Realignment the long term governance and monetary incentives

As promised to @Anoniminis 3 and @0xBoxer days ago here. Sorry for the delay I’m very very slowly writing in EN.

Introduction

Getting a long term vision of what must be archived could help our community to focus on things that really matter.

And our community founders already showed to us that are open to listening to anyone that has a valid idea our concern, and many of our decision is made by the community vote which leads us to one recurrent problem: Our responsibility to align community vision.

Resume

The value proposition of the current proposer is to realine Pickle protocol success metrics and protocol monetary incentives.

Project Success Metric

The current propose that our common numeric metric for measure our success rate be:

1 - Profit per Pickle

2 - Profit per Pickle Staked

Protocol Incentives

Background

As stated by placeholder.vc and frequently mentioned by our community members, liquidity is good and we need the gains that it offers, but how much liquidity is really needed? From what values it becomes excessive? We really need to pay millions of usd to have it?

Before responding to these questions i must state:

  • Liquidity provider are service providers

  • Stakers are shareholders

Contextualization

In our community frequently has advocated the importance of liquidity providers and how they are more useful than stakes. And some assumptions frequently made about that are not correct, at least I think. See some of them:

1 - LP’s are the true owners of the protocol (they must have more decision power)

2 - Stakers don’t provide value

1 - LP’s are service providers and Stakers are the true protocol owners. LP’s are paid to do their job, Stakers only receive if protocol made a profit. LP’s stay with one foot in Pickle other foot on ETH, Stakers have two foot on Pickle, LP’s dump Pickles to compound, Stakers Buy Pickles to compound. If the token decrease in 50% of the value, LP’s will have a loss of 25% + IL, and Stakers will have a loss of 50%.

Stakers are best aligned with long term vision, they are the true owners of the protocol and our community must realize that.

We need to conclude, and with time I hope we will:

Liquidity providers are workers (and they are paid to do their job) and the stakers are the protocol owners (and they are vested to protect long term vision).

Don’t agree? For a moment think LP’s as your house domestic employee who you pay millions of USD to do their job, why they must have more power in your house governance than you? Why they must have power in your long term decisions at all?

Now, to empathize how we lost resources with misconstruction, see:

Here: (Voting rights for P2(ETH/PICKLE) + Pickle Stakers) we put together House owners and their housekeepers to decide if House owners could have the right to vote.

And later, (here: [Proposal] Voting mechanism for staked Pickles) we, as a community, was inclined to decide that house owners only deserve half of the rights that housekeeper to decide about their own home governance.

2 – Some could argue: At a current model Stakers motivation of accruing protocol fees is what gives value to Pickles, otherwise LP’s will exit, and if we don’t change anything many of they will exit anyway has pickle emission will be unexpressive in the future.

But this isn’t the real value of Stakers, stakers are paid proportionally with protocol revenues to stay aligned with the interest of protocol growth!

For the propositions entitled on placeholder article, we have more than we really need, in the fact as far liquidity for governance token is kept above 5% any person could participate in governance.

And if we could play with the numbers we will notice that the current scheme for liquidity incentive work against the protocol valuation.

At least two phenomena occur here:

- Zero Sum Game -

Pickle price as heavily dependency to AMM math, which are a Zero Sum Game, where any penny in price variation is directly addressed to another/s penny/ies which not happens on CEX’s (for more about it see the Kraken report: https://kraken.docsend.com/view/jx9ztgjytr5ka6en) where price variations could have gaps. The price gaps and high liquidity create on Pickle a little resistance on FOMO or FUD situations that not occurs on tokens with prices more dependents on Centralized Exchanges.

** - Price Roof- **

As we know when a token pair in AMM has more liquidity is harder to move the price, and when less liquidity price moves easier.

Pickle Liquidity providers monetary incentive increase when price increase (APY is greater when the price increase), which incentive more Liquidity Providers to come. When the price is on upwards more LP’s come to provide liquidity due to additional incentive and because it’s natural behavior is come together when FOMO and exit when FUD. Which create a cycle that led to an increase in resistance on price upwards.

Price up -> greater APY -> more liquidity -> more price resistence -> price up -> … -> more resistence … >> “Price Roof”

… Buyers have less force now and price start declining…

Price go down -> APY reduce -> Less Liquidity -> Price go down faster -> … > FUD and Panic Selling start -> Price go down >> Capitulation
Long Term Governance and monetary incentives realign
… Restart …

Not convinced? Let’s imagine, bull run was started, and someone (let’s say as example @scoty) decides to rewrite this Yearn article with pickles numbers:

And found that:

And he chooses to mimic Yearn for fun and states:

“The current price of $Pickle and its market cap represents one of lowest valuation in the short history of cryptocurrency, a market that loves to make completely irrational bets on things like Yams and coins for dentists.”

@Gabriel and @PickleGohan like it and start shilling it, as an unexpected consequence in the next’s day’s Pickle Market cap does a modestly x4 against ETH, two things will happen:

  • APY for LP’s will be multiplied by 4

  • APY for stakers will be divided by 4

What you think will happen next?

I think that incentives between holders, stakers, liquidity providers, and devs must be better aligned, they are not enough.

Protocol Incentives Realign Proposal

Considering that Yearn currently doesn’t have any monetary incentive for YFI Liquidity Providers and are good. Less than 1.2% of YFI are on Uniswap and they have a market cap above 400M. Said that, could we consider 10% of Pickle as LP’s enough for us?

Target : A maximum of 10% of Pickle to LP’s

First step:

Chock the system moving 60% of LP’s Pickle rewords directly to Pickle stakers to incentive LP’s to stake.

Second Step:

Gradually move out all remaining Pickle incentives from LP’s to Stake Pool until the target be reached.

Last Step:

Gradually move all Pickle emission from Stake Pool to Jars.

Note: The First Step is strongly recommended to reallocate LP’s avoiding a big price drop and to align better Pickle Holders incentives.

Advantages:

  • Better align between Pickle holders
  • Better align between Pickle holders and the protocol
  • Harder for to someone buy a bunch of Pickles, let’s say 20%, at once to manipulate a votation
  • “Roof price” will be unexpressive
  • Less sell pressure

Disadvantages:

  • You found any? Share with us, please

Developers/Founders:

  • Founders are the most crucial part for the success of Pickle project, and their max exposure to Pickle token increases their psychological and emotional compromise with token valuation, and that could be archived if a larger (or all) share of dev incomes will make with Pickles token. Let me clarify, Pickle founders are spectacular! They are pro! But has a slight difference when we operate with a logical side than when we operate with an emotional one. All of us we will have a better alignment if they go all win, with the skin in the game, they will feel what we feel when we feel. They will make a better decision not because is right or because they want us to feel better, but because, at an emotional level, they want to feel better. PS: Harvest team only receives Farm.

Disclaimer: I’m an LP former, and now I’m all in as Pickle staker, and has a high probability that I’m at least in the top 100 list of pickle bag owners.

If you have some contrary point of view, I will be glad to discuss with you.

Sorry for badly English :frowning: I only write in EN on google search and now on Pickle channels :).

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