[Discussion] Sunset vVSP, Introduce Locked VSP

Proposals Governance and Finance
1

Summary

Wind down revenue flow to vVSP to 0%, replaced by a VSP lockup mechanism, Time Capsule.

Abstract

The advent of “veNomics” has been a hot topic across the crypto space. Curve has shown that locking tokens for revenue share and privileges within the ecosystem is a phenomenal way to drive a healthy, sustainable token ecosystem.

However, this model has serious shortcomings, and while additive buildouts like Convex help to mitigate some of those shortcomings, this model is inherently inferior to alternatives that can address those concerns within the model itself. Most prominently, the Illiquidity of votelocked position (no opportunity for OTC trading or early exit).

This document outlines the framework for Vesper’s take on veNomics: Time Capsule. This model will:

  1. Reward long-term users with revenue share

  2. Ensure a liquid position: users can trade their locked VSP position predictably on the open market

  3. Create a hard exit floor that provides an alternative exit, benefiting the treasury

Expectations

  • Users will choose a scaling lockup and number of VSP and receive a bond that matures over the duration of that lockup.

  • Each lockup is represented as an NFT backed by the total amount of VSP locked up.

  • Revenue share is delivered as VSP, streams to the user, and can be claimed at any time.

  • Users can exit the lockup early for a decaying fee, fee is paid from underlying VSP and attributed to the treasury.

  • As NFTs, the lockups are liquid and transferable. Users can leverage them in trade or as collateral. Each NFT has a minimum and maximum price (VSP value - current fee to withdraw, VSP value) that behaves predictably.

Users can always lockup VSP to receive a locked VSP position. Locked VSP is backed 1:1 with the amount of VSP locked at position creation…

Users can trade positions freely or, if tools exist, leverage them as collateral or otherwise. These lockups have a real market price somewhere between the value of the VSP each lockup is worth at maturation and the VSP received if withdrawn at that snapshot in time. For example: if a position holds 2 VSP, and can be exited with 25% fee, the true value of the position is somewhere between 2 VSP and 1.5 VSP (2 - 2* 25%)

Because APY is reflected as a floating rate between protocol revenue, VSP lockup participation, and price of VSP, we should see the following behavior:

  1. Since participation starts at 0, APY is initially infinite, some non-zero lockups are guaranteed.

  2. If subscription is low, users will buy-and-lock VSP, driving price + protocol revenue up

  3. Larger VSP boost ⇒ higher TVL ⇒ more revenue

  4. If subscription is high, users can exit at a premium, with fees going to treasury to reduce VSP circulation

This mechanic should help to sustain a more predictable VSP price with the market determining optimal terms according to revenue, TVL, and price of VSP.

Locked VSP earns revenue share as a basis, as well as additional utility in the Vesper ecosystem. Governance rights across the entire Vesper ecosystem as well as the ability to direct VSP emissions by voting weight.

Specifications

Creation of a new smart contract that enables users to lock up a chosen amount of VSP to create an NFT position. Each position to hold weight in revenue share depending on size of deposit and length of lockup.

User can select lockups at different benchmarks between one week and three years. Weight is determined as multiplication of position size and lockup duration. Position size is valued linearly and lockup length valued logarithmically. Decaying early withdraw fee is linear.

2

Proposal here: Sunset vVSP, Introduce Locked VSP · Issue #47 · vesperfi/doc · GitHub

3

Great idea.

What are the specific lockup periods and weights assigned to each?

4

Personally, I hold a small enough amount of VSP (especially now) that if I have to pull it out of one staking contract and put it into another it becomes completely unappealing at modern gas prices. I really appreciated that I could just continue to hold my vVSP and not have to act on it all the damn time.

In addition I’ve found time-locked staking systems to be sacrificing the interests of holders in order to try to artificially sustain the price which a) is philosophically terrible and b) doesn’t work. The fact that one protocol has been famously successful with them doesn’t excuse all the ones that have been trainwrecks. Protocol revenue and user-friendliness should drive the price, not gimmicks, and especially when those gimmicks reduce user-friendliness.

5

There are have been a couple comments about the gas cost of transitioning funds from the vVSP pool to the new vote-lock model. I propose Vesper subsidizes the gas cost on one vVSP withdrawal per address.

1 Like
6

Vesper’s VSP buybacks will get distributed to users who lock up their funds (with greater weight to those who lock up longer).

The result should be less sell presssure on VSP (which we all want) and a greater portion of buyback revenue for those willing to stick with the project longer (which is a fair system).

1 Like
7

Market data suggests that

  • Votelocking does indeed work very well. There are many such examples beyond just Curve.
  • Protocols, institutions, and other large players don’t mind illiquidity as they are interested in the protocol privileges. Individuals are more sensitive to the lockup requirements.

That’s why we are designing our model in a way that gives users two outs at all times. They can always withdraw early and pay a fee to treasury. They can also trade their positions on the open market.

We also know internally that vVSP model doesn’t put value in the hands of the right users. We want to best rewards the ones that aren’t looking to farm and dump. Current model does not protect that.

1 Like
8

The problem with vVSP is not that people farm & dump, it’s that the protocol isn’t generating significant revenue. Once the vVSP APY exceeds other investments with comparable risk, demand for vVSP increases, raises the price of VSP, which brings the APY back into equilibrium.

I’ll be honest, I don’t like these lockup concepts. All they serve to do is complicate and obfuscate the value of the tokens, tricking people into an elaborate sort of ponzi scheme. No additional value gets created for the ecosystem… all that happens is that some class elite of yield farmer who can wade through the documentation and theorize better about human behavior extracts extra value out of the system while the more casual ones get stepped on and worse, the people with poor timing in this game of musical chairs get wiped out.

IMO, artificially driving the VSP price higher than its “discounted future cash flow” value should be a non-goal of the protocol.

The way to accrue value to VSP is for the protocol to earn more revenue, and the way to earn more revenue is to attract more TVL. The revenue model change is a great step forward here.

9

I really like the idea of combining Curve and Convex style vote locking. Hopefully its not just the current DeFi fad that will fade over time. Right now I like it but I’m not sure what the future holds for this type of locking. I can see it driving sell pressure down in the short term for sure though. It is very attractive to long term holders.

For me personally, I don’t know if I’ll spend the eth gas fees to transfer out of the vVSP pool then to the lockup. Depends completely on eth gas fees. I’ve got small bags though, so I know I’m not the target audience for this.

1 Like
10

Beyond my Vesper involvement, I’m a Convex user. IMO the Convex value prop (for vlCVX and cvxCRV) is the ability to generate a substantial income (or flywheel the yield earned back those same instruments) without selling the underlying assets. Over time, users have come to expect low sell pressure due to the token locking and consistently strong yield. We’re not going to magically achieve a similar result with VSP overnight… But I think it is very important that if we do adopt this vote-locking model, we need to be dripping the revenue share to vote-lockers. Ideally we have an automated re-locking of rewards for the ‘flywheel’ types and also allow periodic claiming of those rewards for the ‘incoomer’ types.

1 Like
11

I like the proposal. Users who plan on holding VSP for the long term will be rewarded and should be.

2 Likes
12

Are there and examples of small (by market cap) protocols using this method with success?

13

Asking this again since I haven’t gotten a response yet.

What are the specific lockup periods and weights assigned to each lockup tier?

14

We don’t have the exacts, but as indicated in last paragraph:

Minimum weight of 1 week
Maximum weight of three years

Weight increase is logarithmic (very very small weight at minimum lockup, standard weight at one year, small increase towards three years)

1 Like