veTokens enables a good heuristic into how strong the onboarding incentive will be early on:

*Do note that these projects have all been doing emissions for 18-36 months, and began with similar efficiency metrics

  • We then looked at the inflation that this system would create:

This is to be combined with the liquidity program done in parallel (currently 35,000 PAL / week).

Considering Paladin has only emitted ~40% of the supply, we need to be able to decentralize further the project without diluting stakeholders too fast.

The vote flywheel will reward aligned stakeholders by giving them access to yield higher than the dilution, thus making the operation a net positive for those who are participating in making the protocol greater.

  • The budget was then compared to the total PAL left in the DAO treasury in order to gauge its sustainability

In short, this program could last more than 10 years with such a budget.

  • Last but not least, we checked the maximum price pressure the incentives could create on the price of PAL and how much price pressure was needed to cancel it out. We found it would have a maximum impact of -3.2% per week if there were no buying pressure. With 4000$ of buys, this would be entirely negated. Considering that a significant amount of the emissions will go to aligned stakeholders and that the emissions will likely have a vesting period, the risk seems heavily minimized.

Means:

  • 7,800,000 PAL over 3 years

Next steps:

  • Finish development of the system;
  • Vote on the three other proposals needed before deployment;

Voting options:
For / Against / Abstain

  • For
  • Rework
  • Abstain
0 voters
2 Likes
2

Gm, thanks for this detailed proposal, tables & explanations of the reflexion behind it are really appreciated !

Agree, that’s a great point to keep an update opportunity after 1 year, but wouldn’t this go against the first sentence of insuring lockers that they’ll get emission power for their full lock duration ?

What process do you have in mind for this kind of update ?

Still not convinced by spending 15,6% of the total supply (or 30% of the remaining supply in treasury outside of LPs) in 3 years tbh, but depending on how the update process is defined, probably worth trying & closely monitore the situation.

Also considering an update possibility is proposed before 2 years, it probably make sense to not wait 1 year to do it, this timeline could be reduced to 6 months after the emissions started which reduce the risks.

It’s indeed a very interesting metric to onboard new projects/individuals. I do have concerns about the ability for ppl interested to buy big amounts as the liquidity is not huge.

Moreover, surprised to not see many reactions/questions from potentially interested buyers despite such profitability data.

How about setting up a “whitelist” to be eligible for this tokenomics ?

  • It can require a minimum amount locked (randomly taking 50k hPAL max locked as example), so future emission controlers would need to digg the topic & take actions.
  • It can also require a proposal, so projects would actually need to ask questions if needed, then propose themselves to be whitelisted by sharing their lock address, and their interest to be an active players in the “PAL wars”
  • It can also require a minimum amount of bribes to be allocated over the next 6 months which should be mentioned in the proposal (similar to what Liquis did)

Finally, we can consider supporting & encourage PAL acquisition: We could define a budget with the DAO to match a portion of the total expected buy, with an OTC deal, and Mithras might participate as well if interested.

For exemple, let’s assume 5 projects want to buy 100k PAL, and that both the DAO & Mithras have 1M PAL each allocated for this, with a max OTC match of 20% each:

  • Each project would have to reach out to define the OTC price, and then market buy 60k PAL on market (OTC method can be defined/voted & the task can be executed by a committee in charge of the budget, avoiding an additional proposal for each deal)
  • After locking the 60k PAL, both the DAO & Mithras would swap up to 20k PAL each for stables according to terms defined with the committee before, also locked by the project.
  • Once the 100k are locked, the project can submit its whitelist proposal

1M PAL budget for each entity would enable to match 50 projects interested in buying 100k PAL, would insure that 5M PAL are max locked, and would help increase the stable treasury of (around 90k$ at the current price but not all would be sold at this price ofc), which in the case of the DAO, could be used to repay half of the debt.

This way projects can’t benefit from the system without being skin in the game, can’t dump the OTC on market, otherwise they can’t submit the wl proposal, and can even define a bribe budget if required.

Then about the whitelist, this can be a process for the early days defined as a safety, which could be removed later on (If the tokenomics metrics are good/once OTC budgets run out for example)

Interested to get your thoughts on this idea ! (Again, numbers are kinda random and can be tweaked, it’s more to explain the point)

True it’s to be combined with the strategic assets of the DAO to optimize at best this expense, focusing on frowing PAL liquidity but also create yield for dstkAAVE holders (which still have no yield, same as palStkAAVE since a few weeks) but that’s a topic for another proposal lol

Is it assuming 100% of upcoming PAL spending would be allocated to this, or did you took into account other expenses as well ?

Good to know, hopefully the whitelist idea above can also help having a positive impact on the price !

1 Like
3

This is why we are requesting a 3 year budget. Anyone that locks over the year is guaranteed to get these, but in one year, if we amend, it will have an impact starting the year following, not before.

That’s a fair point, I don’t think anyone would have a problem in doing this on the safer side.

This is a very interesting proposal, worth a full post and proposal I believe. To be fully transparent, Mithras has enaged with some DAOs to onboard a few first power users. These conditions might be a bit too complex to onboard the first adopted for a use case that hasn’t been proven, but such system should definitely considered for later rounds.

This was counting this program exclusively, you are right in pointing it out, with all expenses included we would go down to 7 years. To be honest I do not expect the emissions specifically on Quest to last 7 years, revenue sharing should pick up quite quickly if the system pays off.

Thank you for raising such good points, definitely worth considering

1 Like
5

Gm, thanks for your feedback !

Ok so I guess the process in case of an update on this topic would be a PIP with an analysis after 6 months. If it was removed, a temporary solution can be the current one until a new tokenomic is ready.

Sure I can write a separate post if you prefer.

Might be a bit complex to implement but this would enable to align all parties so it can be worth trying imo.

1 Like
6

https://signal.paladin.vote/#/proposal/0x5c2ae99558c9a689a4b9b53d14f54d8f29b91c63e5ec25bdfa0549f1203b9cf7

7

Quorum PIP-16: 878 818 votes

image

8

Thanks for this proposal !

I think the overall flywheel strategy in a bear market can be a risky bet. However there is clearly a strong upside in building utility and intrinsic for the PAL token.

Some additional thoughts:

  • Timing of the start of these emissions is going to be a key factor of success and might allow to mitigate risks. Ideally these emissions would be launched during better market conditions

  • I think a good monitoring of what happen to most of the PAL emitted is key to be on the safe side. Maybe with a Dune Dashboard or something else ? If PAL is massively dumped we could adjust the emissions or the strategy 6 months after the launch as proposed by @Dydymoon

With the following points taken into consideration, I will vote in favor of this Emision Budget of 7,8M over 3y

2 Likes
9

Emissions in such market are never a great idea, you are right, but there are 2 things to take into account:

  • It’s in this market that you prepare for trend reversal;
  • Something is better than nothing
  • If it actually helps us grow, then it is worth it, since revenue > token price

That’s a very good point, or at least when things start heating up around Paladin.

Just to be clear, adjusting emissions after users locked expecting a very specific outcome is extremely risky reputation-wise and will simply break all the relationships we aim to build with all new lockers. I agree we should track and discuss on the system’s efficiency 6 month after launch, but it would likely be to:

  • Maintain the system as is;
  • Not renew it further (emissions stopping 12 months afterwards);
  • Mass unlock users and cut emissions.
1 Like
10

Considering this proposal is quite risky, I disagree here. After the 6 months tracking and evaluation of the process, the only case where it should be maintained without changes is if the results are great.

If not, the options could be:

  • Reduce the emissions amount
  • Update the tokenomics design if a new one was proposed / designed
  • Stop emissions related to these proposal until a new tokenomics is proposed if results are really bad

A temporary path should be defined for the last eventuality, which could be the current emission lvl for hPAL lockers. This would limitate the mass unlock potential impact mentioned above as well

11

This proposal is not “riskier” than the alternatives, it is supposed to determine the amount of emissions for an already voted system. We can reccomend less emissions, but saying that it is risky is rhetorics considering it is well riskier to do nothing.

This is what you call a rug, I cannot allow Paladin to openly prepare itself to scam users for the sake of de-risking.

Sure, but with a mass unlock. We will not rug users. At least, you can suggest it, but I refuse to put my name / face on unethical practices, so I will either vote against these proposals, or refrain from participating and leave the project.

On the other hand this is totally relevant and can be implemented.

Well from what I see (and again, we aren’t talking about the emission’s amount) there are 3 paths:

  • Great implementation → no changes
  • We see tweaks / a better design → maintain current system until new one is implemented
  • Death spiral provoked by tokenomics → cut emissions and mass unlock users
1 Like
12

Totally agree, it’s not acceptable to have users lock their tokens based on an announced Tokenomic, and then change these rules once the users are locked in. Even with a mass unlock, it’s still questionable because users could have maybe invested elsewhere for a more certain return (opportunity cost). If this (tokenomic change with a mass unlock) is on the table, it should be announced from the beginning.

1 Like
13

It is riskier to spend 15%+ of the total supply rather than not doing it.

Fyi, a rug is an event you can’t predict. This has nothing to do with a governance decision to adjust token emissions if things go wrong, especially as it is discussed now so ppl can follow what’s happening.

If I follow your logic, you also think Aura rugged ppl with AIP-42 then ?

Not even sure if a mass unlock would happen at the same time tbh. Users that locked before the new tokenomics are unlikely to leave after an update.

As for the new lockers, they will probably lock for more than 6 months so the mass unlock would not happen at this time but way later, which gives enough flexibility to find an alternative.

Also, I suggested several times to have a temporary backup plan, which avoids users yield dropping to 0, which I guess is what you call a rug …
Anyway, at least your position is clear !

Imo it should be:

  • Great implementation → no changes
  • We see tweaks / a better design → Either reduce emissions on current design, or implement new one if ready
  • Death spiral provoked by tokenomics → cut new emissions & implement back up plan unless if a new solution is ready

As mentioned, this discussion is public & any project interested could jump in & participate, but 0 project did that so far.

This is what I’m trying to propose tbh, clear & public rules to define the different possibilities above, we should even have milestones which any project can track (i.e: Min PAL locked in 6 months, growth in amount of Quest uers, total value of bribes spent etc). This would also avoid biaised interpretation in 6 months.

14

I disagree. Price has taken a major hit because there is no buying pressure. If we do nothing, our revenue/financing opportunity is Quest and Warlord fees. Tokenomics open up new opportunities, case in point. PAL is up 20% since the announcement.

This is Paladin, not Aura. I believe people lock for a reason and chaging the conditions of an engagement after it been concluded (locking) is dishonest. You don’t have to agree with me, I honestly do not care, this is just one of the lines I will simply not cross.

I will wait on your backup plan if it ever needs to be used

I look forward to your proposal in order to enshrine this