yield.finance.vote: liquidity mining meets governance

7 min readJan 16, 2021

Abstract

Yield is a dApp that utilises radical cryptoeconomics to build a competitive yield environment, whereby liquidity providers hold “property” in the protocol and earn a “resident income”. LPs pay a Harberger Tax by burning a small fraction to their LP tokens and new users can obtain a staking slot by paying a higher tax than a current occupier.

Introduction

The DeFi space underwent rapid expansion in 2020 due to the introduction of a number of new decentralised financial primitives. One of the most important was liquidity mining.

Liquidity mining is the process of providing liquidity for a decentralised market and obtaining a share of the emission schedule of a network in return for providing market depth.

The result is yield on your capital in the native currency of the network and in some cases a share of network fees.

As is typical in crypto, ideas can be (ab)used for short term gain and DeFi summer ended quickly. Networks pumped large proportions of their token supply into the market causing hyperinflation of their tokens, resulting in an inevitable crash of their market price.

“There’s no such thing as a free 120,000% APY lunch”

Even the most legitimate projects can fall prey to the “liquidity locust” effect as LPs leave when the rewards stop, or for a better deal when one is presented.

More recently, protocols have struggled to reach consensus on how to build sustainable liquidity in their markets, balancing the cost of inflation with the benefits of deeper liquidity.

Yield

In this post we introduce Yield, a new dApp in the finance.vote ecosystem, that generates “perma-liquidity” and creates tunable parameters that will provide $FVT holders with the ability to govern each “pulse” of liquidity rewards to LPs.

LPs gain access to a proportion of the finance.vote network emission by staking their LP tokens in the yield contract and occupying and claiming “Protocol Property.” They are competitively allocated, meaning that new LPs can displace old one’s by paying a higher tax on their plot.

The tax takes the form of a “Harberger Tax”, where users self-assess the value and opt to burn their LP tokens to protect their property.

Protocol Property

Staking slots in Yield can be conceptualised as property on the finance.vote protocol, where the protocol can be seen as a digital commons governed by those holding the $FVT token.

By owning property and providing liquidity for the protocol you are owed a share of the network emission.

Each property attributes an equal share of the protocol emission to each staker.

Harberger Tax

The Harberger Tax is a theoretical economic idea that is designed to improve allocation efficiency of assets. That is, assets are allocated to those who are most likely to use them, rather than those most likely to hoard them. This is a desirable outcome for governance tokens, which are best allocated to active participants in governance decisions.

In a market where the Harberger Tax is implemented, an owner of a property would declare a value of their property and pay a tax proportional to the listing price. If a buyer wishes to purchase the property they submit a bid at the declared valuation and the resident must sell.

This is a significant departure from the convention of private property rights and towards a model of partial common ownership.

These radical economic ideas have the potential to reform societies, providing the potential for models such as UBI and quadratic voting based governance. They are however difficult to implement in the real world due to institutional and cultural inertia.

But, they are possible to implement with digital assets in the realms of the cryptospace and finance.vote is committed to exploring these radical ideas in practice.

“Token economics now, is just economics in the future”

Yield utilises the Harberger tax to manage the occupancy of property. The Yield smart contract acts as an impartial land registry and distributes tokens to the residents in the form of a resident income.

Residents retain their property by self-declaring a valuation through their willingness to burn a proportion of their stake. After this point, users can occupy any of the properties by opting to burn more than the current occupier.

Perma-liquidity

The creation of automatic market makers (AMMs) and the provision of liquidity in decentralised markets has been revolutionary for the cryptospace. However, permissionlessness comes at a cost.

Liquidity providers can remove their liquidity at any time. If the LP controls a sufficiently large amount of the market, this removal of liquidity becomes a “rug pull” and can have a devastating effect on the market and the holders of the token.

Yield aims to steadily build a liquidity floor to the $FVT market by providing a context where it makes rational sense to burn LP tokens (committing the assets to the liquidity pool forever) by rewarding users with yield on their staking slot. Therefore there exists a maximum rational burn rate, whereby the value obtained in $FVT (current and discounted future value) equals the value burned in assets required to hold the slot. We believe that the market will converge on a market equilibrium close to this burnt rate over time.

Would you burn $100 to get $200 back? What about $180?

Rug Thickness

Rug thickness is the amount of tokens committed to the liquidity pool that can never be taken out and the sum total of the perma-liquidity in the market.

The greater the rug thickness the greater the assurances that $FVT will always have a liquid tradable market.

Pulsed Liquidity Mining

In order to provide $FVT token holders with the ability to govern the emission of the $FVT token rewards to liquidity providers, tokens are issued to LP stakers in “pulses”.

Each pulse begins with a period of high network inflation, followed by a quadratic drop off of rewards throughout the cycle.

$FVT holders will decide what the next pulse looks like

Before the end of each cycle there will be a governance decision, whereby $FVT token holders can tune the pulse height and width, providing simple modifiable numerical parameters that negate the need for endless debate and mitigating against governance gridlock.

By iterating rewards through price space over a period of time, LPs will make decisions over whether to maintain their burn commitment to the pool, relinquish their properties, or hold them for periods of higher rewards.

The interaction between property turnover, deposit sizes and burn commitments will aid in price discovery of the $FVT token.

The future of finance will be gamified

Liquidity Mining Meets Governance

The Yield contracts are built with parameters that will be controlled by the $FVT token holders. It is intended that each pulse will initiate immediately following the pervious and the mining parameters will be set by quadratic vote within the ‘Influence’ snapshot voting dApp to be released in time for pulse 2 of the Yield liquidity mining incentive.

The following parameters are tunable by governance vote:

Pulse height(starting block reward of the pulse)
Pulse length (number of blocks in the pulse)
Number of pools
Number of properties per pool
Pool deposit minimum
Pool burn rate minimum

Rules of the Game

Any user can occupy a slot and claim their protocol property with any amount of LP tokens acquired by providing liquidity in the $FVT uniswap pool.
In Pool 1, (Orca) there is a minimum deposit of 10 ETH equivalent in value of LP tokens, in Pool 2 (Krill) there is no minimum deposit.
Orca will have 30 slots and obtain 80% of cycle rewards and Krill (50 slots) will obtain 20%.
The game begins with zero tax. However, once slots are full you must acquire a slot with a higher deposit and burn rate than the current occupier.
Burn rates can start at any amount from 1 wei per block.
You can withdraw your earned $FVT at any time.
You can withdraw your LP tokens at any time, less your burned stake.
Play the game or don’t, it’s up to you.

An example

Alice arrives at the Yield dApp as an existing LP for the FVT-ETH pool on uniswap. There are several free slots available and she claims a property by staking a 12 ETH equivalent of LP tokens and setting a zero burn rate.
Bob arrives a day later and sees that all the slots are occupied. However, he sees that Alice has set a zero burn rate and acquires Alice’s property by providing 12.1 ETH of deposit and a 100 wei / block burn rate.
Alice checks the Yield dApp and see’s she has missed out on 3 days of $FVT rewards. This time she submits her 12 ETH LP deposit into Clive’s slot (10 ETH, 0.5 Gwei/block) and sets a 3 Gwei / block burn rate, putting her in the middle of the pack and securing her property for this pulse and the next.

Wen Yield?!

The Yield contracts have succesfully passed audit from a sector leading security firm and an excting user interface is in the final stages of development and testing. The launch date for the Yield dApp will be announced in our telegram group and early access will be granted to our citizens (holders of a finance.vote decentralised identity token).

Disclaimer

Liquidity provision is for advanced users only. Our smart contracts have been professionally audited by a sector leading security firm, however there is no such thing as a 100% safe contract. LP tokens burned are locked in the $FVT Uniswap forever. Orca and Krill yield pools are for advanced users only, use at your own risk.