Product idea: Fixed yield

I think the most natural next step progression for Gro in a product development would have to include a fixed yield product. To clarify these are some reasons why I think we would benefit from a fixed yield product:

  • Reduce instability in income/return generation, especially in turbulent times
  • As an attractive product for first time users, especially those new to DeFi
  • Attracting higher TVL from both TradFi and DeFi institutions
  • As a suitable income generation asset for other DeFi treasuries
  • As another tool to optimize returns vs risk taken e.g Sharpe ratio etc.

Now that I’ve enumerated the reasons for a fixed yield product I would take a bit of time to think about how a fixed yield can be achieved.

After seeing some other fixed yield products like Element and Anchor these are what I’ve gathered:

  • Fixed yield may be a target that needs to be achieved even under unfavorable market conditions by
    additional incentives from the protocol or incentivizing certain market dynamics
  • Fixed yield is set based on current market conditions and is short lived (a couple of months at most)

Between the two possibilities above, I think the most sustainable thing to do for the DAO treasury is the second and additionally we can leverage statistical information from Vault and PWRD to help assess market conditions. I am also open to the first option, but I feel like it may send the wrong message of yield chasing which I don’t think is what Gro is trying to do. But it’s an option for short term exposure

Historical and current APYs of Vault/PWRD can be used to assess and guide the forward fixed yield rate

Now coming to how exactly we can make fixed yield tokenomics work, here are some of my thoughts:

  • The protocol can sell a discounted “bond” that will mature after a set amount of time e.g 3 - 6 months with a particular fixed rate determined based on historical market condition
  • The protocol can use the assets obtained at the time of the bond sale to invest to Vault and/or PWRD which we expect to get a premium yield
  • Failure by the protocol to achieve the fixed yield allows the bonder to claim a certain amount of GRO in exchange (not sure yet what’s the mechanism to determine how much GRO is given). This builds protocol accountability and responsible governance by the DAO
    • Alternatively or in conjunction, we can provide a liquidity backing system whose funds will be used to fund protocol failure at keeping the fixed yield. Incentives may be some portion of fees, bond sales, GRO tokens etc.
  • Assuming that most of the time Vault and/or PWRD will have higher APY than the fixed yield, the treasury should be growing its asset over time which can be used to boost future fixed yields or other forms of protocol growth operations
  • As icing on the cake, an option to automatically roll over bonds to the next term will be great for user experience and gas fees

I don’t know how realistic the ideas above are but I took inspiration from seeing other uprising DeFi ecosystems like Liquity, Olympus and Frax. But my aim for proposing the above tokenomics is to have a simpler market mechanism than Element that requires various market participants to interact with each other in order to gain the fixed yield. While Element’s system is dynamic, I think the additional layer of complexity is a factor to its relatively slow uptake. Though if we can find a way to simplify Element’s process by building on top of them, that would be great too!

I hope others will chime in the discussion!

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Funny, I just came here and registered to propose a similiar (or same?) concept.

Totally naive approach, but:

  • Calculate the median of historical APR for Vault and PWRD, with a slight bias towards the lower end (median of 0.48 instead 0.5?).
  • This fixed/projected APR can be recalculated each quarter/half-year/year.
  • Apply same strategies as PWRD/Vault.
  • If the actual APR is above the projected APR, it goes to the treasury. Users of the fixed yield receive their yield, with an additional bonus in GRO.
  • If the actual APR is less than the projected APR, Users are paid out of the treasury. No GRO bonus.
  • The bonus GRO is just a small bonus and icing on the cake. The surplus of a higher APR against the fixed APR should mostly stay in the treasury for lower turnouts.
  • Bonus GRO is only available to fixed bonds with minimal lockup of quarter/half-year/year. If someone wants to use the fixed yield with flexible pulling of funds, they will not be able to claim any bonus GRO.
  • Pulling out funds, regardless of fixed or flexible time, is subject to a debonding period of 7 days, to allow the protocol to deleverage slowly and take advantage of lower gas fees and other factors.

So, this would have a fixed APR stables, with a additional flexible APR or GROs - which is kinda similiar to options greeks, as GRO APR is depending of the expected volatility or chance of change of the underlying. Higher GRO APR/EV means that the chance for performing above or under fixed APR is higher.

Why APR? To remove the compounding effects, because they can skew the expected value and lead to losses for the protocol. Maybe an APY can be used if it’s really like a fixed bond, i.e. “bonds” with flexible removing of funds is denominated in APR, true bonds with fixed length denominated in APY.

Why GRO in case of better performing APR: To create a stronger incentive to stay in the system. I think claiming GRO in case of lower APR totally defeats the actual needs of people running a fixed yield strategy. Attracting TradFi or conventional people to invest in this won’t work if the fixed bond can yield less than advertised. Paying out GRO in that case might even pose tax problems for them, if they have to get to their initially expected return, in case of obligations to clients. A target group of fixed yield strategies expects fixed yield with no exception*.

*As an alternative/addition, people could potentially stake GRO to secure the protocol and fixed yields, similar to the staking mechanism of AAVE. In general, paying out GRO for underperforming should be the last step. Ensuring the fixed yield should be mission #1 in the fixed vault. Similiar in VAULT where mission #1 is highest yield and mission #1 in PWRD is the highest protection.
Bonus GRO gained in fixed yield will be automatically staked.
In case of severe APY reduction/losses, the protocol can sell GRO.

Why fixed time and flexible time bonds? To allow the defi degens and crypto native people to stay flexible if they want.

Why debonding time? Because instant pulling might become a problem in case of true volatile times or big APY/APR swings. If, for whatever reason, the fixed yield plummets for just a few days, a bank run is something that should be prevented.
This would also give the protocol time to sell GRO, or hope for better coming days.

Field yield product around rough “timing” of bottom of next bear market would be interesting :moneybag: