[0IP-1] Pre-Mining mechanics & reward distribution

Proposal

The core objective of 0IP1 (0VIX improvement proposal 1) is for the community to vote on the total amount of protocol token rewards in the next epoch and how rewards are distributed across markets.

0IP1 initiates the participation of pre-mined protocol token holders in the decision-making of the pre-mining mechanics in the following epochs. This comprises votes on the following proposals:

Begin regular voting so going forward the community decides on the total amount of the rewards distributed per epoch to keep the total supply in check once the token launches.

a) Change the formula for how rewards are calculated on supply and borrow markets so that borrow markets are incentivized more than supply markets.
b) Lower the total amount of the Protocol Token paid out in the next epoch from 100k to 90k per epoch to keep token supply in check.

Motivation

Prior to the protocol token launch and veTokenomics we want to invite the community to participate in helping to make key decisions for the 0VIX Protocol. This will be managed with proposals and polls on discourse.

a) So as to encourage borrowing more on 0VIX, we propose to change the formula that calculates the distribution of rewards on the borrowing and lending side of a given market. This is opposed to the current formula in which we divide the rewards equally across 8 markets meaning the supply and borrow APRs are the same.

The goal is to incentivize users to borrow more. It translates to higher utilisation rates which means higher capital efficiency for the overall protocol. Depositors benefit from higher native token APYs and borrowers earn relatively more Protocol Token rewards.

b) So as to limit the dilution of the Protocol Token in the pre-mining campaign running up to the Protocol Token launch, we propose a reduction to the total amount of Protocol Token rewards distributed across all markets.

Details

a) At present rewards are equally distributed across all supply and borrow markets. Instead of this, we propose to offer distinct APRs for borrowing and lending. Supply and borrow sides of the market will not get the same APR, but rather, each side gets its own share of rewards.

Sample calculation:

Let’s say we have a market for token X. Assume this market receives 10,000 Protocol Tokens in total. Now consider the following scenario for both reward models running for 3 users (2 suppliers and 1 borrower)

Scenario:

  • User A deposits 100 X tokens

  • User B deposits 50 X tokens

  • User C borrows 50 X tokens

Current incentive model:

  • User A will receive 5,000 Protocol Tokens tokens (50%) = 100 / (100 + 50 + 50) * 10,000 = 5,000 Protocol Tokens

  • User B will receive 2,500 Protocol Tokens tokens (25%) = 50 / (100 + 50 + 50) * 10,000 = 2,500 Protocol Tokens

  • User C will receive 2,500 Protocol Tokens tokens (25%) = 50 / (100 + 50 + 50) * 10,000 = 2,500 Protocol Tokens

Proposed reward model:

The proposed model divides the rewards evenly between both sides of the market. Each side is treated as a different pool. So in this scenario, the supply side will receive 5,000 Protocol Tokens in total, and the borrow side will equally receive 5,000 Protocol Tokens in total.

  • User A will receive 3,333 Protocol Tokens tokens (33%) = 100 / (100 + 50) * 5,000 = 3,333 Protocol Tokens

  • User B will receive 1,666 Protocol Tokens tokens (17%) = 50 / (100 + 50) * 5,000 = 1,666 Protocol Tokens

  • User C (the borrower) will receive 5,000 Protocol Tokens tokens (50%) = 50 / 50 * 5,000 = 5,000 Protocol Tokens

As you see, User C received the full amount of the borrow market because they are the only borrower in this market. They represent the full TMV (Total Managed Value = Total Supply + Total Borrow) of this market, thus incentivising other users to join.

In this case, Protocol Token APRs will be split by market size. Given that 0VIX is an over-collateralized lending protocol, borrow markets necessarily have a lower total value than supply markets. Therefore, borrow markets will have greater Protocol Token incentives than supply markets. The amount of Protocol Token incentives will be a function of the LTV and the utilization rate of the market.

Please note: The proposal doesn’t affect the distribution of rewards to the combined borrow and lending markets of an asset.

To view the new formula in detail, please see here: $VIX Pre-mining APRs - 0VIX Docs

b) We propose to lower the amount of Protocol Tokens paid out in pre-mined rewards per epoch from 100k to 90k.

Quorum Standards

The options with the most votes will be adopted.

Voting period:

  • 2 days

Vote options

Vote a) Change the formula from averaging APRs so they are equal on the supply and borrow side to splitting APRs by market size.

  • Accept the proposal
  • Further discussion needed

0 voters

Vote b) Lower the amount of Protocol Tokens paid out from 100k to 90k.

  • Accept the proposal
  • Further discussion needed

0 voters

8 Likes

Voted, curious about the result.

5 Likes

I think this proposal is healthy for the protocol, appreciate the intervention at this early stage.

8 Likes

Decreasing rewards is the best way to keep price good as people will create high selling pressure at launch.

6 Likes

Great work! I like the proposals.

2 Likes

Voted. The idea is laudubile. I believe in this team

1 Like

Good development proposal, let’s go

1 Like

That’s true indeed, it would really be healthy for the protocol

1 Like

done vote, i can always support this project

1 Like

I want to vote yay on both proposals… But it’s hard to find the link on the site I’ve been looking for for about 5 minutes. I’m going to go back in and check on the discord now see if anybody will give me some pointers. If anyone wants to show how to do it when you could leave a comment. Thanks friends.