[Circle of Tokens] Fundamental SOV value, Liquidity Mining and Inflation Rate

[theberni]

1. I think making the AMM rewards liquid would not tank the price, because while increasing the circulating supply a little, it would at the same time make both providing liquidity to the AMM more attractive, especially in the SOV/rBTC pool, and because a large amount of the liquid SOV would probably be staked.
2. I would decease rewards in the BNB/rBTC pool, but not eliminate them. Destroying the liquidity in this pool would discourage people coming over from BSC and swapping BNB for rBTC

3.In general, I think the inflation rate is a problem, but less so than some people think. All DeFi tokens have a high inflation rate in the beginning of their growth phase to incentivize adoption, the important thingis that it declines over time. I am not really that worried. Adoption is the key to everything…that is back to my point 2, removing rewards completely from any pool is a bad idea imo…liquidity and options for new adopters are needed.

[TacooCharlie]

I’ve seen this idea mentioned in passing on the TG group (apologies to whomever posted it originally, i would cite if i remembered or could find the post). This idea wouldn’t eliminate the inflation by any means, but might smooth the curve a little over time. We’ve all noticed the ebbs and flows of the two week cycle. Pretty easy to predict the price is going to fall every claiming day. This would, at least, eliminate that pattern.

Another project, APYS, has a two year linear vest, but they have a running count down clock, showing how much you have available to redeem at any given fraction of a second. You can redeem what is available whenever you want and the clock just resets to zero and keeps going. Everyone sets their own redemption schedule. You can redeem every second, minute, hour, or wait the full two years for the entire amount to be available. Every time you redeem the amount you have redeemed versus what you have left to redeem updates.

It’s an interesting application of claiming and redeeming. Might help smooth some curves for Sovryn as well.

I’ve attached a gif of the count down ‘clock’

This may be a development nightmare at this stage, i’ll leave that analysis to someone far smarter than I.

[Martin_Adriaan]

@dseroy

To be honest, I’m not sure I am following.

Sorry I’m probably not very clear. Maybe it helps if I give a short summary of the idea in other terms. I think that one of the issues is that SOV rewards go to features that do not give utility to SOV, but rather to rBTC.

Part of the tokenomics worry is price. Price follows value. Value comes from demand and there is demand for things that have utility (that gives us access to something, allows to do something, etc.). In general, if we have a feature that increases the utility of X, but you reward it with token Y, then Y goes up in supply without increasing the demand for Y (since it is the utility of X that benefits and hence the demand for X that goes up). That devalues Y.

One of the worries is the high inflation of SOV, I’m not really saying anything about that. Another worry however is that there are many utility drains: features that benefit rBTC, increases demand for rBTC, while being rewarded in SOV. This drains SOV of value, creating supply of SOV without creating demand. To solve it, I was thinking that perhaps rewards need to be separated out. At the moment rewards typically come in packages: some SOV+small amount of rBTC fees. The rBTC fees pool is divided amongst many, and hence translates to a small a percentage of rewards, bound to remain negligible (usage goes up, then pool amongst which fees are to be divided increases, so rBTC rewards remain small).

If one separates the SOV rewards and rBTC rewards, one creates an independent market for the rBTC rewards. One thing that one could do is give people the choice: SOV or rBTC? I agree, this may be too complex. Another thing one could do (simpler and therefore preferable I’m now thinking) is go through each feature and ask, does it increase the utility of SOV (does it require taking SOV off the market)? then incentivized by SOV rewards. Does it only increase the utility of rBTC? then incentivized only by a share of the rBTC fees. This would make us see that we should be very sparse with features that only increase the utility of rBTC and not SOV (currently, these are all basically charity for rBTC, coming at the cost of the devaluation of SOV).

And yes I absolutely think this could mean that we no longer give rBTC revenue to stakers, if it is not attractive enough, stakers should receive more SOV. I don’t think the rBTC fees currently make a difference. Perhaps have the altcoin pools all pair only with SOV (so SOV/BNB, SOV/ETH, etc.) and have a privileged rBTC/xUSD pool that is rewarded by rBTC from transaction fees. That would be the natural pool for a bitcoiner who has no taste for altcoins, as there is then no need to obtain SOV and it doesn’t get rewarded in SOV (which she would immediately dump, given her tastes). This creates a true bitcoin-only path within Sovryn. Anyone who goes the SOV path, needs to obtain SOV in order to get rewarded in SOV. The main point is just that we could think about separating out the rewards to create separate incentive structures, and separate token inflows.

Sorry that was not a ‘short summary’ I guess but perhaps it makes it clearer what I’m thinking.

Is there a way to emulate this with minimal development changes?

I guess not with minimal changes, but how much is involved, I do not really know. Could be too much. Definitely in favor of the low-hanging fruits first approach the CoT is taking. Still, if I’m right that parts of the overall design creates devaluation of its own token, then it needs to be taken care off at some point or other.

@dseroy

I still think the fundamental issue is the rBTC fees have to come from somewhere and that likely is the Bitocracy revenue, which I think above all else we have to prioritize.

Yes, I agree it would probably need to come from there as well. But I don’t think that the small share of fees is really making that much of a difference to be honest. What is really needed to support the staking is the value one gains from it beyond governance (I think this Forum should be accessible to Stakers only, I think there should be Svryn teas only for stakers, I think there should still be a Origins with sales only accessible to stakers, things like Droppr, those are the sorts of things that would really help make the staking more attractive imo).

[dseroy]

Thanks for detailed reply. It’s creative thinking which I like, but I’d still have hesitations.

My primary concern is fear that this would hamstring our treasury. We don’t have the balance sheet to pay out rBTC fees. These fees have to come from somewhere, So, if as you proposed we took these fees from Bitocracy stakers, then we basically move the incentive away from long-term committed stakers of the protocol to short term users. In doing so, we also take away ‘utility’ from $SOV because there is less incentive to buy $SOV and stake it since there is less and less protocol revenue to share. While I think the idea of privledged access to forum, or Sovryn Teas are cool ideas, in practice there are probably about a dozen off us that are active on those mediums and it’s hardly a high value proposition so I don’t think it would create sufficient demand or drive for the token. The incentive to buy and hold SOV is the real revenue share you can gain from it and I think we’d be hugely foolish to push that away from Sovryn stakers and into more mercenary or short term users.

If we don’t prioritize revenue to $SOV stakers then it creates a death spiral where there is little financial incentive to buy $SOV, therefore crushing the value of our treasury (which by a substantial margin holds more SOV than anything us) and thus decimating our ability to continue giving incentives. If we want to create better incentives then we need a bigger treasury, since the biggest share of our treasury is $SOV, we need SOV to maintain strong value. If we sacrifice that, then our treasury is dead in the water. The fact that our treasury holds huge amounts of SOV and not rBTC is a primary reason why we cannot take away revenue from stakers, who really are the floor buyers of the SOV token. Without that, we truly could take our own treasury down to zero.

Also because of the time weighted locking mechanism of Bitocracy I’d argue that we get much more value pushing revenue there than anywhere else. The argument made about the fees being spread across a large pool I’m not sure is accurate. The Bitocracy pool is actually quite small coming in only at 3.5M total SOV staked. We get far more bang for our buck pushing revenue there and forcing users to make an opportunity cos decision. The staking mechanism we have is very powerful, we need to try and use it.

The ultimate issue is we just need more revenue to the protocol. And we gain that by either introducing better products and features that people want, or we eventually get to a point and realize that what we’re building people don’t want or we weren’t able to execute on and the project does not succeed.

[gauchorboy]

The priority should not be to give revenue to SOV stakers. If you think of that as a dividend, growth companies do not need to pay out dividends.

What SOV stakers should see is who is in a better position to allocate capital. Is it the protocol or themselves?

What we need is to prioritize your ultimate issue which is revenue to the protocol. We need a reasonable inflation rate that is essentially raising capital from SOV stakers and holders in order to reinvest that within the protocol to drive growth. All incentives should be treated as an investment by the protocol to see what kind of ROI can be gained from that feature.

Some features can be loss-leaders, but they have to be driving adoption. I actually think that the only reason for staking SOV should be to secure the protocol and for governance and not for rewards because I would like to see the protocol to be a better capital allocator than any individual.

The SOV governance token derives value from the ability to turn on any “fee switch” and I think that we can learn from the initial Uniswap model when it comes to this. Any rewards that are given to SOV stakers really is to the detriment to the growth of the protocol if the protocol can put that capital to good use.

[gauchorboy]

Changing LM rewards to being immediately liquid is the most obvious low hanging fruit.

First of all, it removes all the friction and costs of setting up the vesting contract which really eats into the returns for small to medium sized liquidity providers. There are going to be people that are against locking up tokens for any reason, hence the popularity of liquid staking.

Locking up the SOV tokens was only going to work when Sovryn was clearly going to be a platform and launchpad for all sorts of projects that want to launch on RSK and bitcoin defi. Then Sovryn AMM could essentially be like Curve and we could have other protocols that will provide the liquid staking options on behalf of the protocol.

[karabela]

I am wondering if we can implement the Binance model with BNB for SOV on our platform. On Binance you can choose to pay trading fee with BNB and your trading fee is 50% less. This encourages people to buy and hold BNB in their portfolio to get the trading fee discount. IF possible we could have that option on our platform. People can choose to pay trading fee with SOV instead of RBTC to cut their trading fee in half. This will create an extra use case for SOV and also will encourage people to hold SOV to use the platform. When it comes to RBTC fee payout for strakers, we can come up with some solutions. One is that we could distribute fees collected in SOV, I believe stakers are long term investors so they don’t mind having more SOV. I personally will be happy to get SOV trading fees as well as RBTC.

[Profesh]

I’ve long been in favour of inexpensive ‘perks’ for stakers, but this would incentivise buying and holding SOV even in the short-term; and, however much we might disdain Binance, BNB remains perhaps the most successful alt-coin after ETH.

Possibly merits an investigation by the Circle of Tokens: @sacro/@dseroy, do you have any tentative opinions on this?

[Sacro]

Sovryn is creating Bitcoin DeFi. That means that we want to give Bitcoin an additional use-case for finance and smart contracts. Where others need ETH or BNB, we just need Bitcoin. We should not give up this narrative.

$SOV is a governance token. If we pay 50% reduced fees in SOV, who is going to pay the other 50% of the fees that have to be paid in Bitcoin? Does the protocol sell more SOV to Bitcoin in order to pay the fee’s?

$SOV is not meant to be used as a currency. It’s for staking and governance. Add trading, AMM pool usage and taking a loan against SOV. That’s fine.

Fee’s on a bitcoin sidechain that have to be paid in rbtc should be paid in rbtc.

I am also strictly against taking away RBTC fee payouts to stakers or subsidizing it with another token. It would break the biggest value proposition of $SOV. If we loose the focus on bitcoin, we’ll loose any edge Sovryn might have over others.

[gauchorboy]

I’m not going to fight for specific features, but I think generally if we do not allow value accrual to the SOV token then governance will not be able to provide the subsidies required to drive the growth that is necessary within the bitcoin defi space.

I understand the whole idea of not having SOV competing against BTC, but what we can do is to utilize SOV as a different currency to BTC (it is a currency whether or not you think it is), and this discount example is a good example to show its utility that only using RBTC for fees cannot do.

Instead of being fixated on this ethos, I think we can commit as a community to have certain funds that have been accumulated from certain activities be 100% redirect to drive growth in those activities.

So if a discount on trading leads to more trading activity and increased SOV revenues because of that, those revenues can be redirected to drive liquidity rather than going directly into the pockets of SOV stakers. SOV stakers should expect to have a cut of what is remaining of the protocol revenue.

[Profesh]

Aren’t AMM rewards in effect a “discount” on impermanent loss; or on the opportunity-cost of contributing liquidity to pools whose level of activity doesn’t yet generate enough in fees to be self-sustaining?

I share your aspiration. However, it seems to me that the ship has long sailed on using SOV as a ‘load-balancing’ mechanism for desired activity across the platform—even if we elect to discontinue such incentives once Sovryn (and by extension, SOV) reaches maturity.