More incentives for high APY pools, less for stable/low APY pools

As per @chimera’s advice, I’m posting the thread from the discord and PICKLE farming proposal that will make PICKLE go up. | Voters | Pickle Finance.

The numbers are 1 week old but still relevant.
TL;DR: Pickle protocol makes money from 20% performance fee. High APY pools generate lots of fees while stable pools generate almost none. The powerful Pickle emission incentives should incentivize high APY pools much more than they incentivize stable pools.

I’m concerned about the USDC farm getting 19% of PICKLE emissions.

PICKLE token emissions are supposed to facilitate growth of the protocol.

Pickle protocol will grow when profitable farms increase TVL.

Profitable farms are for example ALCX-ETH and FEI-TRIBE where the jars earn 200% and 160% APY. Pickle gets 20% of the rewards and incentivizes farmers with PICKLE emissions.

Unprofitable farm is the USDC farm. It earns 5.3% APY and awards farmers with 10-25% APY PICKLE emissions. Pickle protocol gets 20% of 5.3% = 1.1% APY and pays farmers 10-25% rewards. In other words, Pickle protocol loses 9-24% yearly on every dollar in USDC farm. I view this as counterproductive and parasitic.

Shifting PICKLE emission incentives from low APY farms to high APY farms will increase protocol revenues. It will make 20% protocol fee matter more. The 20% protocol fee doesnt earn almost anything when the base APY is 5%. It earns a lot when the base APY is 200%.

Sample maths:

ALCX jar with 200% APY earns 20%*200%=40% APY for the Pickle protocol. Pickle protocol currently awards ALCX farmers 6-15% APY in the form of PICKLE emissions.

USDC jar with 5.3% APY earns 20%*5.3%=1.1% APY for the Pickle protocol. Pickle protocol currently awards USDC farmers 10-25% APY in the form of PICKLE emissions.

It’s a crime that we reward USDC farm more than we rewards the ALCX farm.

I don’t have a magic bullet but I have a good proposal that I would like to be put to vote by DILL holders.

Change in PICKLE token emissions:

if:

jar earns <10% APY on average for 2 weeks (this could be increased to <20% APY in the future)

then:

implement a 5% cap on total PICKLE emissions to that jar/farm (this could go down to 3% in the future)

That would mean that the USDC farm would be capped at 5% and would not earn 19% of total PICKLE emissions.

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The above proposal describes my thoughts from the week ago. I think it’s worth adding a few more thoughts.

Many will disagree that:
Yearn = mainly stables farming
Pickle = mainly degen high APY farming

I think this is how people perceive the two affiliated protocols. Also, the 2% Yearn performance fee makes it more profitable to farm stables. Pickle is much worse suited to offer stable farming in times when DeFi yields are <5%.
On a 5% APY stable farm, Yearn makes 2% yearly management fee + 20%*5% = 3% yearly fee
On a 5% APY stable farm, Pickle makes 0% yearly management fee + 20%*5% = 1% yearly fee

On a 5% APY stable farm, Yearn spends 0 money on incentives.
On a 5% APY stable farm, Pickle spends up to 43% yearly APY (USDC farm) on incentivizing people to deposit money into a farm that will realistically never make any money for Pickle protocol.

This is all very controversial. Many whales are very comfortable making 20-30% on stables and want things to stay as they are. That money would be better spent on providing incentives for degen farms making a lot of money for Pickle protocol.

To me, the idea of promoting Pickle as Yearn competitor in stable farming market is insane. The stables market is very competitive. Yearn is very competent. Best to give up, shift focus from stables to what has potential to make money - farms like ALCX, CVX, FEI-TRIBE.
I would advise to stop creating stable Pickle farms (like the DAI farm on Polygon) and phase out ludicrous rewards for existing stable farms.

While some whales will vote to keep high Pickle rewards for stables, I’m convinced that majority of DILL holders agree that the protocol will make more money incentivizing high APY, high fee farms.

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While I agree with your post, the team’s focus is “incentivizing” which translates to give out more Pickle, regardless of how. This conversation has been hashed out before and preceded the hack that occurred. A bit of a history lesson: “DAO” wanted to incentivize money making Dai strat so more rewards were pushed there by “vote” (see Sybil attack by @Peachy). The vote was passed, some people were upset, rewards flowed to Dai strat and then the protocol was hacked. So yeah we can change stuff again, piss off more people, and hope to not get hacked. The protocol already changes emissions every other week, so why not. The token will soon be an actual stable coin (1 Pickle = 1USD) so it doesn’t really matter.

I dare to disagree about the token value. While the emissions are very high, the emissions can be reduced significantly (subject to another discussion). The protocol makes $100k a week so there is potential for number go up if emissions go down.

@napa First, I want to thank you for putting this together. It’s always great to have people really looking out for the best interests of the protocol, and whether I agree with your ideas or not, I personally welcome the effort you put in. I hope you won’t take my next comments as discouraging enough to stop thinking and trying to help. Seriously.

You make a fair argument, but my concern is that it’s a bit shallow in it’s depth of considerations. So let me start with an assumption that I think you’ll agree with:

Any pickle emissions that do not bring in new money / profitable deposits to Pickle platform are wasteful.

Since I believe you’ll agree with that, I can move on to my next point. I believe pushing pickle incentives to heavily degen jars with already large deposits is wasteful. Here’s why. First, the existence of already large deposits indicates (to me) that the APY on those degen jars, or faith in the underlying project, are already sufficient to bring in the deposits needed to sustain those jars. Additional Pickle rewards are superfluous and wasteful. They are unlikely to bring more deposits into those jars. Someone who is not convinced by 170% APY or 220% APY is not likely to be convinced to deposit for 173% or 223%.

A look at the ALCX jar, for example, shows the APY breakdown: pickle: 2.96% ~ 7.39% + alcx: 166.80% + sushi: 0.63% + lp: 0.45%

Despite having 7% of the pickle emissions, It’s only enough to bump the total APY on this jar by about 3% (for non-DILL holders). That’s 3% in their APY, but that 3% increase only really amounts to a 1.8% increase in their return (They would make 167% without PICKLE rewards, 170% with it… so 3/167 is 1.8%. While their APY goes up 3%, this represents only a 1.8% increase of their total return).

If pushing rewards to degen jars represent such a small increase in the APY of those jars, it’s very reasonable to believe that no matter how much pickle we push towards that jar, it likely won’t make the jar more attractive to people who have thus far not joined it. Maybe the thing keeping people away are the 20% profit fee. A small 3% increase in PICKLE won’t really counteract those feelings. Maybe the thing keeping people away are the underlying itself (scared of ALCX for example). Maybe people like harvesting themselves because they have big stacks. The PICKLE rewards likely won’t overcome any hesitancy that people have about using PICKLE. In this respect, pickle rewards on degen jars are not likely to bring any additional profits to the platform. I truly believe this.

So where would pickle rewards actually bring more money to the platform? This is a tough question. So let’s analyze the other two possible places to put the rewards: stablecoin jars, and middle-tier jars. And when doing so, let’s remember our goal is to get as much money into the degen jars as possible.

Stablecoin jars are not likely to bring profit to the platform directly. We agree on this. But, a lot of people might use the stablecoin jars to test out the platform, dip their toe in the water, and engage with the community. Will we be able to convert stablecoin depositors to allocating a portion of their assets to degen jars? Maybe, if they join the chat, etc. The goal for stablecoin jars should be to attract TVL but more importantly show these people the community we’ve built, the discussions we have, and get them addicted.

Middle tier jars have a better outlook in my opinion. Jars that can make 30-50% are great for attracting people with a higher risk profile. These depositors are more likely to convert to some degen strategies if they lean towards degen, or are more likely to bring stablecoin TVL if they lean towards conservative.

Now, let’s address your proposal directly. I disagree with it, for a few reasons. First, it’d complicate the voting logic. Some people’s votes won’t count. Coming up with the weight math might be challenging, and explaining it might be even harder. Second, a lot of DILL holders felt that buying DILL was their “degen” strategy and they want to vote to boost their own stablecoins. This is a legitimate thing to do. In fact, if everyone who bought DILL also brought along $100k of stablecoins with them, those stablecoin jars might actually become profitable for the platform. Do I think it’s likely? No. Not really. But I think it’s fair, and it’d be unfair to force people into more risky strategies by removing the stablecoin options or nerfing them.

Also, I believe this problem will likely go away shortly anyway. Right now there is only 1 jar that fits this criteria, the yearn USDC jar. As TVL goes up, and people spread their money around, PICKLE rewards are also likely to spread out. Don’t forget that the current weights also aren’t completely accurate. While the Yearn USDC claims to have 17.5% of emissions currently, that’s actually only 17.5% of ethereum mainnet emissions, which account for 2/3 of total emissions. So the yearn USDC is actually down near 11% of total emissions.

Pumping one’s own bags was one of the original draws of buying DILL. You buy DILL and you can pump your bags. If we remove that or nerf that, I feel we’re breaking a promise to the community. For this reason, I think we should not move on this suggestion at this time.

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Thanks for your thoughts.

I agree that the middle tier jars (between degen and stables) are the best place to find new customers and new TVL. There are actually not too many non-scam degen farms out there.

My proposal is just one way of addressing the fact that Pickle protocol earns very little on stable pools and that the lack of 2% management fee (like in yearn) makes it even worse.
I agree that the proposal breaks some promises and is imperfect. This was just to spark a discussion.

I think that a good outcome of this discussion would be accepting the fact that stable pools will never make Pickle good profits and cutting the time that developers spend on making new pools. Compound and Aave are bringing in institutional money and they will bring yields on stables to around 0.

Another good outcome would be enabling 2% yearly protocol management fee to follow the industry standard (Yearn) :slight_smile:

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“Breaking a promise to the community” when they’ve already increased emissions multiple times is BS IMO. What about people who bought/farmed Pickle prior to hack/DILL? It’s pretty much screw them right? The protocol should not be trying to suddenly appease DILL voters out of virtue. The USDC jar loses money. It’s a no brainer to stop the losses and be profitable.

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Appreciate you posting this and starting the discussion. Such challenges/provocation are what makes a community/DAO such as Pickle’s strong, and when backed up with sound logic/arguments then all the better.

However, I have to agree with pretty much everything @rawb said in his post. I will add that - it’s true that the Yearn Affiliate strategies are less profitable than we had initially thought. However, they do bring a couple of things to Pickle that are valuable in less tangible ways - TVL, which shouldn’t be underestimated as a vanity metric that has a compound effect on propensity to use Pickle, and Yearn users (and their funds) which is illustrated by the wallet compositions of the main DILL holders that have a USDC position.

A couple of months ago, with input from the community, I wrote up what I believe to be Pickle’s core brand values and they included:

  • Transparent and open
  • Collaborative

I’m aware that some protocols find success through being combative and closed, however I strongly believe that longer term transparency and collaboration will build stronger foundations for future success. And on these values, I think simply changing the rules when it comes to this strategy in particular needs careful consideration.

That said, these are our strategies and therefore we can, as a DAO/community, decide to change how things work if a majority agrees. For what it’s worth I personally think the following is fairly likely:

As for AUM fees … again this is something we have discussed before, but always open to reopening that discussion and assessing the pros and cons.

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Ok, so here are the take home points from the discussion:

1 Pickle emissions to stable farms are generous
2 Stablecoin farms bring near 0 revenue to the protocol
3 High pickle emissions towards high APY strategies are futile because of already high APYs

rawb: “would pickle rewards actually bring more money to the platform? This is a tough question”

So maybe the solution to insane APY for stables on Pickle is global pickle emissions reduction or the management fee?

Pickle/DILL holders have seen Pickle price go down ~50% while some whales are enjoying up to 43% APY on USDC at their expense. Maybe it’s time to give DILL holders a chance to review the emissions/AUM fee.

“always open to reopening that discussion and assessing the pros and cons”:
Pros: number go up
Cons: some users might decide to pull their capital but with very high APYs on Pickle, I suspect the number will be very small

I like the AUM fee more than I like the emissions reduction because it fits a nice narrative: “to stay in line with other major protocol fee structures” instead of flip flopping the Pickle emissions schedule

chimaera, would enabling the AUM fee be challenging from the technical perspective or would it be rather simple?

I don’t think it would be overly complicated, we once had a withdrawal fee. But I am still not convinced it would be beneficial compared to the current approach of 20% performance, given the focus we have.

I see some merit in an ‘early withdrawal fee’ on certain Jars, which may facilitate us servicing those projects with lock/vesting periods.