[RFC] Incentivizing Pickle Holding and Governance Reform

Note: This is a Request for Comments (RFC) proposal.

UPDATE: PROPOSAL SUBMITTED FOR VOTE

A vote has been submitted to the Pickle Finance Snapshot voting platform. It will run for 48 hours starting at 6am UTC of September 26th, 2020.

Intro

Over the past two weeks since our launch, the community has expressed the desire for:

  1. An incentive to hold PICKLE tokens;
  2. A comprehensive governance reform with more community control, and;
  3. A re-evaluation of the buy and burn strategy.

Today, based on studying the discussions here and on Discord, we (the Pickle core devs) would like to present a proposal to the community for feedback.

The Problem

Here is a brief exposition of the concerns along with links to forum threads where some of the discussion has taken place.

1. There is no intrinsic reason to hold PICKLEs

See: Incentivizing Pickle Holding

Many have pointed out, the only reason to hold PICKLEs right now is to farm them for even more PICKLEs. It is not lost on us that this is tautological at best, and at worst, a house of cards waiting to fall apart.

2. Current governance is not ideal

See: Extend multisig to 5/9

There is desire for a community-controlled treasury that is not entirely beholden to the original founders of the project. We are only two weeks in, but having a plan for this makes perfect sense if we want to see the project succeed in the long run (and we, the core devs, certainly do).

3. Buy back and burn is not a good strategy

See: Replace burn with buyback-and-[something]

The initial impetus for this strategy was due to the simplicity of implementing it in code. Admittedly, it was a naïve approach, and even back then, there were community members who opposed it. Unfortunately, we did not have the time to research and implement alternative strategies as we rushed to complete the Jars for UNI’s farming launch.

Proposed Solution

We, the core devs, would like to propose the following changes:

1. Allow staking of PICKLEs to earn a portion of PickleJar profits

The heading here is quite self-explanatory. We want to allow people to stake PICKLEs to get a share of the profits that the Pickle protocol earns. This was heavily inspired by YFI’s approach where YFI holders stake their YFI to vote, and subsequently earn a portion of yVault profits.

The following is taken directly from LearnYearn:

When you stake your $YFI to vote in governance, you earn a percentage of fees that are accumulated from the different Yearn Finance products like Vaults.

These features make $YFI much more than just a governance token.

If this proposal passes, this model would apply to PICKLE as well. Read on for more details.

2. Roadmap towards a community-controlled treasury

The community has demonstrated its interest in the long-term success of the protocol, and deserve more control over the direction of the protocol. That is why we propose the creation of a new treasury, which will eventually be a 5/9 multi-sig account with active community members.

The treasury will receive the bulk of the fees from the Jars (see below) and will start with just the dev team for now, but it is our intention to gradually hand off control to active community members.

This community-controlled treasury will be the dedicated resource for all of Pickle Finance’s expenditures (marketing, bounties, audits - although the initial audit costs will come from the current dev fund as we wait for the treasury to accumulate).

3. Send the bulk of PickleJar fees to the treasury

We propose removing the subsidized gas fee (3%) and buy and burn (1.5%) from the PickleJars. Instead, we will divert all 4.5% of pJar profits to a staking pool where people stake PICKLEs and earn sCRV or whatever tokens the Jar produces as discussed in the first point above.

With the 0.5% withdrawal fee, we propose splitting it into: 0.175% for the dev-team to fund their continued work on Pickle, and 0.325% into the treasury.

As a matter of logistical simplicity, the proposed 4.5% for PICKLE stakers will go directly into the community treasury, at which point the 5/9 multi-sig can decide if all of the 4.5% should be distributed to PICKLE stakers (initially we intend this to be 100%).

Benefits

The biggest benefit of this proposal is the empowerment of the community-controlled treasury. The treasury can decide how much of its profits to send to PICKLE stakers, and can also decide how much to spend on various expenses relating to the protocol.

This means that instead of a set-in-stone buy and burn of 1.5%, the treasury can decide to execute any of the proposed strategies:

  • Buy and hold
  • Buy and supply to Uniswap ETH/PICKLE pool
  • Buy and make
  • Buy and do whatever you want!

Technically, you don’t even need to “buy”, it’s just money in the bank.

In closing

We look forward to hearing your comments and how we can further tweak this proposal. We think this proposal will move the project towards a more sustainable future and likely a healthier token price as well (which benefits everyone).

We spent a lot of time studying the community’s ideas before writing this, but do let us know if there are considerations that we have missed. We would like this proposal to evolve towards something the entire community can get behind.

Stay green.

33 Likes

So if this passes, at first, PICKLE holders could stake their PICKLEs to get a share of the 4.5% fee on earnings from pJars.

In the future, the community would be free to do whatever it wants with the 4.5% fee, right?

If so, I love it. It shows holders that right here, right now, PICKLE has value beyond farming while letting the door open to innovation as we’ve seen with the amazing forum contributions on the incentivizing PICKLE holders / Buy and burn alternative threads.

12 Likes

Great proposal, nicely captures a few of the community wishlist and definitely gives Pickle a bright future.

A few questions from me initially:

When you say “Pickle staking” are you thinking of the current Pickle-Eth LP or a direct Pickle stake approach?

I believe YFI have recently decided to remove the requirement for YFI needing to vote in order to get the share. Were you thinking of voting being a requirement for Pickle or not? I would vote for not .

Regarding the audit fees, is the thinking the Dev fund would be compensated for the expenditure once the treasury is sufficiently full?

5 Likes

When I say “PICKLE staking”, I’m referring to single-asset PICKLE staking. We want the barrier to entry to be low enough that there would be sufficient buy pressure for PICKLE. However, voting will continue to be reserved for ETH/PICKLE stakers because they have the most skin in the game.

Re: reimbursing the dev fund for an initial audit, we are happy to pay it out of pocket for now. The community can decide to backpay us if they deem it to be worthy.

11 Likes

I would prefer a direct stake approach, to be able to self direct my exposure in a better way. Liquidity may suffer for it in the short term, but I’m sure the market will solve that problem quickly.

1 Like

Wouldn’t the only pickle holders have more skin in the game? Or are you referring to the current situation, and switch when there are sufficient stakers in the governance contract?

I’d argue that ETH/PICKLE LPs have slightly more skin in the game cuz they can lose their ETH. I’m willing to have my mind changed tho.

7 Likes

I 100% agree with the proposed solutions.

1 Like

So would Pickle-Eth stakes get the share too? Or only single asset stakes? I’d assume/hope so because as you mention they are more invested and through their votes, making the decisions.

Beautiful attitude on the audit fees :green_heart:

2 Likes

Very agree !
More proceeds can be used for repurchase !

IMHO PICKLE-ETH LP holders has much more skin in the game than PICKLE holder, when block reward is less than 2.5 (1 week later).

They provide liquidity which means they provide lower entry cost for newbies, and they are willing to buy more PICKLE when price dramatically drops. They provides more positive effect at the market than pure PICKLE holders.

4 Likes

Agree. I would almost like to see part of the treasury in the ETH/PICKLE LPs as well. That would support the project and diversify the assets it holds.

It will depend on the apy of the Pickle stake contract. If it becomes greater than the LP provider’s, it will make more sense economically to move there. In such an event the voting power might become too much concentrated, and since they only need half the pickles it might open some governance attacks.

Edit. Are the goals of the pickle holders and the pickle lp holders always aligned? Difficult to say anything meaningful right now because we are so early. I’d imagine that part of the lp providers are less interested in the governance and long term development of the protocol but are chasing the high yield pickle lp provides.

Hey team, thanks for the detailed proposal!

Regarding the fee structure - why would the dev fund be paid out of withdrawal fees rather than the performance fee? It creates a weird incentive for devs to create strategies that encourage LPs to FOMO into pJars and then pull out (since more volatile liquidity => more withdrawals => more dev funds). Wouldn’t it make more sense to have the dev fee contingent on pJar performance? This also seems to be a more predictable income stream.

By “staking” here I suppose you mean staking in the PICKLE-ETH uniswap pool?

Edit: just read your follow-up post:

I think adding further staking pool only further fragments PICKLE liquidity, and forces holders to choose between governance and earning returns, effectively splitting the community. Also makes the whole ecosystem / incentive structure more complicated.

1 Like

I think we need to stay focus on this proposal for now.

Do we agree with:

  1. the creation of a treasury

  2. the split of the fee between dev/treasury.

Then, in the future, we can discuss of what to do with the treasury which will be in itself very interesting (already is, imo).

2 Likes

Thank you for the proposal!
I like the approach, except the need to stake Pickles. If you look at Yearn, they removed that requirement. I think that any Pickle Holder should be entitled to a flow of funds as determined by Treasury.
That will eventually allow to use Pickle as collateral in other protocols, e.g. Aave, etc.

1 Like

Yes the APY affects, maybe a weighting system could be introduced.

First of all, I want to start by congratulating the core dev team for the hard work put in product development, for welcoming and implementing the feedback of the community and for setting the foundations of a great culture

Aligning the incentives of token holders and liquidity providers is one of the most important and exciting challenges in DeFi at the moment. I think this proposal is definitely a step in the right direction as it introduces incentives for holdling PICKLE, which were absent until now. At this stage, I think the logistics outlayed in the proposal makes sense. And I strongly encourage to keep exploring the buy and make option. However, I agree with @brinosaurus_rex that it’s not ideal in terms of incentives that the revenue of the dev team comes from the withdrawal fee.

What I would like to mention here is that the design of incentives for hodling PICKLE and the design of incentives for participating in the jars on the long term need to be adressed simultaneously or in a short timeframe so that fees on the jar profits do not provoke a decrease in TVL. How do we achieve that goal ?

1- PICKLE keep out-innovating anybody which means LPs won’t be better off elsewhere where fees do not exist. (great but not sufficient on the long term)
2- We increase switching costs and we reward loyalty (building a liquidity moat).

The second point is something that most DeFi yield farming protocols have not been able to adress thus far in a very satisfying way, which means there is a tremendous opportunity for PICKLE to be recognized as leading the way for sustainable ecosystem development through incentives alignment. If PICKLE wants to remain faithful to its innovative DNA, that is where the true challenge lies.

My suggestions :

1- Liquidity providers who lock up their liquidity on the long term should receive a higher share of the rewards from jars than the ones who do not commit ( decreasing the APY for short term LPs, and increasing it for those who commit on the long term). The community can work on the timelines if we want to move in this direction.

2- If feasible, we could introduce a dynamic withdrawal fee that takes into account the time at which the liquidity was introduced in the jars. Lower if you have been in the jar for a while, higher if you’ve provided liquidity very recently.

3- A percentage of the fees should go towards funding the development of new products by the core team or by community members. Long term LPs could get early access to these new products as a reward for their commitment. That way, they’re not just paying rent to holders, they’re financing their future yields.

I am not a dev but I am happy to refine these suggestions to make them compatible with what is technically feasible in a reasonable timeframe. Overall, if we figure out incentives for holding and incentives for providing liquidity on the long term, then I believe PICKLE could grow very fast.

Thanks again Pickle Team

16 Likes

Both single PICKLE and PICKLE LPs should be allowed to vote and stake to gain 4.5%.

Maybe do like this:
Single PICKLE holders get half of the voting power of PICKLE LPs (PICKLE-ETH liquidity providers).
Make it so the current Pickle Power (UNIV2 PICKLE/ETH LP) farm receives a portion of the 4.5% , proportional to only the PICKLE in the underlying UNIV2 pool (excluding ETH).
Make it so there is a farm where single PICKLE can be staked to receive the other portion of the 4.5% and be allowed to vote with half the voting power of LPs.

The pickles eligible for receiving the 4.5% fee would thus be sum of single PICKLES staked in the new governance farm + only the PICKLES (exclude ETH) in the PICKLE-ETH UNIV2 pool staked in the Pickle Power farm. Allocate the 4.5% fee proportions using this sum as the total eligible PICKLE.
The fees should be distributed the same way PICKLES are being distributed (calculated every block they were staked) to prevent exploiting and to require that the PICKLES be “soft-locked” to earn the fee “dividends”. Alternatively, like ramaruro proposed ([RFC] Incentivizing Pickle Holding and Governance Reform) , don’t require pickles to be locked in a pool. This makes it impossible to both have an on-chain distribution mechanism and prevent exploiting the system (buy pickle -> claim % of treasury -> sell pickle). To solve this, the PICKLE and PICKLE-ETH should still have to be staked, but when depositing the depositor would receive a token that represents a share of the stake depending which of PICKLE or PICKLE-ETH was staked ( maybe pPICKLE for single pickle and pePICKLE for PICKLE-ETH). These tokens would therefore have about the same value as their underlying, be able to be traded and provided as collateral to other platforms and be able to receive the 4.5% fees fairly (calculated every block they were staked) through entirely on chain processes.

Single PICKLE holders should be able to vote as they do have skin in the game. I propose they have half the voting power of PICKLE-ETH because even if they should be able to vote they should also be incentivized to provide liquidity, as providing liquidity is more valuable for the health of the project.

Finally, there should be a mechanism such that only PICKLES or PICKLE-ETH staked for over a day (or some other period) have any voting power. I think this is already the case.

3 Likes

Thank you for the clear vision team. The communication is great! One thing I want to throw out there is potentially thinking of a quadratic model for incentivizing. I think that would improve fairness in the disbursement of funds. The issue with YFI is that at their current prices it becomes unattractive unless revenues increase. Given the higher supply of Pickle and emission rate, revenue would have to be large or you would need to be a Pickle whale in order to have incentive to stake. Utilizing a quadratic method would incentivize decentralization (potentially more individual stakers vs whales). I don’t know if we ever addressed the issue with multiple wallets though. Therefore, having an amount of time staked would be good also.

2 Likes