Stability Treasury & Safety Router Proposal

This is a collaborative proposal with community member Silver and I

Edited for clarity

I believe a perfect outcome for this project has 3 parts:

  1. a fully decentralized platform where any common user can place funds with full confidence in the best possible returns and security.
  2. a governance token that encourages participation and curbs the apathy of voters (which seems inherent in many governance tokens currently in the space), and
  3. a governance token with intrinsic value that can entice new crypto users that know nothing more about the project than its initials on CMC.

The first goal relies solely on the APY team and likely already has your full confidence if you’re here and reading this. So I think all proposals need to focus on goals two and three.

The proposals submitted so far have failed to truly connect with all parties involved and address the last two goals stated above. Many holders favored a performance fee allotment to stakeholders. Understandably, due to compliance issues, that was not ideal for the APY team, who would ultimately have to face the consequences if that proposal fell on the wrong side of the regulatory line. I don’t think any of us should expect the team to risk potential fines or jail time.

I also think there are a lot of holes in the boost proposal, especially since it fails to help us realize the second goal and comes up rather short on the third goal. The boost doesn’t give that appetizing of a reward and as more and more users add to the staking pool it’s rewards diminish. If the goal is to encourage participation in governance and entice people to want to stake, then having a boost with a reward that shrinks as more people add to the pool is counterproductive. Also, only giving the boost to users in both the platform and token seems to me a suboptimal way to gain new crypto users that are unaware of what the project even does.

The burn proposal addresses the third goal, but not the second. It’s true that burns are a very popular mechanism for increasing value at the moment, but they do nothing to incentivize participation in the true purpose of the token. However, with APY functioning solely as a governance token for the moment, I would agree that a 100 million supply may not be necessary, so I can see the reasoning behind a burn and do not wholly disagree with it. Unfortunately though, I think some users, especially older ones, get put off by the idea of a burn, considering it a cheap tactic and uninspired method of price manipulation.

So, to finally get to the meat of this novel I’ve written, I have two proposals that I believe hit all the goals and stay within regulatory boundaries. APY already has a percentage yield written into their litepaper that is likely to go treasury at first and then to stakeholders. To quote it, “The percentage of yield generated that will go to APY token holders for maintaining the protocol. This is initially set to 0.” I will call this yield that goes to holders maintaining the protocol a Stability Yield from here on out for brevity’s sake. The problem with paying a reward to stakers in the initial performance fee proposal was that the protocol is not yet fully decentralized (like a UNISWAP, for example) and if the project ever faced a compliance crackdown, the APY team members could take the fall. So how do we bridge this gap?

The first proposal is a Stability Treasury. I propose that we use the stability yield to buy back APY from the open market and direct it into a treasury made up of two wallets. The first wallet will be a marketing wallet used for all things marketing related. The second will be a stability wallet that will serve two purposes:

  1. to maintain stability as the protocol transitions to it’s ultimate goal of full decentralization, and
  2. after decentralization is realized, to be used as the wallet from which rewards will be distributed to stakeholders.

In order to receive these rewards, APY holders must stake to a governance pool. Since there will be no rewards until after fully realized decentralization, this pool will give 3-1 voting rights to all stakeholders. I believe this is how we can connect to both goals two and three as well as provide many other desired benefits.

  1. People will be incentivized to stake for extra voting rights because votes will directly determine the exact percentage of the platform yield that will be allocated to the stability yield. This will affect how they will be rewarded when decentralization is realized.
  2. If staking in this governance pool means they will have to wait to realize the full rewards, it ensures users are not selling early, thus creating stability for the token.
  3. Because tokens are locked in the stability wallet until decentralization, it essentially serves the same purpose as a burn by taking tokens off the market.
  4. Since the time between now and whenever the protocol will be fully decentralized is undefined, I think for the present the stability wallet could serve as insurance in the worst case scenario of a hack to help victims recoup some of their lost funds.

The second proposal is a Safety Router: Users will have the ability to stake APY tokens into an APY Insurance Pool. The Insurance Pool would be used if an adverse event in the APY Platform occurs. Users who stake into the insurance pool would be subjected to a max 25% loss of their staked APY within the Insurance Pool. This avoids regulatory concerns because users are risking part of their staked APY and thus are allowed to be compensated for that risk. It also serves to add an additional layer of security to the platform.

Once the APY platform fee is voted on, that fee would be used to buy APY off the market where the newly bought APY would be split for three purposes:

  1. The First purpose will be to increase the insurance pool by routing 45% of the platform fee into the insurance pool to be combined with the APY that is already staked.
  2. Second, 45% of the platform fee will be routed to APY stakers in return for taking the risk in the insurance pool.
  3. The remaining 10% would be routed to a bug bounty reward fund.

Now this plan does less to encourage participation in governance, but it does increase the utility of the APY token more than the first proposal. Also, with more potential for rewards I think there is greater incentive to partake in governance voting than there is right now. Down the road we could add something in voting where users would have to vote on at least one pool proposal before they could vote on any sort of platform fee.

Anyways, thanks for reading my book, I’m talking to publishers Friday to get it on shelves by Christmas.

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Great write-up guys! Just so I understand, the Stability Treasury proposal would have an indefinite lockup when staking to the stability wallet? You couldn’t unstake until full decentralization of the platform occurs, tbd?

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I left that unclear on purpose so people that had a bias one way or the other wouldn’t immediately disregard the idea. I think that’s something we could all vote to decide if this was a proposal the community favored.

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Nice in depth ideas/proposals! It’s these types of things that future investors will buy in to. How do we get this going? Great job!

Great proposals and really encouraging to see this sort of contribution coming to the fore in this early stage.

Do you see any danger in boosting the voting power x3 opening the door to manipulation of the platform by bad actors? I know this is a concern other DAO’s have had in the past, and does the lock-up period mitigate this in any way in your opinion?

Thanks, I’ll just add that this is a great learning experience for me as I’m really keen on being involved in governance structures in general going forward - I’ve been impressed by others such as Balancer and very keen to see the APY community grow and what ideas spring forth.

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I have two thoughts on this:

  1. That stability wallet would lock funds in exchange for the voting rights. I imagined it as a scaled system (for example, 6 months-2x, 1 year-3x).

  2. Currently everyone is equal as far as vote power to ownership ratio, and since there would be no limit to stakers in the proposed system, in theory nothing really changes. Everyone who is willing to vote in our current system is likely going to stake in the new system so the ratio compared to other voters remains the same. You’d hope, too, that the people staking are doing so in the hope of the rewards that will come with decentralization, so they would want to support the project in the most beneficial ways. The wait for rewards almost acts as a soft lock as well I think.

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Thanks for taking the time to encourage discussion and gather the community’s thoughts on this. I’ve brought it to the team’s attention so we can review, and share any thoughts we may have.

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How long will Decentralisation take? The quicker the better! I think the 3x voting won’t make a difference, only those who wanted to vote from the start will lock tokens. If you could somehow merge proposal 1 and 2 I think we could be on to something. Insurance pool like AAVE is a good idea. Everything hangs on how long we can become decentralised!!

Yes, but I don’t think anyone could give a reliable timeline on that. As far as voting rights I agree it’s definitely something that needs refinement if that were the proposal the community favored.

Regarding the second proposal around the Safety Router idea and in hopes to stimulate some more community discussion on this topic, I want to point out that Aave (who might very well end up in future farm governance proposals) runs something similar with an insurance-type pool so it might be worth looking into how it came together, how their community initially responded to the idea, and how successful the model is working for their users. I don’t know the answers to any of these btw – just curious.

For those interested: Safety Module - Aavenomics

Also to note one of the ways that APY.Finance approaches security from loss is actually accomplished through diversification of strategies. So while Aave may be insuring a single pool (or otherwise consolidated funds in a few pools) that would require immense coverage, APY.Finance mechanisms through diversification in the way strategies are approached would limit loss to only a small percentage of the portfolio so it’s possible less comprehensive coverage would be necessary.

Also, I would counter that the last argument from the OP that the Safety Router “…does less to encourage participation in governance…” with your own follow-up argument :laughing:. People staked in this proposed insurance pool would absolutely care about what farms get approved through governance as it would affect the additional risk they’re taking by staking there. This would be further incentivized by your proposed participation requirement (which some L1 chains implement to some degree).

Overall, and to steal again from the mantra of Aave’s tokenomics (Aavenomics), it’s great that the proposed ideas seek to actually benefit the protocol’s growth, sustainability and safety first, and then somehow transcend that to satisfy individual stakeholder objectives.

Just wanted to toss my thoughts out there as best as I am able. Hope others can continue the discussion as much as they are able.

Thanks to @Silver and @Tahouse for the write up!

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That is true, perhaps the desire to limit risk would increase governance participation. I also lean towards the second proposal as I think it does the most to increase the value of APY and make it look it enticing to future buyers.

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I’d like to build on this and combine two ideas. The team has proposed to use yield to purchase $APY from the open market in order to issue rewards as $APY and less from stables. If a user then got most if not all yield in $APY there would need to be a mechanism to incentivize holding. An idea could be to implement the above proposal(s), but make it seamless for a user to stake their $APY into the the insurance/safety staking pool at the time of withdrawal with a simple and easy to understand toggle button. If the UX was simple and showed users that this was a simple and risk free option for their $APY at the time of withdrawal it may work to achieve that incentive.

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