Incentivize BarnBridge community members and SMART Yield depositors with Key-Performance-Indicator (KPI) options that pay out a fraction of the total BOND set aside for the program. KPI Options would have an expiry on October 31st, and all claimable BOND would be vested over the subsequent 12 weeks. The amount of BOND paid out to KPI Option holders would be determined by a function of a) the TVL in Polygon SMART Yield, and b) the ratio between the junior and senior pools.
Since this is being submitted by myself, I want to clarify that while the core team is on board with the idea, any parameters and concepts laid out below were at my suggestion. Nothing is set in stone so please feel free to tear into any part you find to be counterproductive or inefficient.
KPI (Key Performance Indicator) options address concerns surrounding liquidity mining by replacing the native asset as the reward for liquidity mining participants. Users instead receive tokens that entitle them to claim a pro rata portion of a sum of the native asset held in an escrow contract upon a given expiration date. The sum to be distributed to options holders is determined by the status of the KPI at the time of expiry. If the chosen metric hits the predetermined target, the entire sum of tokens would be paid out — otherwise, only a fraction of the tokens that were set aside would go to options holders.
The concept was pioneered by the team over at UMA Protocol. Check out the Useful Links section to get a better sense for it:
Liquidity mining has proven to be a powerful mechanism for unlocking flywheels across DeFi. By rewarding early users with upside in the form of a project’s native asset, positive risk taking is subsidized, resulting in a greater chance for network effects to take hold. But this mechanism is a blunt one. More often than not, it attracts mercenary capital willing to take immediate profits at the expense of long-term holders, making it difficult to bootstrap a grassroots community beyond the most die-hard of supporters. Moreover, it clouds a team’s ability to assess how much of that capital will persist even once rewards subside.
SMART Yield junior depositors on Ethereum mainnet have been subsidized to date by targeted emissions of the BarnBridge governance token, $BOND. Given the depressed state of the market at this time, however, enabling liquidity for a $100M bond to be minted on the senior side remains underwhelming with rates ranging between 1.5% and 2.1%. While these types of cyclical market downturns will be less of a concern once our complementary SMART FIAT app is live, it does not make sense for the Polygon deployment of SMART Yield to pursue the same rewards strategy in the interim.
A total of 10,000 bbKPI_poly_SY ERC-20 tokens would be minted, to be used for claiming a pro rata share of the final $BOND rewards pool (Max’s preference: 100,000 BOND). They would be allocated in accordance with the following breakdown:
- Polygon Junior Tranche Balancer Pool LPs (Share of Pool): 5,000
BarnBridge would create a Balancer pool on Polygon with a weighting of 20% USDC / 35% bb_poly_aUSDC / 35% bb_poly_aDAI / 10% bb_poly_aUSDT. This would facilitate secondary liquidity for holders to trade between jTokens as well as to exit their positions without redeeming their principals.
- Polygon Junior and Senior Tranche Depositors (Share of Pools): 2,000
Not all junior tranche depositors will want to take on the perceived risks of providing liquidity for their asset. Nor are senior depositors capable of providing liquidity to an AMM with their NFT positions. Reserving 20% of the option token supply for primary interactions with the application ensures that no user gets left out. Junior depositors who are providing Balancer liquidity will remain eligible for their share of these distributions as well.
- Discretionary: 3,000
If you’ve been a good community member and SMART Yield user, you’d be in luck! More detail will be revealed on the breakdown of this subsegment should the program move forward.
These options tokens would be distributed in two ways.
For the non-discretionary segments mentioned here, snapshots would be taken twice weekly at random intervals (Chainlink VRF would determine the block retroactively) - if you were participating in SMART Yield or providing secondary liquidity, you get a pro rata share of the options distributed by each snapshot. Note, the program would have decaying emissions for the options tokens with each snapshot taken (i.e. early supporters rewarded) and would allow up to a 100% boost of your share of the options pool by staying in for up to 9 successive snapshots (i.e. keep participating and you get a boost).
For the discretionary segments, you would either have been snapshotted already or the date and time will be announced beforehand.
The KPI that would be tracked by this program would be the output of the following equation:
Polygon SMART Yield TVL * (Polygon SY Senior TVL / Polygon SY Junior TVL)
The KPI output would be bound between 10M and 100M, and the TVL ratio modifier would be bound between 0.5 and 1.5. This means that the junior : senior ratio could not reduce the output by more than 50% or increase it by more than 50%, and that the KPI output could be no less than 10M and no more than 100M.
To determine how many BOND tokens are available as a result of the KPI output, the payout function would simply be:
KPI Output / 1000
The Polygon deployment of SMART Yield provides an opportunity to test out the concept of a KPI option program because it represents a blank slate that the community can then compare against its mainnet analogue. The following questions would all be worth considering as data starts to come in:
- Was the amount of BOND set aside adequate?
- Were snapshots done in a fair and constructive manner?
- Did TVL persist beyond the end of the program?
- Should a similar program be implemented for mainnet SMART Yield?
- If successful, how can we tailor KPI options for SMART Alpha?
These questions highlight the primary risk associated with KPI Options, which is that the concept is still a new one and that there is true opportunity cost associated with piloting such a program. If the market deems the option token to be underwhelming, it will not drive material liquidity; if airdrop recipients do little to evangelize the product, they’ll get a free ride in the case of a successful outcome. Relative to the current status of SMART Yield incentives, which have done little to attract senior deposits at a far higher cost of capital, these risks appear to be worth taking.
None yet, but this topic is of high urgency given that we’ll want to see it in effect on Polygon before trying it on mainnet - that reward program ends around August 8th.
The key items to consider here are:
- Is the community in favor of trialing KPI options?
- If so, how much BOND would need to be set aside for the effort?
- If so, does the proposed distribution of options make sense?