Proposal: Yield Farming should give liquid SOV. We should remove all vesting contracts from Yield Farming.
This is an instance of a more general proposal: Sovryn should get rid of all the vesting and lock ups for the ordinary user. We currently have a system that imposes (or asks users to self-impose) restrictions of various sorts on the ownership of assets. This doesn’t jive with a system revolving around sovereignty and I think is not optimal. This SIP concerns Yield Farming, another post will concern a related proposal for Staking.
Some considerations in favor:
The vesting of the Yield Farming makes it very hard to estimate how much is earned from taking on the risk of Yield Farming, as one doesn’t know the worth of the rewards when they are finally in the user’s hands. (thanks to @TedO, @Saunter for this point).
The vesting, with the cliffs, creates complexity in the smart contracts. This creates relatively high fees. (thanks to @MattBrad for this point).
With the vesting rewards, the system effectively asks new users to immediately make a long-term commitment to Sovryn, when starting Yield Farming. 10 months is a very long time in the volatile crypto. It is asking new users to go from 0 to 100 commitment. This deters adoption.
The distinction between “Reward SOV” and “Liquid SOV” increases the learning curve for new users (who need to learn about cliffed vesting). When all rewards are always liquid SOV, the distinction can be dropped altogether. Less conceptual bloat.
The distinction between “Reward SOV” and “Liquid SOV” increases the complexity at the level of the UI. When all SOV is liquid SOV, less information needs to be conveyed to the user on the front end, this means a better look and easier to navigate dAPP. These things matter.
The vesting makes the rewards less attractive (indeed less valuable) then they would be when immediately liquid. Making them liquid maximizes the incentive they provide to users, streamlines the platform and increasing the sovereignty of the users.
Anticipated worry: “Would this not lead to a damaging increase in supply? A constant sell pressure?”
Response: the increase in supply is already there, it’s currently only delayed. Delayed increase in supply is not somehow less of an increase. Arguably, when rewards are liquid, the effects of the increase in supply (and incentive to sell) becomes easier to read off the market. What you see is what you get. Also realize that Yield Farming is a competitive play, if a user can get liquid rewards somewhere else, many will prefer that even when the APY is lower. We want to draw people in, as that is one of the major factors off-setting an increase in supply.
The most important counter-measure to unhealthy sell pressure is not to delay or lock up, what is needed is that the system provides a strong incentive to compound; but that’s a separate discussion.
Final note: should we get rid of all vesting, for anyone? I’d say that the vesting is appropriate for large parties in funding rounds and core team members. This is also the typical use of vesting, and many of the points made above don’t apply here. VCs and Team members know what vesting is, no need for it to be on the UI, investing often comes with a discount and this discount off-sets the time delay, etc. The proposal is just for the rewards of Yield Farming.
Reasons to end 10 Month Vesting from discord general chat last night:
“I think Sovryn should get rid of all the baroque vesting and lock ups. All of it. I mean, think about it, a system full of “can’t touch this, can’t withdraw that, or face this penalty ‘’ hardly fits the concept of being sovereign as a user. Yield Farming should just give liquid SOV. The vesting keeps it from working like a passive income, makes it impossible to gauge how much it is without a crystal ball, and makes it impossible to assess the risk-reward ratio. It creates frustration, when SOV goes down and you can’t touch what you experience as something that has been earned. It makes the rewards less attractive than they are, smart contracts more complex than they need to be; imposes unnecessary complexity on the UI (such as the distinction between “reward SOV” and “liquid SOV”), and so on and so on. Getting rid of it streamlines things, and makes the rewards more attractive, the user experience nicer, etc. I really only see benefits.``-Community Member
“I disagree, there is no real incentive to hold the token that’s why everybody is dumping it. The problem is we can’t predict future prices. I really loved the idea behind sovryn and I still think it is interesting but at the moment I am not happy with it.”-Community Member
“The 10 month vesting period is a long wait plus the high gas fees of claiming rewards builds up over time. Need to be sure that adoption of the $SOV token will outweigh the dilution from the short term high inflation tokenomics. Adoption has been very poor recently.”-Community member
This is a DAO meaning is primarily driven by community. Let’s improve the experience for the community rather than ignore their great feedback. Focusing on improving user experience if anything will encourage people to provide liquidity longer instead of forcing them to lock up their rewards for 10 months.
Obviously, we should consider the risks and costs of such a SIP such as short term price movements, liquidity risks etc if SIP was to be approved.
The aspect of sovereignty has to do with holding your own keys and removing central intermediaries. In my opinion it’s odd to say something isn’t sovereign because you don’t like the terms of an arrangement. If you don’t like it, they don’t opt into it. That’s sovereignty.
With that said, I’m sympathetic to all other points. The sell pressure is still there and just delayed. A removal of vesting term may result in added liquidity. Do you have a proposal where we could maybe trial some of these pools without a vesting and measure to see the added value?
The bigger issue is the general mercenary nature of LPing. We could reward LP’s 1000x and they could rip all the liquidity away a second later with nothing for us on return. I was hoping to solve some of this with a PoL model but unfortunately wasn’t able to come up with a viable solution yet. Especially now that we’ve seen the Olympus forks have died as many expected.
A removal of vesting may be a temporary improvement but i’m not sure it solves the underlying issue.
Do you mean other protocols where they do this, to compare, or do you mean that the proposal would be to add a pool to test this first?
I agree that this is a risk. I think vesting doesn’t help with this, and neither does the proposal here. I personally believe that the only solution to this is a careful design of incentive structures on the platform: there should be enough incentive to re-invest gains instead of taking them elsewhere (out of their own decision, not making them by locking it). There is no magic trick for this, Sovryn needs to be an overall better platform and better project than competitors. The problem of mercenary LPing is in my view just market forces on steroids, where a project bleeds out value to projects that outperform it. Perhaps you see this differently.
I disagree, sovereignty is also about having control and autonomy over what’s yours, having unqualified property rights. There is such a thing as opting into a system that limits sovereignty, the fact that one could walk away doesn’t imply that one’s sovereignty is nevertheless limited as long as one stays in the system.
I think you make some valid points but i am not convinced that we should change the system.
The monthly unlocks make sure that users keep coming back to Sovryn, it’s getting routine. This is very important as it should bind more users. In addition, it helps keeping the liquidity over a longer time period because users waiting for their rewards to unlock are more likely to keep their funds on Sovryn AMM’s.
The yield is already instant liquid, paid out per block, in the lending pools and in the amm pools. The ADDITIONAL SOV rewards are not. They are optional anyway and provide early adopters with governance power and an early stake in the protocol. It should be kept this way.
In general I agree with the removal or reduction of the 10 months vesting. However, we need to avoid SOV dumping pressure.
Instead of vesting the Yielf-Farm earned SOV, there could be other incentive for locking SOV. Because we need UTILITY for the SOV token, other than only voting power.
What about “bonus yields” based on locked (or “held”) SOV.
I would suggest keeping the 10 month vesting period as is but then provide an option when claiming to “stake” the entire reward immediately, presumably with some predefined minimum staking period. The immediate option to stake should incentivize long term thinking with the penalty for early withdrawal already baked in.
To my reckoning, a considerable amount of friction arises from the fact that currently the ten-month vesting period is only triggered by the act of claiming itself, rather than by one’s actual participation in the rewarding activity.
This effectively requires users to either claim on a semi-regular basis—at a non-trivial cost per interaction—or else to leave their rightfully-earned SOV on the table until such time as it actually becomes economically-viable to do so, which then further delays the onset of that vesting process.
Thus, the ten-month vesting schedule effectively imposes a ‘cliff’ on only non-whale holders, inversely proportional to their individual selling power; or else continually forces the liquidation of their rBTC via exorbitant transaction fees which must then be recouped—by immediately offloading SOV, either for rBTC or XUSD, at an increasingly lopsided price whose downtrend is only liable to accelerate as a result of said aforementioned, artificial and asymmetric selling-pressure. Indeed: the very mechanism designed to safeguard SOV’s price, through this particular implementation, perversely incentivises selling SOV.
To those low-time-preferenced lenders and liquidity-providers whose intention (as mine) has always been to simply re-stake their SOV at every available opportunity, being penalised in this fashion for actions which ultimately promote not only the health of SOV but also the prosperity of Sovryn entire—as already implicit in the very existence of such vesting schedule—seems fundamentally and self-evidently misaligned to the long-term interests of the protocol.
I therefore tentatively submit a twofold (if by no means comprehensive) remedy:-
Allow users at the instant of claiming SOV to choose between either a ‘passive’ vesting contract of shorter (say, five months’—or even, as per @Martin_Adriaan, zero) duration, or else an ‘active’ staking contract of minimum twelve months’ duration but subject to slashing—albeit still, for its relative simplicity, substantially cheaper to initialise;
Once per month: allow all ‘non-dust’ protocol rewards to be instantly converted to SOV and then automatically re-staked for another twelve months, at no cost to the user.
Of course, I’m no armchair-economist, fintech-analyst nor blockchain-specialist and so the above critique and its proposed solution may [will, inevitably] lack rigour: I accordingly invite others of greater technical and fiscal acumen (@Light; @dseroy, perhaps) to either confirm or dismantle my underlying assumptions with all due diligence and despatch.
I’m open to supporting removal of the 10 month vesting, with some caveats. Specifically, I’d like to see a few key protocols like Zero and/or Perp swaps generating revenue to stakers. As we drive more fundamental value to the protocol, there becomes less (or no) need to artificially restrict $SOV with vesting.
The one blessing of the token price being obliterated is that we’re almost at the point where $SOV has a pretty solid fundamental value. A max stake $SOV at today’s price in the Bitocracy earned over 8% APY paid in Bitcoin this most recent week, based on my rough calculations. That’s honestly not terrible and it doesn’t even include the SIP - Liquid Staking Rewards, which are quite lucrative for max stakers as well. The market will begin to recognize this and will create a price floor to. The market shifts from speculative and growth investing to value investing, which is a pretty rare and nice thing to see. If you’re highly convicted in the future this is a pretty good time to buy and stake IMO. With that said, I want to temper expectations, the revenue we’re generating is extremely small all things considered and the APY is only reasonable because there is an exodus of stakers. Additionally, I think we’re close but still a little ways away from things like Zero and Perps being actual true big revenue generators. But the potential and intent appears to be there!
To recap, if we can create sustained fundamental value to Bitocracy stakers (let’s ball park estimate roughly 15% APY for max stake for several consecutive weeks or months) then I personally would have no issues whatsoever removing liquidity mining vesting contracts.
For someone who just wants to claim LP rewards and stake those rewards the process is a bit tedious. Both of these actions are favorable for Sovryn and I believe should be streamlined. As of now I have to claim liquidity rewards (pay gas fees), wait a month to collect 10% of them (pay more gas fees) and then add these to my stake (more gas fees). While basically repeating this process every reward period to slowly add liquidity rewards to my stake (and pay more gas fees at every step). Why should I not be allowed to claim LP rewards and add them straight to my stake, in full, as long as the stake is >=10 months? I suppose one could do this and then remove these rewards prematurely from the stake but there are already slashing fees in place to deter this behavior.