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!
