How to Grow Capital Providers (what's their incentive to join/stay)

Excluding $USF distribution, this thread is about incentives for capital providers.

Capital Providers Join today and receive ETH + USF (currently ‘Premium APR’ on the front end), but (at least early on) sold USF. I don’t know for sure, but my thesis is capital providers care least about USF (most likely to sell) so (if true, and that’s an unproven if) we should find a way to incentive them to join and stay without USF. Be creative.

We do not have to solve HOW these are done, yet, just ideas on what could work:

Some obvious ones:

  1. Higher APR on ETH
  2. Some extra boost of ETH (from Treasury?) for staying X amount of time

I can only think in terms of ETH, but what else can we think of?

I don’t entirely agree with your statement.
Why wouldn’t capital suppliers be interested in the USF token?
To me, the key thing is forecasting what would be the realistic demand for insurance, and how much of the premiums collected would be distributed to capital suppliers vs. was is retained by the DAO.
If we can present clear estimates of what the platform might be able to capture in fees in the next months, I don’t see why suppliers wouldn’t hold on to the USF tokens they currently farm.

You are 100% correct they may be interested in the USF token, but that’s an aside.

The point of this thread is to explore a design for capital suppliers without the USF token. For the sake of argument (and my thesis for this thread, not my personal thesis of the project).

My thinking is if we can design the capital incentives in a way that works without the distribution of USF to them, then that leaves (a) more USF for other users of the system (see my other thread about users) and (b) even MORE incentive for capital miners if we then add USF on top of something that already works (perhaps as a long-term supplier incentive).

So, for the sake of this thread, I’m just trying to generate creative conversation around what other incentives people can think of besides USF for capital providers.

Or, put another way, we already have ETH/USF as rewards. And we that (a) that works because we have capital but also (b) the majority of capital providers sold their rewards (because the price plummeted after the rewards went out.

So what else can we do?

Looking for ideas from the community (DAO!)

The more policies start to roll out and get sold, Premium APR should increase for ETH capital providers and thus attract more long-term providers.

I think we should work on defining distribution of premium Capital vs. DAO and provide transparency on this number. Once more covers are sold and APR rises, USF rewards should not be required since the interest on ETH is enough incentive.

This is exactly what I hope to sort out in this thread. The “problem” with ETH being enough is there are so many places to earn ETH (staking, alpha homora, even CEFI solutions like NEXO are offering 6%).

For ETH alone to be attractive we need to understand the model better, however, what if we can come up with other incentives “beyond just ETH but not including USF?”

Can we?

If Unslashed will have other assets in management (the treasury) from various taxes (will it?), what about a some % of that yield awarded to capital providers?

Idk…

It is a good thought, but I think some of this is well underway. In one of the recent medium articles, Marh mentioned that the team had a goal to work on increasing premium APR to 8-10% which imo is fine to incentive capital providers to park their ETH.

I also think this is very true-

Also, I think @Aleeex really summed up my thoughts with their response-

For the sake of brainstorming, one idea was to offer policy discounts to buy coverage if providing capital. Idk how attractive that would be for capital suppliers, but another type or incentive we could look into if it was attractive and feasible.

8-10% is competitive enough! So any additional incentives would be great.

What about a boost in APR for holding X% USF, using Nexo as an example (Nexo Loyalty Program - Explained – Nexo).

So if a capital suppliers hold (to use a tangible number exampke) 1% of their supplied capital in USF, they can get an extra .25% ETH.

So if they provided 10 ETH and ETH is $2k then they get (once the product is running) say 6% APR.

But if they also hold $200 in USF (1% of the $20k ETH capital supplied), then can earn 6.25% APR.

If they hold 5% ($1000 in USF), 6.75%, etc.

This would provide USF utility for Capital Providers.

??

In other words, tie the APR capital miners receive to USF they hold (may have to be staked, idk…we can work out the details later.)

Of note - what i’m trying to help us all think through in these separate threads are several things (mostly taken from Lisa Tan’s economics design book)

  • What behavior do we want this role to play
  • What incentives/punishments do we have to create this behavior
  • What is (if any) the USF utility for particular role
2 Likes

I think this could be interesting longer term, but is highly dependent how revenue generation of the protocol and if we need to do so.

In case anyone is interested, this was the article I mentioned previously- Unslashed Private Launch, Epochs 1–2–3: Looking Back, Looking Ahead | by Marouane Hajji | Unslashed | Feb, 2021 | Medium

Here were two quotes I found helpful with this idea:

“The APR from the premiums earned grew from around 1% at end of Epoch 1 to 4.8% at end of Epoch 3, with a total of 7 policies listed”

Beyond mining and rewards

2. Grow the Premium APR to 8–10%

1 Like

it’s obviously dependent on revenue, let’s not get into the weeds of that yet. :slight_smile:

it does provide USF utility to capital miners and i like that. If others do, too, then we should bookmark it to explore down the road as part of our tokenomics design, then decide later if we can’t actually do it.

Sure. Not trying to figure out the details now either. My point was it was more of a longer term consideration based on that dependency.

I am also not convinced there is a need for this if we truly are going to get APR to 8-10%. I just don’t think .25% -1% increase is APR is going to have a material impact on attracting additional capital. I would personally rather focus on other priorities.

1 Like

No doubt other priorities. Sorry if I’m taking away from that @EAsports . You’re a champion here, Ser.

I’m just trying to help and don’t see any downside to offering it. Hadn’t thought about it until this thread so this thread is doing what I hoped - fleshing out ideas.

You don’t think it will help attract additional capital, but I think it will. To me, especially in a competitive ETH lending environment, those .25 and 1 and 2% incentives do matter.

More to the point, however, it provides another way USF has utility (our tokenomics design)!

No worries. I think contrasting perspectives are good and healthy for thought formation and ideas. :+1:

Was just sharing my perspective and opinion on this specifically. It wasn’t my intent to do anything else.

btw- I do love this- I think it is great you are thinking of ways to bring additional utility to the token.

1 Like

Also noted here (Discord) that capital miners could be incentivized with other Assets from the Treasury when Projects adopt coverage of their platform (and fund the USF Treasury)

I would further contend then, with regard to $USF utility for Capital Providers, that if we are able to offer 8+% APR in ETH, then we know the platform can support loyalty levels.

To the default level could be 7% (competitive with, say, ETH mining rewards), but could scale up to 8-10% with USF positions (loyalty levels).

In other words, have 8-10% APR in ETH as part of the design enables the kind of buffer we need for loyalty levels.

The most important factors are probably the return (APR) and the risk. Right now the returns are really high, especially for single side ETH exposure. Enough for most to not care so much about the risk they are taking on. As the distribution of USF slows down this will probably change. When you provide liquidity in e.g. Uniswap or lend on Aave/Compound, the risk are pretty straight forward (for some). Underwriting insurance policies is a different story.

In other words…I don’t really know how much risk I’m taking on at this moment, and I’m probably not the only one with that thought.

Trying to make that very transparent is probably an important step towards figuring what’s necessary to keep/attract capital.

1 Like

Aleeex Discord Chat Link

“Design a “Premium” bucket with a reasonable capital cap to provide a higher APR than the “general” bucket while maintaining a relatively low risk. This bucket would include the most profitable policies at the time and could only be accessible by staking an X amount of USF. Details still TBD.”

Late to this party but as someone fairly new and supplying capital I would be most incentivized to stay by significantly larger USF allocations. I am predicted to get less than .1% back in USF on my staked capital. If I had simply bought USF at the time I would have made 20% on my money already. I wanted to supply capital to engage with the network as I’m excited about the product, but from a financial perspective it makes very little sense for people to supply capital right now. There is way better APY on other platforms or providing liquidity for any number of coins/tokens, and the USF received for supplying capital is honestly offensive considering that the people supplying capital are the most critical to the survival of the network and therefore should be able to earn large stakes in the DAO.

I’d be excited about being able to lock up capital for X period of time in exchange for large amounts of USF. USF is essentially “free” to provide and I think at an early stage should be used liberally to reward those who are allowing the network to actually have a product.

So, I know the thread specified non-USF, but my perspective as someone new who saw very quickly that staking capital has almost 0 financial incentive is - give me USF. I believe in the network, I want to play a role in it and play a part in the DAO. I’m staking capital yet can’t even vote on proposals because I have 0 USF, it makes very little sense. My expectation isn’t you give me more ETH because you don’t have ETH to give, but I think USF will be valuable in the future and I’m willing to risk my ETH on your network in exchange for it… but not for .1% every epoch :slight_smile:

Problem is: people have been getting large amount of USF, and they sold it. It’s why the price and thus the yield is a lot lower than before. I agree that we should be generous, but putting a number on it is quite hard. Not sure where you are getting .1% return in USF from, it’s more around 0.6% per epoch or around 15% per year.

If people want to sell I think that’s up to them, ultimately governance of a useful protocol has value. Personally I would hold because I think that value will go up significantly for USF and I’d like an active voice in the DAO, but if someone does not find value in it that’s for them to decide. The act of supplying capital in an early stage still needs to be heavily rewarded and currently there are just so many places in crypto & DeFi where the rewards are far greater and in many cases the risks are lower.

Anyway, apart from USF I think it could be interesting to explore non-liquidity investment strategies. For example, a basket of reputable cryptocurrencies anticipated to grow in the future which is re-evaluated and potentially re-allocated every quarter with the intention of accruing profits every quarter which are then paid out to those who supplied capital for the quarter, commensurate with both the time & amount supplied.