RGP-2: Ribbon Liquidity Mining Program

Authors

@chudnov

Summary

Proposal to experiment with a liquidity mining program to incentivize vault TVL growth.

You can vote on the Snapshot proposal here.

Background

At time of writing, the APY of the ETH Covered Call, WBTC Covered Call, and ETH Put Selling vaults are 14%, 16%, and 64% respectively. The yield comes entirely from the premiums of the deep out of the money options sold.

Abstract

I propose a one-month liquidity mining program where vault depositors can also earn RBN tokens. This program will go live June 15 2021 12:00pm UTC and run until July 15 2021 12:00pm UTC. It targets the following three vaults on Ribbon:

  1. ETH Covered Call
  2. WBTC Covered Call
  3. ETH Put Selling

The goal is to allocate 10,000,000 RBN (1% of total supply) for rewards, split pro-rata based on TVL across the vaults. For reference, Uniswap’s liquidity mining program allocated 2% of total supply to LP’s across four pools over 2 months. The concrete allocations are still TBD since the TVL’s will be snapshotted right before the start of the program, but for guidance an even split (~3.3m RBN) translates to ~765,000 RBN per vault per week.

In order to receive these rewards the depositor must stake their proof-of-deposit tokens (rETH-THETA, rBTC-THETA, rUSDC-ETH-P-THETA) into the relevant vault’s staking contract. Unlike most liquidity mining programs where rewards are released pro-rata per block, we will release rewards pro-rata once per week on Friday. Since the options are sold every Friday, we want all stakers to receive RBN rewards only if they have exposure to that week’s option.

In order to receive rewards, one must remain staked at the end of the program. You are free to join whenever you want and will receive rewards at the end proportional to how many weeks your funds were used as collateral for the options sold. You may unstake whenever you want, but you will not receive any rewards for the staked rewards. Please refer to FAQ for details.

This liquidity mining program aims to achieve three goals:

  1. Grow vault “adjusted” TVL - how much ETH / WBTC / USDC is locked in our vaults (not in “usd terms”)
  2. Expand the voting power to those who missed out on the airdrop
  3. Distribute the governance token to those who have the most skin in the game: vault depositors themselves

Measurable Outcomes

To measure success of this experiment, we will measure three main metrics over the next month and thereafter:

  • User growth
  • TVL growth
  • TVL stickiness (how much capital leaves the vaults after the experiment ends)

Specification

To execute this proposal, the Ribbon Deployer will execute the following transactions for each vault:

Deploy Staking Contract:

RBN Transfer to Contract:

  • transfer RBN (amount based on vault’s contribution to overall TVL) from treasury to the deployed staking contract

FAQ

So how does the liquidity mining work if the token transfers are locked?

We are granting the liquidity mining contracts transfer rights, so it can transfer to your wallet but you cannot transfer the RBN afterwards.

Do I need to stake on day 1 of the program to earn rewards for the first week?

No, as long as you are staked by June 18th, you will be eligible for the first week worth of rewards. You have a 2-day buffer to stake your tokens from when the contract goes live until the first week’s rewards start to get counted.

Can I unstake my proof-of-deposit tokens from the staking contract whenever I want?

Yes, you can unstake whenever you want. However, you will be forfeiting all your RBN rewards.

So I need to stake for the entire month to earn those rewards?

No. Once you stake you will need to remain staked at the end of the program to get rewards for that deposit amount. However, you can stake whenever you want and receive rewards accordingly. For example, say I deposit 10 rETH-THETA tokens on the second Saturday. I will be receiving rewards for the upcoming third Friday and fourth Friday as my funds are used for 2 weeks of options sold. On the other hand, if I deposit 10 rETH-THETA tokens on the third Monday, I will be receiving rewards only for the upcoming fourth Friday as my funds are only used for that weeks options contracts. However, in both cases I will have to be staked from that point until the end of the liquidity mining program to get those rewards.

UPDATE:

In order to receive rewards, one must remain staked at the end of the program. You are free to join whenever you want and will receive rewards at the end proportional to how many weeks your funds were used as collateral for the options sold. You may unstake whenever you want, but you will not receive any rewards for the staked rewards. Please refer to FAQ above for details.

IMPORTANT: YOUR RBN REWARDS WILL BE FORFEITED IF YOU WITHDRAW STAKING TOKENS BEFORE THE END OF THE PROGRAM.

Program ends Monday, July 19th (any timezone).

A handy diagram

Vote

You can vote on the Snapshot proposal here.

21 Likes

I support this proposal! My opinion is that rewards should not be given until a longer timeframe is met for staking. Removing the rewards for the following week is great, but I am of the opinion there should be a minimum 1 week delay until rewards are being accrued.

This is interesting, but I’m curious how it will function. Since the tokens will be non-transferrable how will users be able to calculate an APR/APY? It will be highly speculative, right? We’ll end up seeing an implied valuation on the token is my guess (based on comparable valuations).

1 Like

I think liquidity mining is a great idea!

I also agree with @DonG_Lover that the requirements for staying in should be longer, if possible, or there should be a penalty for leaving earlier.

Lastly, I think that we should assume that non-transferability increases the speculative value. So 1% is actually kind of high, but it’s good for a test run.

TVL is about to get thicc.

Great proposal! I pretty like 1% allocation for this, it is pretty suitable imho. Great thing iss that one has to stay in the pool for the whole week which incentivies long term investors. Support this 100%!

6 Likes

I’d support this but with removed vault caps. Otherwise it’ll just give coins to current depositors and won’t lead to user growth (this can also be an objective tho).

3 Likes

I hope you were thinking of a accrued reward penalty. Maybe the % slashed could be redistributed to the other stakers!?

Am up for this idea! Love to be experimental rat :mouse2:

1 Like

Sure, anything that encourages people to stay in longer.

Great proposal.

How can they make the rewards reduce over time to discourage months staking and thus allow new depositers enjoy the rewards too.

I support the idea.
Specially to expand the governance community.
1% seems like a correct commitment if executed well.

A Couple concerns:

  1. If the max cap of a vault is reached, the liquidity mining will not be open to everyone. We should talk about increasing the caps, or how we will increase the caps when they are hit. I don’t think removing them at this stage is a good idea.

  2. I don’t see how the current proposal would prevent free farming, if one deposits before the Friday snapshot (I assume this can be just 1 block before the options are settled and new options are minted and sold) and sells immediately after (I also assume this can be 1 block after the snapshot). Their capital is used as collateral for the options, but they can still withdraw from the vault (capped at 10% max withdrawal). To have full exposure to 1 week of options, a user should have deposited before options were sold, and withdrawn after options expired. I believe having full exposure of 1 week should be the threshold to qualify for that weeks rewards. The only thing holding back free farming is the 10% withdrawal limit (which does not matter if you’re first to withdraw) and the withdrawal fee. But the $RBN reward gain might very well offset the withdrawal fee, enabling “free” reward farming"

  3. Currently there is stil a 10% withdrawal limit per week per vault. This means that if we double or triple TVL due to the liquidity mining program, users will be able to exit the vaults afterwards only at a 10% rate per week. This means it would take ca. 7 weeks (in the 2x TVL scenario) for all that capital to leave the vault again. I think this is not in the spirit of “open finance”. It might be a better option to delay the liquidity mining program until a “withdraw next week” option is available for all. Then, capital can freely exit the vaults after incurring the option yield/loss from the current week. This would completely resolve this issue.

Please correct me of any of my assumptions above are wrong.

6 Likes
  • v2 vaults will prevent this
  • Even with v1 vaults this probably won’t work because the vaults will be always maxxed out
1 Like
  • Does it make more sense then to postpone LM untill v2? Not sure if the timeframe for that would be to far though… If we want to do this experimentally and disregard these concerns (which we can def do!), to test things out in preparation for a bigger LM program on v2 later. In that case I’m not sure if 1% makes sense? It depends of the float that will be allocated to the community in the future, but that’s still unknown.
  • In the current proposal on v1, you will always have either:
    • problem #1 → vaults are full, no opportunity for new users to enter and earn rewards.
    • problem #2 → vaults are not full, opening the possibility of free farming.
3 Likes

Loving this proposal to reward current users of vaults as well as incentivize future deposits. I have some thoughts on how the proposal could be updated to further incentivize the kind of depositors we are looking for.

  1. Stretch the period of incentive mining to 2 months rather than 1 month. This would cut the incentive rate in half (0.5% of supply per month). This reduced rate will likely mean fewer depositors rushing into to take advantage of the program, but this might be offset of vault caps anyway. Additionally, I would suspect a longer incentive period would result in a higher retention rate.

  2. Increase the minimum deposit period to 2 weeks, or implement rewards that increase non-linearly with deposit time. The goal would be to preferentially reward users depositors who match our ideal depositor profile (invest and forget). I am more in favor of increasing rewards rather than a longer minimum deposit time, but could see it either way.

4 Likes

I like the idea of increasing the rewards non-linearly with time. Also, don’t know what the distribution of users in the vaults is, but it would be nice if the rewards are calculated in a way that doesn’t overly favor a few whales.

  1. I would strongly suggest shorter term programs so that we can get a tighter feedback loop, versus being locked into something for 2 months.

  2. This is not a bad idea, and I think we should apply some sort of time-weighted function that rewards longer term depositors non-linearly. For now, our current implementation uses a slightly-modified version of the Synthetix staking rewards contracts, which is super battle tested. I am all for creating a more customized version of the rewards contracts for future programs, which incorporates our learnings from this LM program.

1 Like

I would vote no on this proposal.

Liquidity mining is needed to increase primary to a protocol metric or to guaranty its safety. For example, on DEXs liquidity is needed to decrease price impact, (2) on lending protocols liquidity is needed to increase borrowing capacity and decrease interest rates.

Incentivizing TVL just for the sake of TVL doesn’t make much sense to me. Proposed implementation doesn’t really solve the problems of most LM programs – continuous selling pressure and non-organic liquidity.

Also, I believe that a project should get more traction to see organic validation of its idea and PMF without paid acquisition.

Even if launching a program right now, I think that liquidity retention is important as what we want to pursue. To achieve this it should contain:

  • incentives to stay longer, as it was already suggested above. Maybe with a vesting mechanics
  • moderate APY to avoid rewards dumping and not to attract mercenary capital
  • decreasing model not to dilute token holders

I find this guideline as a good one:

1 Like

What are your thoughts on reducing the rewards amount then? 50% of RBN being allocated to the community (airdrops + incentives + DAO treasury), I want to make sure that we have plenty of community allocated RBN available for future v2 LM and integration incentives over the next few years.

For the synthetix contracts, is it unrealistic to implement nonlinear rewards? I am not super familiar with their contract.

1 Like

When you say you’re against diluting token holders, could you elaborate a little more on this? I would argue that since the total amount of RBN is capped (1B I think), we aren’t being diluted as much as additional known supply is being released to users.

Appreciate this thoughtful response. How i am thinking about it is:

  • We have been running for almost 2 months now, have gone from $0 → $35m TVL without any paid acquisition. Do you think there is enough validation yet, or what would you want to see? I feel like we are starting to enter the “scaling” phase of growth
  • It is a cheap experiment to run to see how sticky the “acquired users” are post-rewards. If they stay in the vaults, maybe we should run more of these programs!
  • There is farm-and-dump here because tokens are not tradeable. There is an argument to be made here that people will just farm now and dump later, but I think the non-transferrability helps to deter some mercenary behavior

Incentivizing TVL just for the sake of TVL doesn’t make much sense to me.

I see it as a customer acquisition cost. We hope that some % of people who deposit because of the incentive will stay after the incentive – and this is exactly what we want to measure. We won’t be able to figure this out until we actually… run some sort of user acquisition program

4 Likes