Pickle Network Incentives Design

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

10 Likes

Well written Dion. I enjoyed and share many of your sentiments.

As someone who has there entire stack staked, I would like to have voting rights on proposals.

And the issue you’re bringing up with over liquidity with respects to market cap is interesting. Could be ripe for whales to manipulate. I saw it done many time this year on Uniswap.

2 Likes

Nice write up, definitely lots to consider here. Quite a fundamental shift from the current approach, which has been doing pretty well in its own right. I see potential for the approach suggested but also risk - definitely needs careful consideration.

Wasn’t too clear what you mean here - currently the split is 70% LP, 30% Farms. For one you are suggesting using Pickle rewards directly for the Jars, not only via Farms … but in what ratio?

Do you have thoughts on how the Developers should get voting rights? Currently they get final say anyway but if a true DAO is to appear this would need resolving.

Similarly for Jar users, the only way I can see it working is a $ value based vote, but this is a big shift away from using Pickle tokens - which are after all designed to be Governance tokens. I do agree with Staking getting voting rights if that is technically feasible.

2 Likes

Thanks for your comments Chimaera, my breakup of rewards was just a proposal of shifting the design, not anymore well thought out than that. Basically, a thought exercise to consider what the network could look like / or how it could work if the design of the network was changed from prioritising LPs to placing more incentive on staking.

Someone with a greater handle of the math of pickle would need to calculate these numbers if a large change of rewards was to be proposed.

As far as the dev voting I am not sure, but I feel that they have more than earned our trust with their transparency and forward-thinking to warrant significant weight on the decision making front.

I do agree as well that pickle is going very well, and I do not want to upset the apple cart at all - so to speak. But my gut feeling is that we have too much liquidity, which could be to our disadvantage. If we were to incentivise people to stake, not only would we lock up some of the supply - but some LPs might even sell their eth for more pickle to then stake. This would be a tremendous result but at the end of the day its an entirely hypothetical scenario that might not play out like that in reality.

I could be completely wrong on all of this, and I am not trying to say I have total clarity because I absolutely do not - but I just thought it was a conversation worth having and given the big brains in the community, was a conversation that would either lead to new ideas or I could learn something from misunderstanding something or having errors in my logic.

Godspeed.

1 Like

@Bobbysands great write up. I like the topics that are breached here even though they may be a little sensitive - especially the split of the rewards away from the power pool. I must say i am probably the least qualified in these economics and how the balance is kept in a project like this, but its conversations like this that will definitely test those economics and if anything will try to improve on those! I wish others that are more experienced in these tokenomics would join this conversation and take it further!

I also agree that some part of the voting right should be given to the Jar holders as they also assume risk after the power pool LPs by holding the pickles and keeping them away from the free supply.

I guess any move from the rewards for Power pool would need to be on the basis of liquidity being available elsewhere - assuming CEXs??

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Lovely writeup. In response to your pivot, I do believe that 50% of the rewards should go to eth/pickle - but something like 40% to Pjars and 10% to pickle stakers - along with the current fee structure for pickle stakers. At the end of the day we need TVL to make pickle valuable, and we need pickle utility (valuable) to attract TVL.

I think this is an urgent issue personally, as I believe that a lot of the price action for us and competitors is due to differences in utility for the tokens. As our pool2 rewards decrease, we need to give increasing utility to pickle to make it a worthwhile asset to hold - and while I try not to be critical of development as i know the devs are working hard… Right now staking pickle is sub-par with a fixed rate of 35k sCRV weekly - if pickle becomes meaningless then the project will collapse. We need to double dip our staking rewards, perhaps depositing them into the sCRV pjar even if that is only ~6% APY. A definite necessity is that the sCRV rewards becomes dynamic with the 4.5% profits going straight into the pickle pockets. Moreover, in this market we could increase that figure to 7% and still be very competitive.

2 Likes

Dion how would this approach address this issue. Would be a complete about face to some degree. I present this as a macro look at pickle’s token metrics and flow. This is merely a suggestion and maybe some parts will be incorporated.

  1. Pickle pairs: I would suggest a pickle pair for each underlying asset in the jar. p/dai p/usdt ect. These pickle pairs would have gov over the jar. They would be able to shift some of their rewards over to the jar to increases TVL deposits. Pickle holders need TVL and Jar holders want return. 75% would look like this 20% eth/p would never change. 50% broken evenly amoung Pickle pairs based on current pjars. stables for sure but could branch out to wbtc, ren and the other new ones. Pickle pairs are the only way to vote, naked staking would be left out. later on could arb stables or pickle. All rewards would be pickle pairs ie LP tokens. farmers could sell the stable side for all pickles. jar holders could see pair token for underlying assest like dai or usdt. so you give both parties what they want more of what they invested. 5% was left out above as this would go to a NFT payable once a year. The NFT would be dropped to wallets as an incentive to highest qtr growth in jar. so a TLV contest. This would be dilutive so early winners would benefit most from NFT drop. one per wallet yearly payout like a bond. I feel like the token metrics would lead to more pickle being locked up in pairs and increasing TLV by incentivizing the farmers to attrack TLV. long term if harvest has H/dai and 22% we could do 23% just by farm vote to stay head to some degreee. This is a very short version but wanted to get my 2cents out. If you just think about the concept the pros start to run wild if this ecosystem could make it. LP rewards with ability to covert to your desired investment model. I am pretty sure if uni had issues with eth/p pair it would pull from other pickle pairs. will check by tonight to see if anyone has questions. I will end my ramble with I have no idea how to pay for this via current rewards as the cost to change to LP tokens could make this not possible. Thoughts?
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I am a staker, but I don’t see the point of staking pickles to get more pickles. I’d rather give those 10% to another farm
However, I’d love once a wee or something for my scrv to be jarred and farmed automatically as my rewards are too low to compensate the gas to do this myself
infinite loop system ahahah

3 Likes

Hey Doug,

I am not exactly sure what you are proposing here, but by bonding stables, with pickles you are far less likely to get enormous deposits as the risk of IL is so much higher.

I truly believe that naked staking is the most important function of Pickle, and that is very obvious to me, so I would not be in favour of anything that suggested pickles stakers shouldn’t be able to vote.

I might have missed something here, so if I have, can you please write back and break the suggestion up into steps so it is easiest to follow. Thanks mate.

Yes I am saying to move 80% liquidity pickle/eth to liquidity pairs for each jar. pickle that is staked would get paid but no voting. Because farm yield can be transferred to jar via voting with that pair LP. Example would be pickle/dia pair would be farm and eth/dia jar would be jar vault. Now, let’s say pair makes 33% and jar makes 18%. The farm could vote to increase jar Yield to atract TVL by giving yup their yield to increase potential higher gains from new tvl. New numbers may look like 25% and 20% jar. This example would be for all pairs and jars. Bummer they launched dai only pool. Kinda messes this logic all up. I am just looking for frame work so we don’t turn into a piece meal scattered project.

I strongly agree with this idea. It is clear that at the moment Harvest is sucking up most of the AUM, pulling away from Yearn, and perhaps some from Pickle as well. They have structured their incentives quite a bit differently, more in-line with this suggestion, and having just surpassed $1 billion in AUM, it is clear it is working. I would strongly support moving forward on this quickly, even as mainly a suicide pool investor myself. For the long-term, higher AUM is the most important factor. With AUM, all the other problems can be fixed. Without it, it doesn’t matter. The sooner the better.

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As a PICKLE/ETH LP participant, in principle I also agree with shifting the incentives to attract capital in the jars. Eventually, we should allow PICKLE stakers to vote so folks who want to participate in governance can do so by staking their jar/farm rewards (instead of just doing PICKLE/ETH).

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@BigBrainBriner @Larry_Cucumber Any thoughts on this? Was just looking at Uniswap pairs again, and noted that PICKLE-ETH pair still has about 1.7x the liquidity of YFI-ETH. YFI currently has 28x the market cap of PICKLE currently.

I completely agree with @Bobbysands that our liquidity is too high relative to peers, and it is the result of the high % of PICKLE emission being rewarded to this pool. Even as a PICKLE-ETH LP myself, I think it does make sense to move more of the PICKLE rewards to the farms that will help us attract deposits and grow TVL more rapidly, increase fees, and thus improve the ROI for staking PICKLE (to drive additional demand for PICKLE of course).

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Don’t forget that YFI also has $200m+ trading volume of which only $5m sits on Uniswap. Plus as a non rewards token they don’t need anywhere near the same level of liquidity. On the other hand, Pickle is inflationary and can be farmed - see the new YFI strategy that earns and sells Pickle. If liquidity thins these aspects will cause the price to drop.

3 Likes

Great post and glad to see that you agree with me for the most part.

I do need to say that the solution the devs have come up with is far more elegant than my proposal.

They managed to further incentivize people to stake (by using excess treasury) without jeopardizing the liquidity pool picklers.

This solution will be even better when pickle rewards come in the form of eth rather sCRV.

But to your broader point, I would love to hear the core devs opinions on this post.

:slight_smile:

1 Like