Proposal discussion: future fee distribution and the creation of xCVP

Motivation:
The foundamental motivation of this proposal is to find ways to increase the useage of the CVP token and increase the value of the powerpool protocol. This token should not be used as farm and dump and the best ways to prevent this is to find different usecases for it.

Suggestion:
The most interesting reason for speculators/investors are economical reasons. Thats why i suggest that the CVP token should have some kind of cashflow. The PP treasury (0xd132973eaebbd6d7ca7b88e9170f2cca058de430) has already collected about 200k USD in different tokens.

So i suggest the following things to happen:

We should implement something like the Sushibar but for CVP: https://docs.sushiswap.fi/products/yield-farming/the-sushibar

With the earned fees CVP should be bought and added to this pool. So that 1 xCVP is always bigger than 1 CVP.
And on top of that i suggest that the vested CVP automatically go into this staking contract (not the earned one, the vested ones you are allowed to claim).

Benefits to the holders and the protocol:

  • every interested short or longtime holder will be able to earn an additional cashflow
  • because the vested CVP move into the xCVP contract the user does not have to pay any gas fees if he is interested in holding the token = less selling pressure
  • xCVP would be a really good decentralized collateral on different websites like AAVE / Cream / Maker / Compound and in addition the user is still able to earn the underlaying protocol fees
  • because of this “buyback” there is a constant buying pressure for CVP and that should increase the price of CVP in the long run

Specification:
It is possible to attract a complete new audience cause more users are interested in cash flows. Let me show you an example:

You mint an ASSY token and decide to LP (50% ETH / 50% ASSY) on balancer and stake it on the powerpool website. That means you have exposure to AAVE, SNX, SUSHY, YFI and ETH price action. I would call this not just an LP position, it is more like a whole and really good portfolio management if you believe in the DEFI space. You always have 50% ETH and 50% ASSY (including the DAMM mechanism which will change the composition of ASSY with the performance of the underlaying tokens). Additionally you earn yield of the staked ASSY components AND have the right to vote for the underlaying protocols.
On top of that you earn CVP because you stake it on the powerprotocol website (as long as the liquidity mining programm is working) and on top of that you earn the protocol fees of CVP when the vesting period has ended. And since Powerpool is not just an Index or ETF, it is an AMM that is integrated in1Inch right now, the fees that could be earned are much higher. Everything while having exposure to the underlaying tokens, votings rights and without any leverage position. In my mind, this is one of the most innovative projects in the whole defi space with a huge upside potential if we are able to offer a cashflow to the tokens holders.
And we should not forget the importance of the CVP voting rights. If the powerpool procotocl will hit the defi main stream every project should have exposure to CVP because the CVP voters have the rights to change the pools like PIPT, YETI, ASSY.

I really hope you like the idea of it. I sadly dont have the skills and the knowledge how further steps would look like. I really hope some of you really smart community members can think about this idea and find a way to improve it and find ways to increase the value of the powerpool protocol.

Many thanks for the time. :slight_smile:

PS: This proposal does not include how the treasury should be allocated. This proposal is for a future distribution of the fees to stakers/holders.

9 Likes

I love this idea and I hope it is feasible for technical implementation. I can’t wait till someone from the core team members give us the opinion on this.

1 Like

For your Information, Cover is going the same path with XCOVER quite soon:

image

great idea! Will discuss with other community members

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This is superb idea. “Re-Hypothecation in DeFi”

Background

Pioneered by Compound back in 2018, they released these new kinds of tokens called “cTokens”. The idea is simple, deposit your money into Compound and receive back a cToken that represents your original asset + the stream of future interest. Logically speaking, the cToken is worth at least $1 however, is subject to the utilisation on the Compound platform. What do I mean by that?
Well, Compound is lending out your assets to borrowers on the other side so you can’t always be certain that you can redeem your cUSDC at any time, however you do know you will eventually be able to redeem it. Compound as a protocol does disincentivize borrowers from pushing up the utilisation too high. So looking back we have a rather interesting token that:
• Is always worth more than $1 and growing in value (assuming USDC doesn’t lose it’s value or become blacklisted)
• Can be redeemed for the underlying depending on the market conditions of the underlying platform

Enter Re-Hypothecation

A few months later, as more cTokens were added to Compound and Aave launched their own aTokens, it became clear that the number of receipt tokens in DeFi would start growing at a faster pace - and it did! So eventually the train of thought emerged that what if you could re-use the USDC in the form of cUSDC in another platform? Put even more simple, what if you can re-use the same asset multiple times over throughout many DeFi platforms ?

That’s basically what re-hypothecation is.

You might be thinking - doesn’t this sound slightly risky? Yes and no. Like most instruments in DeFi, each have their own upsides and downsides. Re-hypothecation enables greater capital efficiency since more yield can be unlocked and capital can be free to be re-used regardless of where it’s locked up. However limiting how much leverage is extended and how much assets are re-used is a key factor that determines the risks of re-hypothecation. The benefits of this in DeFi are the fact that we can monitor and see how much is being re-used where unlike traditional finance, re-hypothecation is completely opaque.

In the above image we can see how 1 USDC can be re-used multiple times in order to maximise the interest rate received on it through effectively recursively borrowing/leverage.

The Current State of Assets

If we look across the DeFi ecosystem, there’s almost $4b+ in assets which are sitting idle and don’t have a use beyond sitting in users’ wallets or protocols. Let’s take a look at some of these assets:

Compound’s cUSDC currently has over $1.4B locked up with no use in DeFi. cUSDC are USDC deposits on the Compound platform.

Alpha Finance Labs’ ibETH currently has over $290m locked up with no use in DeFi. ibETH are ETH deposits in the Alpha Platform that are earning ~10%.

Staked SUSHI in the Sushibar becomes xSUSHI earning SUSHI fees. Going back and forth between xSUSHI and SUSHI can be done at anytime. Another $500m locked up in DeFi with no use.

What’s interesting about all 3 assets is that they all represent significantly different risk profiles and the way that they can be used in DeFi. Let’s start off with cUSDC:
• The key property about cUSDC is that while its utilisation may vary due to high demand to borrow stablecoins against collateral on money markets, you can always rely on the value to stay consistent or increasing. This makes it attractive as a collateral type and means that generous risk parameters can be set to any platform using it.
• Collateral such as ibETH on Alpha Homora can present a greater risk since the underlying ETH is being borrowed and during liquidations, there may not be the option for liquidators to be able to redeem ibETH for ETH. Alpha Homora currently aims for a 90% utilisation on their ETH so ensuring that no more than 10%-15% of the ibETH supply is being as collateral ensures safety for liquidators to be able to go from ibETH -> ETH -> USDC very easily.
• xSUSHI is a much more generous asset that can be used throughout DeFi since going from xSUSHI <> SUSHI can be done at any time with no delays. This means that “unwinding” the stack is always deterministic and can always be done. However, due to the market cap of SUSHI, volatility and liquidity are still just as important.
Unwinding Capital Chains
As you can see from the above examples of each of theses assets, the key property about re-hypothecation, in relation to safety, is how quickly can a capital stack unwind itself during times of need (aka when prices drop). For stablecoins, this isn’t as big of a problem since they’re always meant to be worth about $1. However, for more volatile assets where credit is given this becomes more important.
Unlike CeFi where everything is opaque, the ability to create fine tuned risk profiles for the same asset with different parameters is very powerful. In the case of ibETH, there could be two options to offer credit against it:
• The first option has a lower liquidation penalty but higher collateral ratio ensuring that even the most largest drops will have a large collateral buffer behind it
• The second option has a higher liquidation penalty but lower collateral ratio ensuring that in the case of prices decreasing, the incentive for liquidator bots is extremely high
These two options present more nuanced options for the same asset but to different holders. The ability to offer this functionality and capability trustlessly is what makes DeFi extremely powerful and a major improvement from the legacy.


Closing
As you can see from the above, re-hypothecation is an extremely powerful concept and most likely the next big frontier of DeFi given that assets can start being simultaneously to maximise yield. The key thing which we need to be careful about is that the amount of systemic risk is managed properly and the community can work together to ensure we can use these new financial tools and primitives responsibly.
If you’re interested in learning more about projects tackling this space, checkout https://arcx.money given that they accept xSUSHI, ibETH and cUSDC as collateral + the ability to earn ARCx tokens via farming!

Happy Chatting on this Proposal, to get it through. Too good for POWERPOOLCVP.

6 Likes

Yes we need to convey the value of holding CVP especially to those farming cvp in ASSY, who will be earning alot of cvp, to not dump it. Right now it might largely be viewed as a farming and dumping token.

2 Likes

I just wanted to share what ALAN, the leading developer on Cover is saying about XCOVER and how its working for them when its going to be released:

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The idea is really amazing. Totally agree that this can work. More utility - more usability

I only have less than 2k in PIPT and my vested CVP are getting to the point where cost in gas to claim and swap is close.

I would completely set and forget this investment if I knew the vested went straight to some sort of ibCVP

Make this happen.

2 Likes

And now guys, i have an additional idea how we can improve this even more!

We just released the ASSY Index and to boost your yield you need to stake CVP to boost all of this. And now imagine guys we use this XCVP Pool also for boosting the CVP Yield. Many more indexes will be launched and some kind of boost will be implemented for them aswell maybe.

Now all you have to do is to buy CVP and stake it into the XCVP contract or you simply buy one of the indexes and farm them. And on top of that you get the following things without using any additional gas costs:

  • You earn part of the protocol fees
  • You get boosted yield when the liquidity mining program allows that ON ALL INDEXES you are farming
  • xCVP could be used as collateral on AAVE/CREAM etc.
  • Yield from the underlaying tokens
  • Voting rights on the underlaying tokens
  • Constant buying pressure on the CVP Token

There would be no reason to have the CVP Token anywhere else than in this contract and i personally think that is one of the best tokenomics out there because there are so many advantages for the Powerpool Protocol AND the CVP Tokens holders.

I really hope you like those ideas and that the dev team will recognise it!

4 Likes

FOR this!

Great idea, thanks a lot for proposing!

FOR this as well…great idea. When proposal?

@powerpoolAdmin is this technically feasible? Is the team capable of doing it? If so, can you submit a proposal? Or we should do it?

Hey @Glow the PowerPool team sees benefit in the idea! If you check Proposal discussion: ASSY index creation. So we can infer that this is feasible :slight_smile: And governance should be 100% retained even with xCVP.

Should it be time to draft the final version of this xCVP proposal for voting to get us going?

If @MichelVaillant or any others do not have addition suggestions on improvements, then I would say we are ready for the proposal. Does any of you have enough experience to draft a proposal, perhaps in close cooperation with @MichelVaillant as the author of the idea.

@MichelVaillant i can assist.

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I have no idea how that is working, would be super awesome to get some help. I wont have access to a computer before monday anyway.

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Man let’s cooperate, I will hep you to finally draft a proposal. Let’s push it - xCVP is great idea!

3 Likes

So there will be two contracts right? One for cvp fees to be given to voters, and another contract that is for xCVP stakers.

What is the percentage of fees that goes to the voter reward contract and what percentage goes to the xCVP contract?

Since both the fees generated for both contract come from the same place we need to decide how they are split up right?

[EDITED]

Wouldn’t it be the best to say that fees rewards go only to xCVP stakers, who:

  1. are the only subjects entitled to vote,
  2. benefit from the fees rewards system, if they actively use their voting powers under point 1

As for CVP/xCVP holders we would not have to worry about 2 contracts and it would simplify the whole rewarding and voting mechanism. And on the other hand some fees rewards go index holders but that was anticipated in the previous concepts of the PP team along with the fees distribution between CVP holders and index holders.

And maybe to simplify it further… since the index holders will get the boost benefits from xCVP, we should cancel the index holders rights to 0,2% swap fee in exchange for the boosted APY they get for xCVP staking. Therefore all/part of swap fees would go only to xCVP stakers… and when I say part of it I mean that we might allocate part of Treasury income for Smart Fund Ecosystem financing… maybe even 30% of the fees coming to Treasury could be allocated to the fund, which will pay us for helping building up the PowerPool ecosystem… and that would have strong synergic effect!

@MichelVaillant and @vasilysumanov but also the others, can you please share your thoughts?

1 Like