[RFC] Modifying tail-end emissions

Vote: Snapshot


TL;DR

  • 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.

Background

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:

  1. (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.
  2. (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.
  3. (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:

  1. 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).
  2. 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.
  3. 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:

  • Freeze picklePerBlock at 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, picklePerBlock would 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 picklePerBlock at 0.10 until week 52, then introduces a perpetual inflation rate of 7% for year 2 onwards, skipping the gradual reductions.
  • Proposal C freezes picklePerBlock at 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.

Proposed tail-end emissions, next 15 years

Source data – LKJ’s spreadsheet

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

0 voters

2 Likes

I’ve read through this a number of times now, and while proposal C would be my choice if I had to choose right now - I think we should wait and see the impact of DILL before deciding on a proposal because price and TVL could potentially change drastically with such a large upgrade as DILL. Thus I agree with MisterMands sentiment on discord that freezing the block rewards for now seems like a good option until we know where we stand post-DILL :slight_smile:

3 Likes

A fixed, relatively high inflation rate (Proposals A & C) will ensure that active members get rewarded while slowly punishing passive holders. Countering the pressure $DILL can put on the price of $PICKLE with a constant inflation will help stabilize the price and provide a more predictable returns for the farms, while allowing new users to easily gain voting weight without being barred by the increasingly prohibitive cost.

However, one could also argue that a diminishing inflation rate (Current) can also achieve similar results by enforcing scarcity and $PICKLE price appreciation over time and also keeping farms returns rates stable even while accumulating more TVL. And that voting power should be limited to early adopters and those willing to stake enough “collateral” to prove their interest in the project’s success.

I urge confused voters to think of it this way:
All proposals punish passive holders of $PICKLE by diluting their holdings value and allocating it to active farms stakers (well, this is how inflation works!). They only vary in the punishment’s degree of severity.

Proposal A: Severe for the short-term. Medium on the long-term.
Proposal B: Low.
Proposal C: Severe.
Current: Lowest.

Personally I’m inclined to think that (Proposal A) is the optimal one here; however I prefer doing nothing for now until we gauge the effects $DILL will bring on us first.

2 Likes

I cant invest for the long term in a protocol that keeps changing the rules. A few weeks might seem a long time for the team but its no time at all for an investor.
“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.”
…so you’re going to punish passive holders? That’s a bit rude, dont you think?
How long before the next long term strategy of the week?

3 Likes

If you have a question that can be answered, I am happy to oblige.

Without getting salty, the point of the DAO is that the rules can be changed, not just in Pickle, throughout DeFi, and even Ethereum itself. An analogous process happens in all organisations, from Microsoft, the FANG, Tesla / SpaceX — and hedge funds, private equity, and even pensions. If we do not react to changes in the environment, then we’re just drifting. What kind of investor wants to be in a ship that can’t change course?

2 Likes

I recall when I suggested changing from the SNX model way back in October I was met with a lot of pushback. Personally I don’t like this idea. It’s too late in the game and we are finally getting to a point where weekly PICKLE emissions are not eating up buys. Focus on improving price performance then maybe we can start looking at what UNI or SNX does.

Thanks for participating in the discussion. I recall your previous intervention, this one. You proposed we reduce emissions even further, some 20% per week, and predicted a price of $1,000+ if we did, and $100 if we didn’t, by the end of 2020.

The issue with that sort of analysis is that it has static assumptions about the demand-side, whereas the whole purpose here is to incentivize the demand-side, acknowledging the dynamics between emissions and demand. We can only improve price-performance when we improve the fundamental value proposition, to generate demand above the supply. That is what I have observed from multiple other protocols and that is our focus.

For example, in recent months, Pickle has gotten in early in a number of nascent developments in Ethereum and cross-chain assets with our new jars and now most of our revenue comes from those bets. Thanks to that, we, as a protocol, are now “default alive” despite a massive hack. Now comes $DILL with vote-locking, revenue-sharing, and better governance. Afterwards, we will be venturing into NFTs, cross-chain liquidity, custom-made jars (i.e. integrations), multi-protocol initiatives with our Yearn partners, and improved security and tokenomics mechanisms. The beginnings of these new milestones can be grasped from the latest releases in Discord. Basically, a relaunch of Pickle. Having slightly more runway with emissions and a clear mechanism to incentivize future adoption would be very advantageous at this juncture.

2 Likes

I think it is clear from watching other projects and even the discussions in Yearn about their lack of emission tokens, that emissions are good. I think the emissions going dry is definitely going to hurt demand for PICKLE. For everyone here long-term, you could just see Pool 2 dry up as emissions slowed. Same would happen to any jar with strong competition out there. New yield aggregators launch all the time – and get to improve on tokenomics from what’s out there. If we want to keep up, we have to adapt. Scarcity won’t do us any good once demand dries up. Congratulations to the team for being brave and proposing this. The whole community should rally behind this, it is the most important issue besides DILL which I understand is imminent. Unfortunately the forum may not be a good venue to even get decent intel on whether this would pass or not. Voters ≠ Forum dwellers. I believe the current LPs will pass this, otherwise the DILL holders will or decay. My vote is for Proposal A, but I am happy with B or even C. Any of those are a massive improvement over “doing nothing”.

5 Likes

I made that prediction pre-hack and it wasn’t $100 end of 2020 it was around March 2021. If you check my other replies I have actually been pretty spot on with predicting that the price won’t hit 50 until emissions reduce. I understand that Dill is a new mechanism but I feel you all are jumping the gun so to speak. How about we actually see what the demand is before we decide to change the entire mechanics? It’s taken at least a quarter of a year just to get Dill out so all the other things you mentioned will take time. There will be plenty of time to adjust if necessary. I still don’t think you all grasp that if the price of Pickle increases then the APY of farms should increase. So why is there so much support for diluting shareholder value?

1 Like

The emissions will NOT dry up under the current model. It will remain static after a year. If only a limited number of Pickle are released each week and demand is high, then the price of Pickle will go up. I can’t believe I’m still trying to explain this half a year later smh.

Thanks everyone for giving this important issue some deep thought.

I like how you framed the positives and negatives of increased inflation in the context of $DILL @MisterMard. I think that sustained inflation (be it a constant inflation rate or emissions rate) will be key to sustaining the attractiveness of our farms and thus the profitability of our protocol. Yes, there would be increased dilution to idle $PICKLE holders, but the higher APYs of our farms (from sustained emissions) means better profit sharing APYs to attract greater locking pressure from $DILL.

Unfortunately, I think that the idea that this protocol can remain profitable given the current inflation schedule is mistakened given our learnings over the past 6 months. Yes, there would be greater scarcity and yes we do have some tail emissions (as suggested by @MisterMard and @pipickle). However, assuming that $PICKLE price is what it is at the time of writing, in 6 months we will only be emitting $3,619 worth of $PICKLEs/week, which is needless to say too meager to act as any sort of incentive. @DurkTurk’s comparison to Yearn is apt because we see what happens in the case of no or negligible emissions which makes it very hard for yield-aggregators to attract deposits (even with their massive first-mover moat).

I believe that issue requires more immediate attention than others in here advise. In just four weeks, our weekly emissions will decrease below 0.1 PICKLEs/block (down from the current 0.15), which shows just how quick the current rate of decrease is.

Regarding which option to pursue, I’m most in favor in Option C because of its simplicity and predictability. The emissions curve also looks more palatable to me than the others which trend upwards to achieve an annual inflation target. For reference, here is Alchemix’s inflation schedule with an Option C-type freeze:

For what it’s worth, I receive half my salary in $PICKLEs which vest in 6 months, so I really do believe this is the best path forward :slightly_smiling_face:

3 Likes

Larry this is short sighted. The price right now is Pickle with 0 use case. I have been advocating for lower emissions since the the beginning. The price should scale once Pickle actually has use. I implore you guys to at least give it until June (assuming Dill comes this month) to see what the actual demand of Pickle is under the new mechanics.

2 Likes

The emission rate being increased will stimulate growth at the expense of % market cap decrease for current owners. There is a fine line that needs to be navigated between too much dilution and not enough growth. That being said innovation will cause more growth than inflation will. I think we should do nothing and see what effects Dill has, and to revisit afterwards. Inflation is artificial growth but can capture more interest which in turn can provide more revenue in the long run.

2 Likes

I haven’t participated much at all with governance since removing my liquidity from Pickle-ETH Pool.

I just wanted to give my two cents on the topic however. Have to admit I’m a bit concerned about the recent success of many farming protocols (the insane yields to those in the loop and actively managing their money) and their approach to inflation.

I trust the leadership and team here to propose the right solutions but I fear we are acclimatizing to a lot of the unsustainable behaviours we see in DEFI. Perhaps they are sustainable because many of these projects are still early in the grand scheme of things but with sound economics I don’t think we should be aiming for 7%+ inflation. I’d rather see lower APY and minimal inflation which is more realistic and less “marketing-forward” than boasting 200%+ APYs just to compete with other protocols who don’t give a damn about inflation.

It’s possible that many people don’t care about inflation, but without the appropriate respect, that positive feedback loop looks a lot more “ponzinomical.” Perhaps the target market has changed upon observing market behaviours? Regardless as stated before I definitely think any emission structure changes should be made after we see how DILL performs. It’s good to reassess our culture and mission here at PICKLE because last I checked we were long-term oriented, promoting mostly a passive approach of “set and forget!” Now all these crazy yields have us behaving like traders and less so investors. My idea of a positive feedback loop involved an appreciating PICKLE price.

Just my 2 bits.

2 Likes

Thank you. I appreciate this constructive input. Let me answer some points.

re: ponzinomics: The positive feedback loop doesn’t rely on people bringing more people to buy into PICKLE to generate value – it incentivizes people to use Pickle as a service (our jars), and collects the fees generated there (performance-oriented) in all sorts of currencies, and sends a portion there to those that lock their PICKLEs for DILL. Since users are getting PICKLEs, they have an option to lock, dump, or hold unlocked for speculation – We want to encourage them to lock. This takes PICKLE out of circulation.

re: unsustainability: Most PICKLE is circulating since the front-loading phase of emissions is already over and this will not change. This proposal only concerns the tail-end of emissions. If you’d feel more comfortable with another tail-end outcome (7% is due to that number being dilutive, yet nothing that would eat into what should be at 20-30% YoY revenue growth, conservatively). Maybe 3.5% like $SNX? 2% like $UNI? Something else?

re: time-preference: We are long-term oriented. DILL’s full-value is only realised for those who lock for 4 years. The team is vested. We have Smart Treasury buybacks but want to attract higher and better TVL. DILL-nomics is a big portion of that. Besides revenue-sharing for $DILL lockers, there will still be Smart Treasury buybacks for the benefit of all $PICKLE holders, locked or not. I take it you are a value investor … so, on fundamentals … is there a better way to impact the price?

1 Like

Hi, I’m one of the top Pickle holding addresses, its good to see new initiatives to change tokenomics but this one is coming at it wrong the wrong perspective.

Initial Principles:
*Pickle is revenue accruing, that is the core to the entire project. Without that nothing else matters
*Tokens at or close to the end of emissions are more appealing to investors than those with much more FDV. High FDV = seen as bad. Low FDV= Good.
*Pickle must align its incentives to REVENUE which is value producing
*Inflation is not value producing.
*Low emissions, high buybacks = positive buy pressure on price, Harvest understands this.

Given this, inflating supply further to pay LPs is a bad idea. This does no align with revenue and doesnt enable the positive feedback loop of low cap maxed out circ supply + steady or increasing buybacks = positive price pressure.

Everything is positive price pressure. If I see Pickle at a 10m cap (time of writing) and growing revenues my assumption is “The growing revenues will be far greater than emissions being dumped on LPs and therefore lead to positive price pressure and number up”. This is only logical. If you increase emissions it destroys this excellent value prop. There is an inflection point if you were to chart it.

So I propose the following:
*All buyback revenue is distributed to stakers proportional to liquidity in the Jar referenced to a common currency with a small fee going to treasury for longevity (lets say 95/5%).
*Making it proportional to liquidity ensures each farm is treated equally because ultimately they are actually equal, 1 ETH harvested in Farm A is the same as 1 ETH harvested in FARM B as they both have same buyback fee and therefore coins should be airdropped on stakers in a similar fashion.
*No new emissions. More Strategies= More TVL = More buybacks = More Pickles for Stakers = Higher APYs = More TVL. Positive Feedback loop of value accruing to Pickle holders.
*In order to ensure Pickle given to LPs isnt sold to market, a Pickle only staking pool should be created, much like xSUSHI in which value accrues as share value- xPickle. Majority of buyback rewards go here (60% here, 40% to other jars). This Pickle can then be used as collateral in Cream and will fundamentally be better than straight Pickle as it will have built in value appreciation.

This will align Pickle with its core value prop of revenue, generate a clear P/E making it far more investable and ensure value appreciation for Pickle holders.

6 Likes

Additionally I suggest treasury remove their Balancer LP. This is also bad. Whenever Pickle goes up it is being dumped via this LP to maintain the ratios. Thats additional sell pressure which is unnecessary. You need to let pumps run, thats how they gain momentum. Treasury can just be Pickle only and some ETH you already have, its not Treasury’s job to LP, that dilutes investors, increases sell pressure during pumps and makes the price harder to move. Keep the Pickle in a wallet and invest the ETH in Yearn vaults.

4 Likes

I have given this a lot more thought, and think Option C will do us all best. The timing of the yield increase is critical, if we can time everything out with the yields increase + Dill + new jars like alcx all combined would bring a lot more to commit to the project.

1 Like

Forum voting is closed for now. Vote for temporary measures is up: Snapshot. Please vote and we will take up this discussion after DILL.

I’m too late, just saw the snapshot…leaving some thoughts here to revisit post-DILL.

To avoid overly diluting current holders, here are a couple of ideas:

  • Current holders get a pre-assigned amount of ‘free’ boost if they lock their PICKLE for DILL. This could have a certain block as a cutoff.
  • Use a sigmoid curve with a burst of fresh emissions for the next 6-12 months to coincide with maximum perceived demand (DILL, Yearn integration etc). Emissions would taper off thereafter but still maintain some level of long-term inflation.

Just an illustrative example, it will of course need to be modified to suit our needs.

4 Likes