- Pickle has modified both emissions and tokenomics in seeking to align incentives across several stakeholder groups.
- With the upcoming launch of $DILL, freeing up $PICKLE emissions to reward usage of the protocol (i.e. adoption) is of paramount importance.
- Given that under the current monetary policy, the great majority of pre-tail-end emissions (>85%) have been exhausted, this proposal aims to modify the way tail-end emissions are calculated, in order to increase the long-term stability and sustainability of the protocol.
Since the launch of Pickle Finance, we have been able to learn a great deal about the role of emissions in yield aggregators, and in DeFi in general.
$PICKLE, as the governance token of the Pickle Finance, plays a central role in the Pickle ecosystem. Pickle is a revenue-generating protocol, fairly-launched, and community-managed. Since launch, several mechanisms have been implemented to capture the value created by Pickle for the benefit of $PICKLE holders. A brief recap:
deprecated) $PICKLE staking rewards. A special vault where naked $PICKLE could be staked. Protocol revenue in excess of Treasury needs would be converted to $wETH and distributed to stakers.
live) $PICKLE–ETH Smart Treasury. A special Balancer pool holding 80% PICKLE and 20% ETH, all belonging to the Treasury. As a replacement to (1), excess revenue is used to execute $PICKLE buybacks for the benefit of all holders.
upcoming) $DILL-nomics. Analogous to Curve’s $CRV => $veCRV, $PICKLE can be vote-locked for $DILL to receive (i) revenue-sharing; (ii) boosted $PICKLE rewards; and, (iii) governance rights. The longer you lock $PICKLE, the more $DILL you’ll get. Moreover, (2) will continue with buybacks positively impacting $PICKLE price.
Now, on the cusp of $DILL, it feels like the right moment to re-assess the future of $PICKLE emissions to tie together the incentives for all actors.
The reality of current emissions
In $DILL-nomics as in now, emissions are the primary way to earn $PICKLE. $PICKLE emissions have been used to incentivize three different activities in the Pickle ecosystem:
- As a reward to the founders. 2% of emissions were directed for this purpose. This has now been replaced with a more common “salary-and-vested-$PICKLEs” (issued from Smart Treasury reserves).
- As a liquidity incentive. Most emissions have in fact gone to encourage a liquid market for $PICKLE, rewarding those that stake their $PICKLE-ETH LP tokens.
- As a participation incentive. Emissions go to farms for users who stake their jar tokens (pTokens), so they can earn $PICKLE as additional yield to the jar’s return. This can be thought of in broader terms as a retention incentive or loyalty rewards.
Out of the above activities, #3 is widely held to be the most impactful in bringing more protocol revenue, thus resulting in a positive feedback loop that makes the protocol more attractive to new users, thus bringing even more revenue.
With the arrival of $DILL-nomics and the current Smart Treasury reserves, an opportunity for freeing emissions for participation incentives is made readily apparent. The protocol’s best interest is served when users lock $PICKLEs. To generate the best possible rewards for locking $PICKLEs, the protocol should use its emissions most heavily on bringing as many deposits into its jars as possible, and putting that capital into high-performance strategies that generate both the best returns for the user and the most protocol revenue for $DILL holders and the Treasury, which ends up in $PICKLE buybacks.
Unfortunately, $DILL-nomics arrive at a time where >85% of $PICKLEs emissions for the year will already be out. Under the current monetary policy, PICKLE emissions will be reduced weekly by 10% until a mere 329 $PICKLEs are emitted every week, in perpetuity. We are, at present, 30 weeks from that target as emissions have been heavily front-loaded.
A monetary tweak: constant inflation targeting
$PICKLE is one of the most widely-distributed DeFi tokens. At the time of writing, it has 4,700+ unique holders, notwithstanding two pools (in Uniswap and SushiSwap) and index vaults (e.g. YETI) holding around 25% of the supply. With $DILL-nomics, we expect to turn these passive holders into active participants. Furthermore, over time, the protocol should be partial towards these active holders. The smoothest way to do that is to reward active participation, at a rate that’s steep enough to dilute passive holders.
Uniswap tokenomics already do this. $UNI has an inflation target (i.e. perpetual inflation rate) of 2%, which will start after 4 years of the genesis distribution. Synthetix tokenomics may have been the first to implement this in DeFi, with a 2.5% “ongoing terminal inflation” for $SNX that will kick in in 2023. Given these are the largest governance token in DeFi and the first to growth hack through inflation, we are standing on solid ground here as far as fundamentals.
A new proposal would aim to:
picklePerBlockat 0.10 for the remainder of the year. At the time of writing, 0.15 PICKLEs are emitted every block. The current reduction schedule will continue until $PICKLE emissions reach 0.10, then hold steady until at least week 52.
Introduce inflation targets for year 2 (13%) and year 3 (10%). To ease into steady-state inflation, gradual drops are introduced via yearly inflation targets,
picklePerBlockwould be adjusted weekly to meet these targets.
- Introduce a perpetual inflation rate (7%) as a steady-state after 3 years. At the end of year 3, this would, roughly, cause the supply to double every 10 years, greatly favouring active participation over passive holding.
Let’s call the combination of these measures Proposal A.
At this stage, this is a draft proposal, and the community’s input is being sought to assess the feasibility and desirability of introducing the changes here laid out to the protocol.
To facilitate discussion, two other variants are introduced.
Proposal B freezes
picklePerBlockat 0.10 until week 52, then introduces a perpetual inflation rate of 7% for year 2 onwards, skipping the gradual reductions.
Proposal C freezes
picklePerBlockat 0.10 in perpetuity. During preliminary internal discussions, this was believed to be an option more palatable to those preferring a decaying inflation rate. So happens that it is the easiest to implement and manage as well.
- All proposals and the present monetary policy (Current) have been plotted and attached below. A poll is also included where all options, as well as Other, can be selected to gauge sentiment.
Thank you for putting some time and thought into this matter.
Please indicate your preference:
- Proposal A
- Proposal B
- Proposal C
- Other (see comment below)
- Current / Do nothing