- Proposal to increase overall protocol yield through allowing increased exposure to Curve strategies (which have higher yield)
- The cost of this would be less stablecoin protection, so PWRD is no longer fully protected against failure of USDC/USDT/DAI
- It appears this stablecoin protection isn’t valued highly by PWRD users, and they would prefer more yield plus smart contract protection (against protocol failures)
- Vault and PWRD have had a good start, with $45m TVL between the two products, but recent performance has been flat
- Some of this is early liquidity providers leaving (as the initial farming rates drop), but there is also a slight downtrend on Vault single sided staking pool (16% reduction of GVT held in the month 21 Nov to 21 Dec)
- Although increased marketing efforts are underway following the conclusion of vote 007, the lack of organic growth indicates that the risk/reward profile of Vault isn’t yet compelling enough for users
PWRD is more protected than it needs to be, resulting in lower protocol yields (Vault and PWRD)
- Right now PWRD is protected more than 100% by Vault against the failure of any protocol or any major stablecoin (USDC, USDT, DAI)
- Following discussions with the community, we have a hypothesis that users do not need full protection against major stablecoins (USDC, USDT, DAI), and would prefer higher yields
Evidence supporting hypothesis
(1) PWRD deployment into PWRD-3CRV pool
- 77% of PWRD held by users is staked into the PWRD-3CRV pool.
- PWRD in this pool is protected against protocol and strategy failures, but as it’s a 3CRV pool you are exposed to any failure of USDT, USDC, or DAI.
- When you provide liquidity to a Curve pool, no matter what coin you deposit, you essentially gain exposure to all the coins in the pool. That means that if one of those 3 major stablecoins failed, the whole pool would be impacted (and not just the individual stablecoin).
(2) Survey of team and OGs
- 90% of survey responses from core team, OGs and community indicate that Vault yields are not seen as significantly compelling
- A number of comments in discord and survey say the risk being protected against is theoretical, and yields could be higher, one person commented ‘do users care about stablecoin risk? Seems minor compared to smart contract risk’
- You can add your own thoughts to the survey here
(1) Most PWRD users are giving up their protection against major stablecoin failure.
(2) Most survey respondents think Vault yield is not compelling, and yield is the most important thing.
Proposal: Increase overall protocol yields by depositing more into Curve pools. This means: KEEPING full smart contract protection for PWRD but REMOVING full stablecoin (USDT/USDC/DAI) failure protection for PWRD
By removing the 100% PWRD protection against major stablecoin failures we can select more aggressive yield strategies e.g. Curve 3CRV pools that run at 15-25% APY.
Curve pools currently have the best yield opportunities on stablecoins, especially given Curve’s track record (safely live since Feb 2020 with over $20bn TVL).
This does not mean we would be only restricted to Curve pools, but more that there would be greater flexibility in strategy selection by removing the need to protect PWRD 100% from USDT/USDC/DAI failure.
Alternative considered of increasing existing Curve Vault (seventh strategy) exposure
- One alternative we considered would be to increase the Curve vault allocation but not too much, which would increase yields while PWRD still remaining fully covered even for major stablecoin failure
- However the amount we could increase it would not be very much (vs the 15% we are at today), without breaching the full stablecoin protection for PWRD. This is especially the case if there was a high utilisation ratio: meaning we could never get high leverage for Vault (and so Vault yields would be lower).
- In addition, any increase in Curve vault exposure levels would need to be changed manually, and if not monitored carefully/if there were sudden movements in Vault TVL could end up with PWRD not being fully covered against the DAI/USDC/USDT exposure that this alternative is designed to keep.
Alternative considered of changing the yield sharing curve
- Another alternative we considered was in response to Slacking’s forum post where we could change the yield sharing curve in order to improve Vault yields
- However following community feedback it seems the most important thing to grow protocol usage is to increase overall yields
As this is a significant change in the value proposition this is a Request For Comments (RFC) from the community and the DAO.
Any Vault and PWRD holders would be impacted, both in terms of higher yield and higher DAI/USDC/USDT exposure.
Following a review of feedback the core team will come back to the community with proposed next steps to vote.
Will it be practically possible to have 3 products?
- Current PWRD
- PWRD lite (offering protection only against smart contract failure)
The reason I am asking this is that a user can invest through other protocol and buy insurance against smart contract failure. We can promote PWRD lite as a substitute for that. It will have much higher APY then PWRD.
Having multiple products will help us to showcase diff products based on risk profile. Main PWRD product may find a lot of value once govt starts crackdown on stablecoins. Still we need to do something to bring PWRD APY> 6%.
I don’t have much technical knowledge, just sharing my view from branding perspective.
Personally am up for this change. The rationale for my thinking is simple: if the major stablecoins, in particular USDT and USDC goes fails nothing (or almost nothing) in DeFi will be spared. Considering that these stablecoins are:
- massive in both marketcap and transaction of these stablecoins
- backing up a lot of loans denominated in these stablecoins, whether directly or indirectly (retraceable to these stablecoins)
- as a critical financial interface for many to get into DeFi
So considering the inherent systemic risk that is pervasive in the space, I would handwavily argue that in general even one of the major stablecoins being affected won’t spare the others in some fashion. The optimistic thinking is that it would lead users to demand the other major stablecoins increasing its price, but even that is likely to exacerbate liquidation problems of loans across DeFi. So the ending scenario remains in my head that it would either way be an extremely rough ride for the DeFi space.
To the point of what @KhaaduScalper said about trying to still insure stablecoin protection, the most efficient way to derisk exposure to these stablecoins would be to have greater exposure to other stablecoins. On the downside the protocol gains exposure to other stablecoins which are not yet as prevalent in the ecosystem, but on the upside they are definitely growing and actually has a lot of incentives for farming as they need to scale in volume
Looking forward to see where this proposal goes to
@KhaaduScalper I don’t think it’s impossible but with the current yield sharing mechanism I do see some difficulties to come up with a scheme that would achieve a relatively high APY in all three product tranches (Vault, PWRD+, PWRD). There are several reasons for this:
Protecting PWRD fully from stablecoin failures would imply that its exposure to stablecoin liquidity providing would be minimal (as is the current case). But currently in the DeFi space with more algorithmic stablecoins being created and the Curve wars and in general liquidity mining, a lot of the higher APYs are due to providing liquidity. Other high APY stablecoin farming are often on newee protocols (due to incentives again) or concentrated risk. This is great for PWRD but not risk-free for the protocol overall
The current yield sharing mechanism is based on taking a portion of PWRD’s yield and giving it to Vault. Introducing PWRD+ would effectively mean that Vault will get a lower share of PWRD’s yield since it will likely be shared with PWRD+ too. Of course Vault can get the yield from PWRD+ too. But since we want to protect PWRD fully from stablecoin exposure, then for guaranteed protection at least either one of PWRD+ or Vault has to have minimal stablecoin LP. This is because we want to ensure that PWRD will be protected and the protection would need to come somehow from Vault and/or PWRD+. But that would depress the yield for reasons I stated before
Additionally, if PWRD is going continue to be branded as a stablecoin and we want PWRD to be more widely used in the ecosystem, then either way we would need deeper and deeper liquidity for PWRD to maintain the peg. Of course this is if we have such ambitions
That said I don’t think research and work on creating a PWRD+ needs to impede the passing of this proposal
Some ways that a PWRD+ can be created on the top of my head:
- Open a new product where liquidity providers can deposit stablecoins into the system which would get yield but they will be used for protection in case the system needs it. This is inspired from Angle protocol’s hedging agents: 🛡️ Hedging Agents - Angle
- To strengthen the APY for a Vault/PWRD+/PWRD lineup, modify the yield curve to be similar to Idle’s senior/junior tranche yield. But this will require the tranches to all deploy to the same set of strategies, but as I understand from @charliem216 's explanation with me offline, this is not the case currently with Vault and PWRD. Currently Vault and PWRD uses different (or at least different capital shares) strategies to get their yield
Thanks for the feedback @KhaaduScalper and @Slacking
My take is that to begin with, keeping two products will be simpler for the user experience. Especially as we have Labs in place (which is higher risk and return than Vault right now).
By putting this proposal in place we could push PWRD to >6% APY and Vault >15% which I believe would be compelling.
The only further risk would be more exposure to the major stables, which as @Slacking said are so integral to DeFi that if they go down to zero then we are in a serious black swan event scenario already.
What about even more risk and higher yield by taking Curve exposure?
Another option that has been discussed is increasing Curve exposure to the point that PWRD is no longer protected here.
Again, this is de facto the case right now with those PWRD users who are staking in the Curve pool. But it also means the value prop is more complex to explain: PWRD protects against all assets other than USDC,USDT, DAI, and all protocol failures except Curve.
I think keeping the proposal as you originally made it is the best next step. We can consider further exposure to Curve, if necessary in the future. There are other yield opportunities besides Curve (though it definitely is one of the highest ones and probably safest)
Keeping it as you originally proposed would also keep PWRD’s value prop complexity lower, as some people have addressed
I like the proposal and would definitely vote in favor.
I agree with @Slacking on the point that additional PWRD protection is unnecessary especially when considering an exogenous stablecoin shock would destabilize all products. In the future, I would like to see future products such as: VAULT/PWRD solely based off decentralized stables (Frax USD, Dai, UST), centralized VAULT/PWRD offering based off USDC, USDT, geminiUSD, and the existing offering. This could provide a way to diversify away from centralized issuers, especially Tether.
I also strongly support a few additions to this proposal (or to add a new proposal):
-PWRD HODL fee is removed
-PWRD-based pools are provided liquidity within GRO Pools
-PWRD APY Yields are based on lock-up times with higher APY weightings towards longer lock-up periods (50% APY for 6-months locked, 100% APY+50% Forgone Income for 12-month savers). Forgone APY occurs when a saver locks up PWRD for less than 12-months, or from not locking up PWRD at all, and forgone income will be distributed 50% to savers that lock up for 12-months (or indefinitely) and 50% to GRO Treasury to allocate to Vault. HODL fee for locked-up PWRD could be instated if redeemed early, but not for unencumbered PWRD (non-locked PWRD). |
Some initial thoughts (copied from discord):
Yes: agree we should remove the 0.5% withdrawal fee to make PWRD function as a stablecoin. Right now it’s super stable at $1 as Vault protects the peg, but then if you ever tried to redeem it would always be worth less at $0.995.
Agree: once we remove the withdrawal fee that works even better. Need to think about how the rebasing logic will work though
I’m conscious of mixed messaging / confusing the user experience if we are also updating the GRO tokenomics. Are we better off to let people focus on locking GRO instead?
Thanks again for all the thought and input
COMMUNITY SURVEY: FUTURE VAULT/PWRD VALUE PROPOSITION
Thanks for all the contributions and ideas over the past month. We’ve settled on a few changes which allow us to launch what we believe will be a very compelling new version of Vault (offering up to 20% base yield).
To get the most benefit for Vault, we need to make sure PWRD is equally compelling. For our final piece of research we are trying to nail down the order of importance of the following value propositions:
- Protection vs individual stablecoin failures
- Protection vs individual protocol failures
- Total collateral level
In each case, the 0.5% withdrawal fee will be removed for PWRD, creating more options to use PWRD as collateral across the DeFi ecosystem.
To make your voice heard, please complete the survey and let us know what you think. As always, the community’s views will determine the direction of this updated new Gro product.
SURVEY LINK HERE - PLEASE COMPLETE THIS WEEK
This takes a bit of time (~10 mins), and we are hugely grateful for all contributors who take the time to fill this in thoughtfully and help build the future of Gro protocol