Incentivise new capital through long-term thinkers vault

The ongoing proposal to reward current “stuck” capital is a great way to prevent a bank run and reward long-term supporters.

But it does nothing to attract new capital. Besides the ongoing asset management topic I think we could use the long-term thinkers vault to attract new capital like this:

Bonus criteria : When the buffer is below 5%
Bonus amount : Bonus for 1 day is equal to 1/100 of the holdings of the long-term thinkers vault. That means the bonus can never fully deplete.
Bonus qualification criteria : You supplied new capital during an epoch where the Bonus criteria was met for at least one day and supplied capital throughout the next epoch.
Bonus vesting : Earned in the next epoch and vests over the epoch following.

Here is an example:
Epoch 8 has 3 days where the buffer is below 5%
Capital supplier joins during epoch 8 with X amount of ETH
In Epoch 9 the capital supplier will receive their share (X/total amount of ETH joined in epoch 8) of 3/100 of the long-term thinkers vault.
The bonus is fully vested by epoch 10.

This is particularly nice because the math is rather simple and it can be transparently communicated:

USF buffer below 5% - join now to receive a USF bonus!

Also the rewards will be rather high in the beginning and will hopefully build a strong enough incentive to attract new long-term capital.

4 Likes

I like it!

A couple of weeks ago we were talking about some kind of dynamic rewards based on the demand for capital, this ties perfectly into that. With the added bonus of an extra incentive to stay longer.

left some comments in Discord regarding amount and where we get the USF funds from, but overall really like this idea and in support the direction.

Details aside, this looks like a solid idea. It would be similar to rebase tokens? In the sense that we provide an incentive to bring back to “peg”? In this case the buffer of withdrawal for others.

Yes, the idea came from rebase tokens indeed.

I prepared a sheet to calculate different scenarios for the incentives.

Following the suggestions from above here is an updated proposal. Instead of using the long-term thinkers vault the DAO could allocate 5M USF in total to incentivise new capital. This pool will not automatically refill unless the DAO decides to.

Also, new capital rewards will go down with the pool depleting which should keep the inflation in check once the project matures and capital flow reaches an equilibrium.

2 Likes

Thank you @dreyy for this proposal! I like the idea and it could work together with the premium APY variation. It will actually give it more impact; the premium APY will increase and at the same time the USF rewards for new deposits will become higher.

I have some questions regarding the internal mechanics and I am wondering whether or not it would be possible to game the system:

  • the buffer is below 5% because people are withdrawing, isn’t there a risk of pushing more people to withdraw first and then redeposit in order to get the reward? (in which case we will always be playing between 5% and 0%)
  • Would it make sense to rather distribute the bonus rewards to everyone who stays in + new comers (increase the USF yield)? and maybe have a vesting schedule attached to it?

From a high level perspective, the way I see it is the following:

  • Capital wants to leave because there is a more interesting APY to farm somewhere else, this spike is often temporary and doesn’t sustain for long periods of time
  • Increasing the yield tends to make people want to stay/attract new capital (?)
  • on the long run, we want to attract long term capital suppliers & active token holders and we already started using different mechanics to give more incentives for this kind of actors. Increasing the focus on this side could also allow to better manage the utilisation (?)

From a more operational perspective, we have the following:

  • We have a withdrawal process that happens in 2 steps: withdrawal request then the actual withdrawal
  • Capital is being rewarded on an epoch basis, people who leave mid epoch leave rewards on the table
    maybe we could use these two and maybe add something else that could be leveraged to incentivise new capital and push the one on its way out to stay?

Just some ideas and questions as I see potential in using this as an additional layer of incentives :slight_smile:

Thanks for the reply, let’s dive into the details.

Gaming the system
I think the gaming should not be a major problem because:

  1. new suppliers have to stay one full epoch afterwards to earn the rewards (as of my proposal). That means you could only game the system every 2nd epoch or with only half of your capital.
  2. The more people try to game the system, the less their rewards will be. At the same time the rewards for long-term suppliers will explode since the “gamers” leave the normal rewards as well as the bonus for the long-term suppliers. So this should balance out fairly quickly.
  3. If there is a consistent gaming of the system it will taper off quickly. There is a finite amount (5M USF) as of my proposal and a fixed ratio. That means with every day below the buffer the rewards get smaller. Eventually they will reach an amount where it makes more sense to stay as a long-term supplier rather than gaming the “fresh cash” pool.

If we wanted to make that experiment smaller to watch its dynamics I’d say we could also start with 2.5M USF as rewards and a ratio of 1/50 per day below the treshold.

Why capital wants to leave
I think assuming that capital wants to leave only because the APY is too low is overly simplistic. I can think of a myriad of reasons why capital might want to leave:

  • They are exposed to the risk of ETH price crashing and want to move into stables
  • They anticipate an increased risk (e.g. Tether FUD) and don’t want to be exposed to the risk
  • It’s tax season and they need to do certain transactions to optimise taxes or free up capital to pay them

I’m sure there are many more reasons that are not directly tied to the APY. So I think in the long run building a strong APY is only part of the puzzle. Ultimately you want to give the capital suppliers the flexibility they might need.

The operational perspective
Reading between the lines I think you mean that we could use the rewards of the mid-epoch leaving capital to incentivise new capital in some way? I dislike this idea for two reasons:

  1. Those rewards currently go to the existing suppliers, so in a way it is an incentive for the long-term suppliers to stay. Taking that away from them encourages them to leave too, which could trigger a cascade in some black swan like event.
  2. it will make for a complex and probably intransparent system if the reward pool constantly changes.

So, all in all with the 5M USF and 1/100 of that for every day below the peg you can put something real simple on your landing page / twitter / etc:

USF Capital Call - Earn up to 10% on your capital in just 30 days if you supply capital NOW!

2 Likes

I am impressed by the thoughtfulness and detail of this and support the idea and would like to see it implemented!

This idea is not useful. But it should be evaluated in the future. Not now!