Tokenomics Phase 2

[Figue]

Context:
Previous research discussions : PURe 2: Tokenomics; PURe 2: Tokenomics - #2 by Kogaroshi

Upon the last discussions it was concluded that we needed to fast track staking and locking. We also added a 2 year incentive program to bootstrap locking.

Rationale:
From our town hall discussions, forum posts and informal discussions internally and externally we have identified the following needs to create strong tokenomics:

• Enabling a flywheel between our users, our token and the dapps we have built (ie: powering more dapp usage, attracting more users, generating more revenue);
• Synthetize influence into a token;
• Don’t create a system dependant on token distribution;
• Empower governors;
• Let aligned users the possibility to extract yield without this becoming a trend;

If you are here hoping that PAL will be a high-yield token, please leave. We’re building a token of meta-influence, not wealth.

Architecture:
Revenue will be split between operational expenses, treasury building and tokenomics. For now operational expenses are fully managed by the core team as we are still in a bootstrapping phase of the DAO, additionally, We believe the treasury should accumulate 2M$ of stablecoins as backstop over the next few years. This should never amount to more than 50% of the DAOs monthly revenue, in order to be sure the token holders always have real underlying value.

Paladin’s revenue consists entirely of governance tokens for now, and while this is aligned with our mission, we realize it can be severely abused. For this reason, the tokenomics should only be compatible with a very small subset of governance tokens with high compatibility with the DAO. For now, we would like to restrict the list to AAVE, CRV and BAL.

Every period (2 weeks here) token holders will be able to claim their chTokens and either use them in Paladin’s dapp or redeem them for cash value in USDC by taking a 33% exit penalty (who will go back to next period’s distribution).

• 

Next steps:
We’re planning to let a month of discussions run through the month and then start developing the agreed upon solution.

Personal notes (Figue):
This article is the result of team efforts but there is an enormous amount of design opportunities that could be explored. For example:

• What if we use Balancer for the swapper ? Or what if instead we built multiple Uniswap pools all of them would be relative to PAL ? (ie: chToken/PAL) This could be combined with Quests to generate extra revenue for the DAO.*
• Should the exit penalty be distributed next period or to all non exiting users ?*
• How do we manage a period where all chTokens are swapped for one specific one (ie. everyone dumps chAAVE and chBAL for chCRV to get free boosts).*

We have some insane modules in the works, we can’t wait to see this vision of concentrated influence slowly take over crypto !

Cheers,

The Paladin Team

[Beguin]

Thx for the topic @Figue !

I assume that a 2 weeks epoch for the chest to farm tokens may be short at the beginning to gather high amount of each token, especially if diluted between all hPAL holders. Do you think a union like system could be implemented ?

Moreover, I’m not sure the penalty system is really worth it, maybe we should find specific conditions to allow chtoken holders to cash out. Soulbounds NFT seems to be a good opportunity in the chToken role

[Figue]

A Union system has been considered in the form of a sister DAO. the current architecture is compatible with this setup, but the core team simply does not have the bandwith to fully lead this side project.

I’m not sure yet I see how SBTs fit in this setup beyond anything other than hype tbh.
For the cash-out style, I’ve been a very strong proponent against making PAL a yield token. The first obvious reason is that we simply won’t be able to compete against yield machines like Curve or Liquity. Governance is not a gold mine, nor should it be. At its heart, governance is the manifestation of power. So Paladin should focus more on harnessing influence than yield, because, if we play our cards right, no one except us will be able to pull it off.
To make this happen, we have to transform Paladin into a hyperstructure, a neutral layer that has a monopoly on frictionless governance activism. This is what i am trying to build, and I will fight against those who want to implement tokenomics straying us away from this path.
Cashout should be complicated at best, because this is not a cashflow opportunity.

[FrenchTony]

Sorry for all those questions, it’s a lot to information to absorb. If there is enough interest, maybe this could be a topic for a future AMA or community call?

• Could you maybe confirm all the different sources of revenues of the protocol:

  • fees from gov token borrowers on Paladin (only the AAVE)? I assume that INDEX tokens are not worth bringing up for now as it will take a long time to accumulate a significant position.
  • fees from veBoost market on Warden (this is CRV so i assume it can go in the chest)?
  • fees from Quests (but none of them are CRV, AAVE or BAL so they go straight to the treasury)?
  • are tokens farmed using the POL included in the revenues as well (mainly CRV and BAL)?
  • is there another source of revenue that should be mentionned?

• Do you have a specific split in mind between operational expenses, the treasury and the chest? is it a fixed %age or does it change over time? Do operational expenses get covered first and the rest gets allocated between treasury and chest?

• In the diagram i see 3 chests and 3 chTokens. Does it mean that each governance token (CRV, BAL, AAVE) will have it’s own separate chest, and as a hPAL locker i will have an equal claim to each chest?

• Will chTokens have to be claimed for users to benefit from their power? Are each 2 week period a separate claim or will they just accumulate up to a point where it is economically worthwhile for a user to pay for the transaction?

• In a previous article you mentioned we could imagine a market for lockers to delegate or sell chest rights. Is that still considered and in that case, would there still be a 33% penalty if i delegate/lend out my portion of the chest power?

• Could i for example choose to keep the chCRV to benefit from veBoost and use the voting in the Quest, but redeem/burn the chAAVE and delegate/sell the chBAL to another user (or only to another hPal locker)?

• I assume that in order for the chest to have governance power, it will lock the CRV and BAL tokens? So there will need to be a buffer of unlocked tokens to cover the users burning their chTokens (or just enough USDC reserves)?

• I am not sure i get the nuance between distributing the exit penalty “the following period or to all non exiting users”. Is it just a matter of excluding the new joiners from the distribution as they were not participating in the previous 2 week period when the exit penalty was generated?

• in your example of balancer pools using chTokens/PAL… does that mean that users that are not hPal lockers could just buy up influence by swapping Pal for chTokens and therefore benefiting from the chest without having to hold and lock Pal?

[Figue]

If there is more traction an AMA would definetely be possible. Maybe it could be the second part of our next community call ?

@FrenchTony

Could you maybe confirm all the different sources of revenues of the protocol:

• For revenue sources, you have identified all our current revenue sources. To be fully transparent most revenue comes from Quests and POL farming.

@FrenchTony

Do you have a specific split in mind between operational expenses, the treasury and the chest? is it a fixed %age or does it change over time? Do operational expenses get covered first and the rest gets allocated between treasury and chest?

• Our idea is to cover operational expenses as a core team for at least 12 to 24 months, we believe the protocol is still far from maturity. The envisioned expenses should not come live in the near future outside of PAL emissions.

@FrenchTony

In the diagram i see 3 chests and 3 chTokens. Does it mean that each governance token (CRV, BAL, AAVE) will have it’s own separate chest, and as a hPAL locker i will have an equal claim to each chest?

• Each user will have a Chest, and yes, you will get proportional share of each chToken. In theory you could claim them whenver you want. This is a bit where a lot is left to explore. For example you could chose between “use in Dapps”, “invest in the Sister DAO” or “Claim with penalty”. Maybe two weeks is not the optimal period, we would have to do the maths vs protocol revenue.

@FrenchTony

In a previous article you mentioned we could imagine a market for lockers to delegate or sell chest rights. Is that still considered and in that case, would there still be a 33% penalty if i delegate/lend out my portion of the chest power?

• No lending out your chest rights would not be penalized, and yes, it is still compatible with this system.

@FrenchTony

Could i for example choose to keep the chCRV to benefit from veBoost and use the voting in the Quest, but redeem/burn the chAAVE and delegate/sell the chBAL to another user (or only to another hPal locker)?

• That’s a very interesting idea, in term of flexibility of use. My fear is it would be extremely gas intensive to do all of this. Ideall you would swap chTokens into your preference and use it. It depends what amounts we’re speaking of tbh.

@FrenchTony

I assume that in order for the chest to have governance power, it will lock the CRV and BAL tokens? So there will need to be a buffer of unlocked tokens to cover the users burning their chTokens (or just enough USDC reserves)?

• The Chest will never lock voting power, it defeats the purpose of the mechanism. No buffer is planned, all assets would remain liquid.

@FrenchTony

in your example of balancer pools using chTokens/PAL… does that mean that users that are not hPal lockers could just buy up influence by swapping Pal for chTokens and therefore benefiting from the chest without having to hold and lock Pal?

• You are right, this would be a huge problem. It’s not a good solution. We could also do a private fork of Balancer, but I hear the dev team sharpening their guillotine, so we might have to do somethign a bit easier…

[Dydymoon]

Thanks for starting the discussion on this topic, really hyped about the possibilities !
I was quite surprised at first that the sister DAO wasn’t included in the design, even if I understand that the team doesn’t have time to work on it for now, and that it’s compatible with the current system, I still think it can be confusing for users to not add it in the picture.

I have a few questions / suggestions:

@Figue

Revenue will be split between operational expenses, treasury building and tokenomics.

First, I’m in favor of adding a part of the revenues to a sister DAO that would lock and accumulate voting power as discussed earlier, that being said, it can help to add more details on each categories:

• What expense is concerned by Operational expenses besides LM and contributors/teams rewards ?
• Is 50% of the revenues still considered for the Treasury building ?
• What expense is concerned by the tokenomic one, is it the LM for locked hPAL ?
• When the sister dao was mentioned, the idea was to use 25% of the revenues, can it still be the case with other expenses ?

@Figue

the treasury should accumulate 2M$ of stablecoins as backstop over the next few years. This should never amount to more than 50% of the DAOs monthly revenue

• The 2M would be used for which kind of expenses ? Would it be used to increase the treasury building or pay for operational expenses for example ?

@Figue

For now, we would like to restrict the list to AAVE, CRV and BAL.

Does it means that we would sell any other token received ?
If yes there are a few others that should be whitelisted imo

@Figue

33% exit penalty (who will go back to next period’s distribution).

It might be better to accumulate part of it, either on the treasury building, or on the sister dao to increase the voting power.
I think it was already planed but better not market dump if we can, but rather make otc deals for example.

Also if each user has one chest which receive 3+ assets, does it mean there will be 3+ claims or is there a solution to reduce the gas fees on this ?

@Figue

Should the exit penalty be distributed next period or to all non exiting users ?*

As mentioned above, not sure it should be integrally distributed

@Figue

How do we manage a period where all chTokens are swapped for one specific one (ie. everyone dumps chAAVE and chBAL for chCRV to get free boosts).*

I guess first come first served ? Then if the DAO wants to buy the token that everyone sold, we could add some liquidity there

[Figue]

Hey,
The SisterDAO was not touched upon because it is not considered as an essential part of the tokenomics but an additional module that can be added later on. From discussions we’ve had, it is viewed as a system to enable users to lock their part of chTokens and earn fees + Quest yield from them. I believe this is a great model at scale, but that would be extremely expensive to operate in the early days of the Chest for very little actual yield. Could we move this discussion to another thread ?

@Dydymoon

First, I’m in favor of adding a part of the revenues to a sister DAO that would lock and accumulate voting power as discussed earlier, that being said, it can help to add more details on each categories:

Again, it’s accumulating voting power is litterally the point of the SisterDAO. I have very explicitly expressed that I personally believed internalizing too much value in the Paladin DAO was extremely dangerous for our sustainable neutrality (this is my own oppinion and nothing else).

@Dydymoon

What expense is concerned by Operational expenses besides LM and contributors/teams rewards ?

Today we’re spending PAL tokens on LM, Quests and a few bounties. We are also going to start trying to sponsor a few hackathons for people to build on top of Warden.
By end of year we would like to have at least 2 DAO contributors part time (one acting a secretary general in the executive mulstisig to do transparency reports, one to manage the SisterDAO if eventually built and one, would also be interesting to have a BD guild).

@Dydymoon

Is 50% of the revenues still considered for the Treasury building ?

Honestly it depends on a lot of factor. For example, if we did a series A as a DAO, we could simply farm with the stablecoins and use this to pay the DAO contributors. That way we could redistribute 100% of revenue to hPAL holders.
Ideally we should have a dynamic ratio between redistribution and expenses that could be update monthly through a vote if needed.

@Dydymoon

What expense is concerned by the tokenomic one, is it the LM for locked hPAL ?

Redistribution to holders

@Dydymoon

When the sister dao was mentioned, the idea was to use 25% of the revenues, can it still be the case with other expenses ?

I think this should be an option for hPAL holders, not a forced redirection.

@Dydymoon

The 2M would be used for which kind of expenses ? Would it be used to increase the treasury building or pay for operational expenses for example ?

This is a safety net to make sure we can have 2 years of dev in case we run out of fund or need large expenses (audits, hack bounties…). Remember at some point Paladin DAO should pay the dev team for its work.

@Dydymoon

Does it means that we would sell any other token received ?
If yes there are a few others that should be whitelisted imo

I disagree, having DAO revenue based on gov tokens is already risky, we need to hedge as much as possible. So we should focus on a select few tokens synergizing with our activity. The Chest systems is ludicrous with 50 partner tokens, this doesn’t mean we should dump, there are way more elegant solutions to exit positions (OTC, short range LPing…)

@Dydymoon

It might be better to accumulate part of it, either on the treasury building, or on the sister dao to increase the voting power.

3rd time in this message. Paladin DAO = no voting power, all of this should be handled by another DAO. I strongly believe the little treasury Paladin has should be in stablecoins, nothing else. Accumulating voting power will just push comparisons with protocols like Redacted, which is not the point.

@Dydymoon

Also if each user has one chest which receive 3+ assets, does it mean there will be 3+ claims or is there a solution to reduce the gas fees on this ?

I will let @Kogaroshi take this one.

@Dydymoon

I guess first come first served ? Then if the DAO wants to buy the token that everyone sold, we could add some liquidity there

That could create huge arbitrage opportunities for external actors, no ?

[Dydymoon]

@Figue

From discussions we’ve had, it is viewed as a system to enable users to lock their part of chTokens and earn fees + Quest yield from them.

It doesn’t have to be chTokens, otherwise the sister dao would pay the penalty every time to redeem and lock, for this I think it’s better if 25% of the revenues are sent directly there, 50% to the treasury, and the remaining 25% split between operational expenses and tokenomics.

@Figue

Could we move this discussion to another thread ?

The topics are very linked but we can open one on the sister dao too yes

@Figue

Again, it’s accumulating voting power is litterally the point of the SisterDAO

Yes but not the only point, it also create a treasury locked, so not vulnerable to attacks that may want to redeem it, so the amount of tokens locked would only grow, and the voting power and generated native yield too.

Even if it’s low at the beginning, by locking CRV, the sister dao will get 3crv, voting power to be used on users pools or on quest, boosting power to be used or sold on warden and any potential airdrops.
All of these could be distributed, but the locked tokens would only grow and always relocked

@Figue

Today we’re spending PAL tokens on LM, Quests and a few bounties. We are also going to start trying to sponsor a few hackathons for people to build on top of Warden.
By end of year we would like to have at least 2 DAO contributors part time (one acting a secretary general in the executive mulstisig to do transparency reports, one to manage the SisterDAO if eventually built and one, would also be interesting to have a BD guild).

Ok got it so operational expenses are mostly LM, grants and contributors rewards for now.

@Figue

Honestly it depends on a lot of factor. For example, if we did a series A as a DAO, we could simply farm with the stablecoins and use this to pay the DAO contributors. That way we could redistribute 100% of revenue to hPAL holders.

Not sure if it’s the best to do a sale with the DAO, even if it would diversify the treasury, but the idea can be explored. Agreed on the expenses update, maybe each quarter tho, depends on the amount of data to take into account for this

@Figue

Redistribution to holders

Oh ok got it, but it would make sense that this one would not be activated from the start, which would leave the remaining 25% for the operational expenses

@Figue

I think this should be an option for hPAL holders, not a forced redirection.

If this is optional the chest part should be too as not everyone may have a utility of their tokens, in which case the possibility for them would be either cash out with 33% penalty or simply accumulate chTokens, unless if it’s possible to lend/delegate chTokens

@Figue

This is a safety net to make sure we can have 2 years of dev in case we run out of fund or need large expenses (audits, hack bounties…). Remember at some point Paladin DAO should pay the dev team for its work.

So the Idea for these 2M would be to use it in low risk stables strategies and use the yield for daily expenses and maybe pay part of the team, but only use the capital for emergency / big updates ?

@Figue

I disagree, having DAO revenue based on gov tokens is already risky, we need to hedge as much as possible. So we should focus on a select few tokens synergizing with our activity

You’re gonna say i’m biaised here, but APW should definitely be included as the DAO will already start locking, and if done on the sister dao, it will receive APW from the veAPW yield which should be live soon.

D2D too since we will probably lock, and TOKE can make sense too. Finally we don’t have SDT yet, but we’ll receive some through quests since they’ll probably bribe with it, so we might want to lock it too at some point.

@Figue

Paladin DAO = no voting power, all of this should be handled by another DAO

That’s what I said, part of the penalty could be sent to the sister DAO.

@Figue

That could create huge arbitrage opportunities for external actors, no ?

Yes this has to be explored. I guess the DAO could also take a fee on the chswapper btw which should come before the redeem with penalty is possible, so first it match all swaps possible, then the rest is sold OTC

[Figue]

@Dydymoon

It doesn’t have to be chTokens, otherwise the sister dao would pay the penalty every time to redeem and lock, for this I think it’s better if 25% of the revenues are sent directly there, 50% to the treasury, and the remaining 25% split between operational expenses and tokenomics.

You do realize that means we need at least 400k of revenue to afford our current develoment team ? I don’t think force-feeding this DAO is a good idea, but we can explore it.

@Dydymoon

Yes but not the only point, it also create a treasury locked, so not vulnerable to attacks that may want to redeem it, so the amount of tokens locked would only grow, and the voting power and generated native yield too.

Even if it’s low at the beginning, by locking CRV, the sister dao will get 3crv, voting power to be used on users pools or on quest, boosting power to be used or sold on warden and any potential airdrops.
All of these could be distributed, but the locked tokens would only grow and always relocked

It’s litterally the goal of the SisterDAO but internalizing it even more for the DAO. It’s pointless to do both. You’re basically forcing Paladin to align to these vetoken system, which is the opposite of what Paladin should be: a neutral and resilient governance infrastructure.

@Dydymoon

Oh ok got it, but it would make sense that this one would not be activated from the start, which would leave the remaining 25% for the operational expenses

We could just use this as an accumulation method to create a good genesis distribution.

@Dydymoon

So the Idea for these 2M would be to use it in low risk stables strategies and use the yield for daily expenses and maybe pay part of the team, but only use the capital for emergency / big updates ?

Yes.

@Dydymoon

You’re gonna say i’m biaised here, but APW should definitely be included as the DAO will already start locking, and if done on the sister dao, it will receive APW from the veAPW yield which should be live soon.

D2D too since we will probably lock, and TOKE can make sense too. Finally we don’t have SDT yet, but we’ll receive some through quests since they’ll probably bribe with it, so we might want to lock it too at some point.

We can expand as we go. All the tokens acquired through the token swap should be locked in the SisterDAO, but it doesn’t mean we should be accumulating permently this tokens when none of them have even pledged to locking the PAL they received