v3 Emissions
With the upcoming release of the Canonical Vaults, we wanted to share our plans for the emissions in the new contracts and ultimately enable the community a chance to show or deny support for that.
Overview
The YAXIS distribution model assigned 8.8m tokens to staking, LP and vault rewards over 12 months. With the recent pause on emissions until v3, we still have 6.5m of these (74%) remaining.
This gives us lots of options.
Lessons from the Industry
DeFi tokenomics have had to be experimental in an unknown space. We have though seen some models emerge successfully.
Originally we went with the popular “build it and they’ll come” approach to vault emissions. This worked to an extent at first, although as we saw, vault users were almost unilaterally selling rewards on the market which was a net loss to the platform. The token price actually stabilised when vault emissions stopped and TVL left.
Buybacks are great, but against high emissions is “pissing into wind”.
Effectively paying people to use the platform has not worked out over the long-term for token prices, however it can be used on a short-term basis to incentivise joining or in retrospect.
What has proven to work is to be positioned as a middle-layer, such as Yearn Finance, which provides value to other platforms and doesn’t have any emissions. This is how they have $billions of TVL in low apy vaults.
The other model is lending capital, or lending future yield for which users are willing to accept low/no emissions in order to put that capital to work elsewhere. Examples are Alchemix or Abracadabra.
Outcome Learned
Less tokens to the vaults, high base yield strategies to avoid YAXIS being the majority source of yield.
Ramp up emissions in line with organically growing TVL, rather than the other way around.
Focus on the Partner Programme to target long-term/institutional depositors instead of mercenary yield farmers.
Build a lending/borrow feature inside the yAxis app that uses yAxis vaults as the yield source.
Vault Emissions
Yield has several variables at play: YAXIS price, TVL, base strategy APY, and the performance fee we take.
By playing around with the spreadsheet we can see at which point Users would find yAxis profitable over directly depositing in Convex themselves.
Compounding
Convex is expensive to compound for users. A loop of claiming, converting, adding liquidity and staking costs around $500 each time. By pooling funds together, we can take this cost away from users and provide a value-add.
Additionally the more frequent compounding is worth a few percentage points of APY.
Gauges
The gauges are a new feature of v3, and provide the ability to lock in the YAXIS earned and vote to skew the emissions higher towards your own vault.
In effect, the BTC, LINK, ETH and USD vault users will be competing against each other for a bigger slice of pie.
The YAXIS emissions are not meant to be the yield itself, but a governance tool to be used.
Proposal
Vault emissions will be initially set at a rate of 50,000 YAXIS tokens per month. This is compared to the 166,667 YAXIS per month rate of Era 1.
We will have a Convex MIM strategy with 40% APY, compared to the Era 1 basic Curve strategy APY that necessitated high emissions on top.
We suggest a 10% performance fee to find a balance between platform profit and value-add to promote growth.
These figures can be adjusted in the future.
YAXIS Staking Emissions
It’s important that staking APY is higher than vault APY.
APY variables:
- % of supply that is staked in the contract. The circulating supply rises over time with total emissions, and therefore APY slowly drops.
- Rate of staking emissions to the rewards contracts.
- Rate of compounding your position.
- Length of time chosen to lock in YAXIS.
The gauges will allow YAXIS holders to lock in tokens for a period of time. The longer you lock, the more you receive. The exact share of your emissions will depend on your peers, i.e how long each has locked in each time period.
The above table is how the returns would look without the gauges. If everyone locks in the same time period, then the APY’s above would be accurate.
If everyone locks in the lowest but you’re in the highest, you can expect to be earning a lot and vice versa.
To be clear — you must choose a length of time to lock for in order to receive YAXIS rewards.
Great Harvest
As part of the Great Harvest, we decided to put 600k tokens into the gauges rather than all into a Merkle Drop.
As we can’t predict user locking behaviour in advance — we are recommending that we start the Era with these emissions and review after launch.
Proposal
Staking Emissions will be set at a rate of 200,000 per month. We can then top up emissions as required until we find a sweet spot.
LP Emissions
The LP had 200,000 tokens added on 21st August, which runs until the 26th of November.
At that point it will either be extended, or replaced with protocol owned liquidity through Olympus Pro.
In v3, the LP works the same way as today. There is no gauge locking mechanism.
Feedback / YIP
We will open a Discord channel to allow feedback and discussion to take place.
We will then move to a snapshot vote to allow the community to have their approval.
