Pickle Network Incentives Discussion
Note: The purpose of this document is to encourage discussion. I am not trying to upend the network design or take pickles away from LPs (I am currently in the suicide pool myself). However this is purely designed to consider what an alternative incentive design would look like, and how we can get to a place where the Pickle project can take the next step in it’s maturity.
Abstract: This proposal is aimed at shifting the narrative of Pickle towards hardening up the long term prospect of the Pickle project by shifting the incentives towards a staking dominated network with the goal of 80%+ of supply staked at all times.
Problem: Defi and by extension Pickle have fallen into the hivemind of incentivising short term liquidity over long term commitment via staking. This has created a painful boom and bust cycle that is not allowing good projects the time to mature and become hardened and successful.
Excess liquidity makes it easier, and incentivises whales to move in and out of the market seamlessly, pumping and dumping the price as they please. We need to deter this behaviour.
Proposal: As it stands Pickle has far too much liquidity for its market cap and daily volume (highlighted by YFI comparison in PIP 12). Also as it stands only ETH/Pickle LP’s have voting rights, which means in essence they control the ecosystem.
The ecosystem has four arms (LPs, Stakers, Jars, Developers), and in my opinion should have equal voting rights to make up the executive branch of the project and collectively decide the future of the project.
The end result that everyone wants to achieve is more FUM, and in turn a higher Pickle price.
Another reason that Jars/farms will need more of the reward is that in order for Pickle to attract more FUM it will soon need to start offering single asset vaults, similar to what YFI did. This will give the core team much more creative license to find yield.
Also low liquidity on exchange deters dumping, but to incentivise larger buyers to come in we set up a Pickle OTC where we can allocate a certain amount of the treasury each month to be sold via OTC.
This figure above shows that a whale could sell $285,000 USD in a heartbeat, with minimal slippage.
Monetary Theory of Inflation: MV = PQ; where M is the Monetary Base, V is the velocity, P is the price of the resource and Q is the quantity of the resource.
This theory shows that if you lower (V) velocity (speed of which someone moves on the asset from when they recieve it) and lower (Q) the supply via that the § price will go up.
Incentives Pivot: In order to do this we need to adjust the rewards and weighting of voting as they are the strongest drivers of behaviour.
PIP 12 is a great step in the right direction in this regard, diverting 5% of the rewards towards the Jars.
If you look at both Rune and Synthetix (Pickle is using the SNX staking contract code) they are both examples of projects that succeed on the back of strong communities that had enormous buy-in of staking design. Keep in mind as well that both of these projects front-ran defi and mooned during bear markets.
Right now 75% of all block rewards go to liquidity providers. I suggest that 50% of these rewards (split equally) should be redistributed to both the jars and to the staking pool.
That is 25% into staking, and 25% into the jars/farms.
However I suggest that the rewards are paid based on length of time in jars and staked to the network. This is because those that are most committed to the project for the long term with their capital gives the project the most chance of success and therefore deserve the most reward.
From this I suggest the project keep tweaking the rewards breakdown until the sweet spot is known.
Sweetspot: The sweet spot is the mythical point where all three capital intensive branches are served satisfactorily.
To define satisfactorily for each branch I would propose the following as targets:
LPs: Liquidity providers need to be satisfied to remain in the pool so that we have enough liquidity for the project to allow a fluid market, which is moated against slippage and predatory bots. This amount of liquidity will need to be calculated and estimated by someone as I do not know the exact number - just that we are way above it.
Jars: Jars need the incentive to accumulate long-term and sustained TVL. This is obvious as it creates fees, treasury, and in turn a higher pickle price. We should be looking to aggressively attract TVL and use additional rewards to do this. 500m should be a short to medium term target.
Stakers: As previously stated the target here should be 80+% of supply staked at all times. If this is achieved, the downside of pickle is protected and all and ever buy creates buy-side pressure. In turn this also benefits Jar providers as if they are adequately looked after they will stake their pickles to the network and not sell them as they harvest.
Summary: If we can achieve the above we are best positioned across the space to take pole position in the fast-evolving, and brutal winner takes all game of digital hedge funds.
Please feel free to add, slash and attack this document as you see fit.
The fate of the Pickle republic relies on your contribution and capacity.
Godspeed,
Dion Dalton-Bridges
14/10/2020
