PURe 1 - Liquidity Mining

TL DR : Should Paladin DAO distribute 1,000,000 PALs to depositors and borrowers during a 3 month long liquidity mining campaign to become an efficient vote lending protocol ?
and Confirming Core team allocation

PURe 1

Hello everyone,

Paladin Lending, our first dApp has been live for 2 months. This has allowed us to battle test our architecture with the custody of over 10M$ of governance token under the contract’s care on average.

While we’ve been hard at work on preparing Paladin for new token integrations, we believe it would be interesting to bootstrap our protocol for “large scale” use with the pre-existing pool beforehand. Without organic APY, the Paladin pools are irrelevant and do not present themselves as competitive. The goal of this proposal is to enable a fix to the bleeding TVL and to bootstrap the network effects of the protocol as well as confirm the team allocation.

How do we bootstrap Paladin ?

This looks like a chicken and egg problem : Paladin needs TVL to attract large loans, but only large loans will attract more deposits. Fortunately, we can bootstrap this positive cycle by distributing PAL tokens. A little over 2% of the supply has been airdropped to voters. Which means the protocol is still not decentralized enough, especially as it hasn’t rewarded depositors as much yet.

We propose to distribute 1,000,000 PAL tokens (2% total supply) to depositors and borrowers on Paladin Lending during a 3 month-long liquidity mining campaign.

Future of incentivization

Paladin becomes valuable when it can offer to borrowers the opportunity to create proposals on the onboarded governance. Hence, we would like to offer yields that will continuously attract more deposits until at least the proposal threshold is reached. All data will be trackable through a custom dashboard available soon, as well as a community enabled Dune page (bounty in progress)

Goals

Any proposal brought by the core team and needing financial intervention from the DAO will be accompanied by a set of KPI to measure its success and build from it for the next proposals. We highly advise all future proposers to do the same.

We’ve run some simulations to optimize the distribution between the different pools and have a competitive APY (note that there are almost no 2%+ yield strategies for these governance tokens).

The threshold goals are the following :

  • Aave : 80,000 AAVE ($14,56M on 12/04)
  • Uniswap : 2,500,000 UNI ($42.5M on 12/04)
  • Compound : 100,000 COMP ($22.3M on 12/04)
  • Idle : 130,000 IDLE ($353k on 12/04)

How would it be structured ?

Distribution for deposits, with a campaign of 750,000 PALs over 3 months, is planned as follow :

  • Uniswap : 3333,33 PAL/day
  • Compound : 1333,33 PAL/day
  • Aave : 833,33 PAL/day
  • StkAAve : 2500 PAL/day
  • Idle : 333,33 PAL/day

As there is no market price for PAL tokens, we can only display the token per day distributed, but for reference, our Seed Round was done at 0.6$/PAL. This would value Paladin under 1,000,000$ at current distributed supply.

It would also be possible for the DAO to vote on a token market value to display a market APY (should be presented as another proposal).

The goal of Paladin is to offer useful loans during Governance Votes. With that idea, the reward system for the Borrow side is designed in the following way:
Each pool will have a ratio decided (govToken:PAL ratio), and all the Borrows will receive a reward in PAL based on the amount of fees used by the Loan and the decided ratio.
Ratios are planned as follow :

  • Uniswap : 1 UNI : 0.75 PAL
  • Compound : 1 COMP : 10 PAL
  • Aave : 1 AAVE : 10 PAL
  • StkAAve : 1 stkAAVE : 10 PAL
  • Idle : 1 IDLE : 0.125 PAL

A 1st amount of 250k $PAL will be set for the Borrow Rewards. Depending on the success of this campaign, a new decision will be made to either keep distributing rewards for Borrows, or the campaign will be stopped.

Other advantages

By distributing more tokens via liquidity mining we also enable more users to enter the DAO and reward in a more significant fashion those who have been long term depositors.

High yields will also act as a large-scale marketing campaign to give more visibility to Paladin.

Team allocation

As some of you might have noticed on chain, the team currently has no allocation unlocked, or even vested. We proposed a 15% supply cap in the TGE blog post and would like to submit it to be allocated to the team and future team members with a 3 year linear vesting to align us with the protocol and contract the core team to build the Paladin product suite until November 2024.

Let us know what you think and how this proposal can be upgraded.

Cheers

  • Yes
  • No

0 voters

7 Likes

I’ve voted no as I’d prefer to see separate issues have separate votes and not introduce the precedent of tacking on riders. For me, ideally, the liquidity mining incentives and team allocation should be two separate votes.

2 Likes

In principle, yes, but since both LM and the team allocation are uncontroversial, packaging them should be fine.

1 Like

As we’ve seen with plenty of other protocols, unlike common law, it’s impossible to enforce ‘precedent’. It’s better that early on we adopt robust governance frameworks. In other words - we shouldn’t make rules if we can’t enforce them. If you do strongly believe this, however, it should be posted in a separate proposal and I would consider it. I think there’s a strong argument for either side and I’d be interested in seeing it publicly debated.

2 Likes

Hello Pallies

Going to play a bit of the process-nerd card here, but I voted no to this signaling vote on the basis that indeed this should be two separate proposals. To clarify: I mostly agree with the two proposals presented in one here and would support both of them if they were to be split.

It can seem peculiar since those proposals are not controversial, but I think it’s better to be picky on the process early on to have it run smoothly. Having two separate proposals will facilitate the community feedback and the follow-up of these proposals.

Now for the LM proposal itself, it seems quite balanced to me. I think we have an opportunity here, considering that PAL is non-transferable yet. I know of only a few tokens that did LM before enabling their transfers, only RBN. I think it’s a credible approach to attempt to distribute PAL as widely as possible. We need to be extra-careful to tighten the program so it’s not gamed though.

Regarding the team vesting, it seems realistic and reasonable in my book, as the proposed allocation is in the low range of %age usually seen for team allocation. Kudos to the team for putting the interest of the protocol first!

If I may be picky one more time, we could consider a performance-based vesting/allocation model, where the team is paid in options that can be redeemed for PAL tokens based on the overall performance of the protocol. For instance, the team incentivization budget could be split into two parts: a first-half working as described in the proposal + a second part that is not time-bound but objective-bound. We could also modulate the amount based on performance instead of the time window.

Kinda throwing ideas around here, since :point_up: is quite the effort to implement.

Recap just in case:

  • I’d support the two proposals if split: PURe1 - Liquidity Mining & PURe2 - Team Allocation
  • Overall I think the proposals are in line with the best long-term interest of the protocol
  • I think the team allocation model could be further refined to go beyond simple vesting if that’s something the community deems relevant.
7 Likes

Hey everyone !

We understand how merging both Proposals can ba seen as a bad process that could set a bad example for future Governance initiatives. It is our mistake.

I propose we split that into 2 real Proposal, and do a vote on Snapshot for each Proposal. That will give us :

  • PURe 1 - Liquidity Mining
  • PGP 1 - Team Allocation

(PGP stands for Paladin Governance Proposal. To understand the difference, refer to the doc : Voting - Docs)

If we agree on the split, I’ll update the original post to reflect it.

Split the Proposal
  • Yes
  • No

0 voters

2 Likes

Voting yes on this, but as I mentioned above: I would encourage those who feel very strongly about this matter to propose it formally as a standard, rather than rely on the community to respect soft-policy like precedent, history and social contracts going forward. @TokenBrice and @CosmicCollusion thoughts?

2 Likes

100% in agreement with you there @jakelynch it’s alright for it to happen through a soft community consensus like today (and kudos to @Kogaroshi for his reactiveness BTW) but in the long run it definitely needs to be formalized.

We ran into the same exact situation with ParaSwap DAO and we went with a formula that I think is quite agile:

  1. Core community members/scribes gather and establish a tentative minimal improvement proposal framework
  2. It’s “enforced” on the basis of good faith; to live test it with real proposals.
  3. Eventually; when the framework is mature enough the scribes can submit it as a proposal itself for the community’s review. Once voted the framework is voted in, proposals must abide by it to be considered valid and enforceable. Further adjustments to the framework are to be done the same way.
4 Likes

Ok, so the plan seems to be the following :

  1. Keep going on PURe-1
  2. Post PGP-1 as a proposal dedicated to approve the team allocation
  3. Create a proposal framework for the future PGPs, PURes and PCMs
    (more info here on the difference : Voting - Docs)

NB1 : PURe-1 Needs to be pushed “quickly” to avoid TVL overbleed
NB2 : Does PGP-1 need a dedicated post or simply separating the vote is enough ? Seems to be a general agreement in our current allocation framework proposal

3 Likes

I have also voted no on this proposal.

I agree with @CosmicCollusion and @TokenBrice that these are two separate proposals and we need to be granular early.

I like the direction of the liquidity mining campaign and obviously the team deserves a token allocation but there are details that we should discuss.

Liquidity Mining:

We have two separate goals with the liquidity mining section of this proposal: bootstrap TVL and more fairly distribute PAL tokens. Both should be thought about separately. Originally I felt that 2% over 3 months was too much and not in the best interest of the protocol in the long run. However, after rereading the proposal a few times I understand this is an experiment of sorts (an expensive one) but we can iteratively adjust strategies next time. I like that more weight is given to depositors. With that said this is not the best approach to more fairly distribute PAL tokens. We want to distribute PAL tokens but we also want to be strategic in the sense that we are rewarding and developing contributing DAO / community members who will stick around to build with us in the long term. As I’ve seen before - short term yield farmers will likely leave the community as soon as 3 months down the road when rewards stop. A governance mining campaign makes more sense to distribute tokens to the community and we should implement it sooner rather than later to continue rewarding and developing quality DAO / community members.

Team Allocation:

The team can more effectively leverage capital to benefit Paladin at this point than the DAO can. It will be a while before the DAO has proper systems in place to flexibly deploy capital to meet the needs of the protocol. The DAO will have around 67% of the supply which is plenty. As @TokenBrice mentioned this team allocation is low. We should move percent of the supply from the DAO Treasury to the team allocation which can be used by the team for many things including continuing to attract and hire top tier talent to build Paladin which benefits all of us in the long term. We all want the best builders to continue joining Paladin and more tokens in the team treasury directly helps with that.

2 Likes

My thoughts are very similar to TokenBrice’s here as they laid them out re process. I have no major qualms with the individual issues and they seem very reasonable. Maybe the word precedence isn’t exactly fitting for this case…more like habit then. I can look into writing a proposal for formalizing each issue having separate votes, but I’m unsure if I’ll have enough spare time in the immediate future (before Christmas).

The performance based options is also something I’d be interested in seeing fleshed out.

On the note of farming non-transferable tokens. A more recent example might be Saddle, and their SDL token. Unfortunately the introduction of farming SDL there has done little to bolster their TVL. Without knowing exactly how much they’re earning, it may be hard to attract the capital to boost TVL. Seems to me you’d be appealing to a much more niche, principals based farmer than the usual mercenary capital. Having the seed round price displayed as a rough reference could help though, so I’d be in favor of having it displayed…though clearly asterisked.

Longer-term, once there’s an established price for PAL, I would be very interested in seeing some sort of OHM-like bonding mechanism for the DAO to permanently buy governance tokens and depositing them into the pools.

2 Likes

Thank you everyone for your feedback, we will now move Team Allocation discussion on a different post that I will link here.

We agree that liquidity mining might attract farmers but please do take into account that Paladin Lending cannot function properly without deep pools (ennough to loan proposal threshold). 1,000,000 PAL might seem a large amount but it is quite cheap to bootstrap a protocol (same amount that the airdrop) and it will enable a large number of users who are interesting in Paladin to join us.

On borrow side, I don’t think this should be a separate proposal, the ideal is that borrowers get a “cashback” depending on the fees they provide. This could be reduced by limiting the PALs allocated per month (150k first month, then 75k the second and third). Please also do remember that borrowers are activists, which are very valuable DAO members.

On its efficiency, what we can do is create KPI (TVL, number of loans, APY generated) and modify the LM output via governance depending on results, during the campaign.
I think the question of displaying PAL mining without a % value is indeed a thorn, and using Seed Valuation (dating back from June, before having a live protocol, any TVL…) is going to result in having us pay a very hefty amount for the campaign.
A solution might be to have the community arbitrarily decide on a token valuation. I know Ribbon Finance did this, but couldn’t find their methodology (anyone ?).

To avoid them dumping, the core team is actively preparing tokenomics which will be subject to a future PURe (Q1-2022).

For liquidity problems once transferability is enabled, we are in contact with Olympus, and are building a plan for a Tokemak reactor.

3 Likes

For the sake of transparency, here are some information that seem important to add, since we mentioned they should appear in a Proposal framework :

  • Since we have 92% approval on the proposal and got no more feedback on the community call, we will wait 36 more hours, and put up PURe 1 to vote on snapshot for 4 days

  • Deposit APY will be displayed in a PAL/week fashion

  • Develoment of the underlying code (Comptroller + is done, with peer reviews), we are finishing the interface over the weekend

  • Having a campaign beginning in December allows retail to get a head start in farming since institutional are often less active during this period of the year

3 Likes

Maybe one other option to consider - let the user simulate the APY at certain PAL/USD prices. For example you could show x,xxx PAL/week by default, and offer a text box where users can input theoretical PAL price to see normalized APYs. Being able to show APY in the UI could help this LM program have more impact.

3 Likes