Incentivizing Pickle Holding

I’d like to create this topic to generate discussions on creating long term value for PICKLE tokens outside of governance. While subjectively governance can be extremely valuable depending on the influence and usage of the protocol being governed, this value is commonly perceived to be lower than the value of simply selling a governance token for profit.

As such, many community members feel that more methods to incentivize the holding of pickles should be explored. Possible options that I’ve personally seen mentioned:

  • Giving a portion of protocol / pickle jar fees to PICKLE holders similar to YFI and yVault treasury distributions.
  • Staking PICKLE to boost PICKLE earnings similar to Curve.

Please suggest more!

UPDATE: It’s been confirmed by the primary team that the first option, giving a portion of fees to PICKLE holders is being pursued. But feel free to contribute ideas that you feel may be valuable and you’d want to see still.

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Agreed with option 1, and less favorable of option 2 if it involves locking up Pickles to boost my Pickle earnings.

Can we also explore whether the Pickles buyback + burn can instead be changed to Pickle Treasury, for us to utilize on audits, bug bounty, marketing grants etc?

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Love option 1, not a fan at all of option 2 at all, can’t see how it creates or distributes any value.

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This article seems very interesting, would like to know opinions about it.
It seems many tokens do the buy + burn, this would make Pickle stand out of the rest.

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I have read this too and I really like the idea. If pickle is to become a DAO, it will need a treasury. As the article mentions, buyback-and-make with balancer can be used as a smart community-controlled treasury that adapts to market conditions. It can be used to support the pickle price, it can be used to fund audits etc. There are plenty of benefits. A burn is final, whereas with buyback-and-[something], you still have the option of using the tokens for something.

Placeholder are influential in the space so I do expect this to replace the standard buy-and-burn for many projects in the medium term. (Side-note: is this long-term bullish for BAL if balancer becomes the de-facto treasury service for most DAOs?).

However:

  • it’s a relatively new idea and untested in practice. It’s far from trivial to set up and get right.
  • people are comfortable with the idea of a burn. The arguments for buyback-and-[something] are more subtle and there might be accusations of “the dev team can rug-pull this at any moment”. So the pool would need to be community managed etc.

If people want to adopt this, I would suggest initially switching from a buy-and-burn model to a buy-and-store to start building up a treasury balance - ie. store the treasury tokens in an account controlled by the multisig, no smart treasury stuff. Then later once the implications are better understood, the treasury balance can be transitioned to a smart treasury (balancer or something else) under community control. Or, if the support isn’t their, we can decide to burn the tokens after all :man_shrugging:.

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Incentivization for PICKLE holders go hand in hand with value creation of the PICKLEs ecosystem.

Right now, the PICKLEs token has 2 utilities:

  1. It is used to farm more PICKLEs in the ETH/PICKLE farm
  2. It is used to vote

First point is not sustainable. Buying something so you can have more of that same thing in the future makes no sense long term (and by long term, I mean 2 weeks from now where APY on pool2 gets low).

Second point doesn’t justify even a 5M valuation.

So besides the PICKLE/ETH pool, where is the money in the PICKLEs ecosystem? Damn right it’s in the pJars.

First conclusion: There must be a transfer of value from pJars to PICKLE holders.

Note that right now, we are talking as if liquidity providers are different from PICKLE holders.

These 2 have direct opposite interest. PICKLE holders want part of the value generated in the pJars whereas LPs want all their cut for themselves.

IMO, we need to find a way for to do at least one of these two things:

  1. Make it so LPs are incentivized to become PICKLEs holders so that their interest as LPs is aligned with PICKLE holders.

a) Either by force such as a vetting period for selling PICKLEs
b) Strongly suggested with a PICKLE lock à la curve

  1. Make it so that the fee is negligable compared to the value proposition of the pJar

a) That would require a variable fee for each pJars: 10% of profit for a very novel strategy with high APY that’s really hard to replicate for an individual alone is fine whereas for a very simple farm & sell strategy, the only value proposition is gas saving (the fee in % could vary according to gas cost of the network right now).

Remember, the only thing we need to do to keep a very high TVL is to make the pJars just attractive enough so LPs don’t go anywhere else. Yeah, some of them are going to cry they miss their 200% APY on a stablecoin, who cares, it’s just not sustainable.

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The variable fee depending on jar strategy complexity that goes to pickle holders is a good idea.
I’d see it as something like 0.5% of withdrawals (principal + profits) of jars goes to the treasury.
2-3% of profits on each strategy harvest goes to the treasury. For complex strategies hard to replicate it could be 10% or even 20%, like already mentioned above.

1% of profits could be used to market buy pickle. I don’t have good ideas how to use this market bought pickle, but the stop-burning-tokens-buyback-and-make-instead blog post is something to consider.

The value in the treasury can be claimed by pickle or eth-pickle lp holders, proportional to how much pickle they hold.

The development team would get rewarded with pickle, as is currently. They could use this pickle they hold to claim rewards from the treasury, proportional to how much pickle they hold.

A very low threshold of minimum funds in the treasury should be kept at all times as operational expenses (audits, gas costs to improve the strategies, create new ones, call the harvest and earn functions…).

Somehow I think it’s possible to use the amount of locked stable coins in the pickle jars as part of a lending and borrowing scheme. The borrowers would pay interest on their stablecoin or weth (or pickle?) loans and the profits from this interest would go to the treasury.
This is dangerous though and needs good risk management and someone with financial background who actually understands how to this, if it is even possible, but the point is to somehow monetize the total value locked in the jars without affecting their effective apy%.

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I agree that the Pickle token should receive a stream of income based on the revenue coming from different jars. Treasury should also be funded from there. Same concept as yearn.
Can establish a different % from each Jar type that goes to Pickle Holders based on the complexity of the strategy. Right now, the 0.69 Jars are Gas efficiency and harvesting automation jars. I’m looking forward what the active strategies will be in the future (shorting, using FlashLoans, etc.), that can not be replicated by regular users. The profit cut on those strategies should be higher than the one in the current jars.

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Pickle holders could be treat with some privileges for :

  • boost for some high APY strategies that has limit capacity (such as Curve boost pools)
  • Stake for strategy admin fee (as Curve, Sushi)

Or Pickle could be burnt with those fees.

I agree there must be value accrual from pJars to PICKLE holders.

However I doubt it’s possible to align LP incentives with PICKLE holders. You could have fee rebates for LPs according to their PICKLE balance, for example. However then the LP will have to lock capital in PICKLE, when the capital might well be more productive in the pJar. From the LP’s point of view, they will allocate capital to the pJar or to holding PICKLE, according to their risk appetite, but likely not both. True, some kind lock-up might work but this will reduce incentives for LPs to add liquidity in the first place.

Basically, I think the best way to incentivize LPs is to have the best-performing strategies net of fees.


Apart from this, in general I think the simpler and more transparent the fee structure, the better. A few other thoughts:

  • I’m not a huge fan of 0.5% fees for withdrawals. I get that it makes capital more sticky but IMO since the exit fee is known up-front, it also discourages LPs from entering. The pJars’ strategies will be the decisive factor in ensuring capital sticks around. An exit fee seems artificial and doesn’t add value to pickle (The negative effect of a large LP pulling out their funds outweighs the positive effect of making 0.5% gains…).

  • The treasury could have an threshold defining a desired ‘buffer’ balance. Gains can be diverted to replenish the treasury when needed, and then back to pickle holders when the treasury reaches its safety threshold.

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We are currently burning pickles using our fees.

There are separate proposals to do a few things differently:

We could instead use fees to fund a treasury
We could instead use fees to reward all pickle holders
We could instead use fees to reward only those pickle holders who are staking their pickles in an as-of-yet undesigned staking pool.
We could instead use fees to reward only those pickle holders willing to lock up their pickles for an as-of-yet undetermined amount of time

Lots of options to consider!

I think it’s important to maintain pickle emission schedule. That means that whenever we want to reward pickles to people, we need to consider where these pickles will come from. If we want to give pickles to people, we need to be taking them from someone else.

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Definitely agree with this all, especially building incentives for all/most LPs to also become long-term PICKLE holders. Reminds me of RenTech (the diamond++ standard of the tradfi hedge fund world): their core fund, Medallion, is only made available to employees (who also all need to have $1m+ to invest into it). This maximizes skin in the game, which is incredibly powerful when it comes to managing investment.

I think a Curve-style lock is in our best interest. With the ongoing emission, we have an advantage here vs others that do not (e.g. Yearn).

Another idea I think is to offer a discount on pJar withdrawal fees. Perhaps this could be tiered. 0 PICKLE staked means base fees. 100 staked drops it from 0.5% to 0.4%, 250 staked drops it to 0.3%, etc., Perhaps down to 0.1% or even zero. (Actual requirements to be figured out). This is another way to incentivize holding, and potentially plays to the main goal of the protocol (maintaining stablecoin pegs) by allowing larger holders to move between jars (and thus underlying stablecoin) with less/no penalty.

Lastly, definitely agree that the various jars should have different performance fees based on their complexity and/or expected returns. Perhaps more complex, but might also be worth considering dynamic fees that are higher for later money (fees start lower for early money, and scale up as various TVLs are hit). This rewards early risk takers, and would potentially also help with issues of too much TVL. Yearn has definitely run into this issue in a major way. Their TVL became so high it caused issues with the underlying strategy (e.g. the yETH vault). I am assuming most strategies are more efficient/can offer higher gains up to a certain TVL. Beyond that, scaling issues come into play. This probably requires a lot more thought.

Two thoughts:
Withdrawal fees are an important funding mechanism. We can discuss managing them but I don’t think providing a path to elimination is in our overall best interest.
If something like this WERE to be created, we wouldn’t use a fixed amount of pickles. It would have to be weighted to the amount you were depositing. Otherwise it creates a regressive fee structure that awards whales who can now pay a much lower percentage of their net worth to eliminate or reduce fees.
I think that weighting it makes sense (if we ever did go down this road) so that maybe every 10 pickles staked gives you a 0.1% reduction on $1,000. Math not checked, just an example.

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Discounting fees according to PICKLE held only makes sense if the PICKLEs are locked up in some way. Otherwise a whale can buy a loads of pickles to reduce their withdrawal fees, withdraw their funds at lower %, then dump the PICKLEs again. There’s no incentive to hold any longer.

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Agree that withdrawal fees are important. Definitely don’t mean to trivialize their value, and we definitely don’t want to give away the (cucumber) farm. I do think fee reduction could be a powerful incentive to hold PICKLE. Only for PICKLE locked for a period of time or something.

Thinking about this more, we probably don’t want to go to zero. A lower, but non-zero, fee would likely result in people moving between the various pJars more frequently, which might actually increase overall fees earned because of the increased velocity. A 0.5% withdrawal fee on money held in place for 6 months would earn a lot less than a 0.1% fee that is moved every week to optimize for yield.

Good suggestion on using some type of weighting, although it surely adds to the complexity of coding it, and for users to understand it. Curve has had some of these issues with their various mechanisms for locking, minting, weight gauge, etc. A lot of confused users.

Also we need to be careful not to align LPs to much with PICKLE - otherwise when LPs remove their funds, there is no longer any need for them to hold pickle, meaning downward spiral where LPs pull out, then dump whatever PICKLE they own.

This is different since Medallion takes in USD and spits out USD. There is only one asset. We need to incentivize PICKLE for LPs who want to stake ETH and/or stables.

IMO a lock is basically like a delay in the emission schedule. Long-term it has no effect.

This is a promising idea. Alternatively maybe pJars’ TVL could be capped to ensure the returns are sustainable (ie. avoid the issues with the yETH vault you mentioned), and also to create FOMO among LPs trying to get in.

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Agree, it should coincide with a locking mechanism, and have some minimum time. Perhaps there are two requirements: number of PICKLE staked and lock duration that determine the discount.

Do we have an idea of what proportion of income currently comes from withdrawal fees vs. performance fees?


Here is another idea:
Keep the 0.5% withdrawal fee but reduce it by 0.1% every week. So if an LP leaves their capital for 5 weeks, withdrawal is free (or we could put a floor on the fee at 0.1%, whatever…). PICKLE holders have already gained from the performance fee, the LP has increased their capital and is free to go if they so wish, everyone is happy.

  • This encourages LPs to commit longer-term and disincentivizes fickle LPs.
  • LPs will still think twice before leaving since if they want to get back into the pool they will ‘reset’ the 5-week fee timer.
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Distribute 100% of fees generated to holders of PICKLE.

The market will take care of the rest.

Caveat* Implement some reward for LPs who have tied up their capital in the pickle protocol rather than simply speculating by holding PICKLE.

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How about making it mandatory to lock a certain amount if Pickles proportional to capital contributed to jars/farms? Let the market work out what the capital cost of holding these Pickles locked is. Like 1 pickle for every $1K worth of tokens, or whatever.

Edit: this makes Pickle value depend on total locked funds, not volume of withdrawals - this would be the main advantage.

Edit2: I still believe a withdrawal fee is in order to make liquidity sticky