Authors: Blake West and Mike Sall, co-founders Warbler Labs
Building on the proposal by @velvetdoctor and @Freedom15, and using the “capped” concept in the proposal by @CognitiveLiberty (which is also how the LP airdrop worked), this proposal suggests that Goldfinch allocates a separate retroactive reward % to Backers, as well as implements on-going liquidity mining for Backers. See full data behind the proposed airdrop here.
More concretely, this proposal suggests two things for consideration by the community:
- 1.51% for the retroactive Backer airdrop to give them 2X APY’s of the LP airdrop . This is broken up into 4 “parts”. A “capped” reward, an “uncapped reward”, a “risk bonus”, and “theoretical liquidity mining” for the pools already contributed to, but which will not be able to participate in Backer Liquidity Mining once it is turned on. Each item is explained in detail below.
- Allocating 2% for Backer Liquidity mining, to be activated as soon as possible . This proposal also explains how Backer Liquidity Mining works, and suggests keeping the 2% allocation previously described.
Early Backers should be compensated for the risk they took and work they did. And for future Backers, having liquidity mining will prove a great incentive to do further work.
There are two parts to this proposal, the airdrop and Backer Liquidity Mining. Let’s start with the airdrop.
The airdrop is broken up into 4 parts.
- “Capped” grant - The first $750 of each Backer deposit will be rewarded with GFI at the $98M price of the seed round. This is identical to the LP airdrop, and also shows appreciation for smaller dollar Backers.
- “Uncapped” grant - Each dollar of Backer capital is also given 0.08740 GFI per dollar, with no cap. So $1000 means 87.4 GFI, $10k means 870.4, etc. This is the identical rate that the LP grant received for this portion as well. This part recognizes larger contributors for the risk they take.
- “Risk bonus” - This is a multiplier on the first two parts, and would be set at 100%, meaning that Backers get double the grant that LPs got, to reflect the increased risk they take and work that they do.
- “Theoretical liquidity mining” - Finally, each Backer also receives rewards for the pools they are participating in as if their pools successfully participated in Backer Liquidity mining. This is because even after activating Backer Liquidity Mining, legacy existing pools will not be able to participate. All future pools will though. So this airdrop optimistically assumes the existing pools will fully pay back, and thus will pay out all their rewards.
When you total this up, it comes out to 1.51% of the total supply. See the spreadsheet for full details.
Basically the same treatment as LPs
- The capped grant (first $750, or first 875 GFI of rewards) unlocks immediately for everyone.
- Beyond that, if you put in less than or equal to $20k in a pool, it all unlocks immediately.
- If you put in more than $20k in a pool, then the entire amount above 875 GFI vests over 12 months.
Comparison with LPs
Looking at APY’s generated per dollar, the Backers will generally receive about 2X the APY’s of LPs . At roughly today’s prices (~$10), LP APY’s from the airdrop ranged from roughly from ~90%-1400%, depending on exact amounts supplied. In this proposal, Backers will receive about 200%-2500% APY’s . (See the referenced spreadsheet)
In the post by @velvetdoctor, their math says that 2X means 2.66%, but ours says 2X means 1.42%. Where is that difference coming from? It’s really coming from the capped grant. A lot of the total tokens for LPs were driven by the capped grants, which is largely driven by the number of people involved. There were over 5157 LPs, and we wanted each one to get something meaningful from the capped portion. Whereas there are only 420 Backer contributions. So doing that same meaningful capped amount simply takes fewer tokens. I suppose one could argue that this number of people is irrelevant, and only total tokens matter. But I disagree in this case, because we’re building a community, and it’s important to recognize smaller contributors. More broadly, I think APY is the more fair way to compare the airdrops, and when you look at that level, this proposal does in fact give Backers generally 2X the APY of LPs.
A key point that has been brought up regarding Backers is that they have to lock up their capital for 3 years. While this is practically true, it is not inherent to the protocol. Backers receive an NFT for their participation and we expect secondary markets could develop to enhance liquidity on these in the future. This could be a great use of community grants.
Summary of Airdrop proposal
This proposal shows strong recognition for the Early Backers with a healthy 2x risk bonus. It recognizes the work they do, their importance to the protocol, and recognizes both small and large Backers.
The second part of this proposal is Backer Liquidity Mining. At a high level, Backers should receive rewards as interest payments are made back to the protocol, because this most closely aligns all incentives.
Time based incentives don’t track well with the lumpy nature of when Borrowing takes place (ie. total borrowing could be flat for weeks and then double a week later). It makes more sense for the rewards to increase if borrowing activity (and hence repayments) are increasing, and to stay flat if that activity is staying flat. You could also imagine rewards happening per dollar contributed, but that doesn’t take into account risk or time. $10k in a pool that pays 1% is not the same benefit to the protocol as $10k in a pool that pays 15%. Lastly, the goal of the protocol isn’t just to lend money out, but to get repayments back in. So you should only hand out rewards to Backers who support good Borrowers that actually pay back, rather than Backers who support bad borrowers who only borrow the money but don’t pay back. So, waiting until interest payments come back is the key. It cleanly aligns so many incentives.
- 2% of the total GFI supply should be allocated for the first $1B of interest payments
- Those rewards should be paid on an exponentially decelerating rate per dollar (ie. earlier interest payments are rewarded significantly higher than later interest payments).
- No unlock schedule on rewards. As soon as an interest payment is made, more rewards are immediately claimable by Backers.
For the full rationale on why we think using interest payments is the best approach, and how the decelerating reward rate works, see this doc.
All the same benefits as what is listed in velvetdoctor’s proposal. This proposal doesn’t touch or state anything about Backer staking. That component will require another proposal, and may end up having a greater or fewer allocation of tokens, depending on the exact design and state of the protocol at that time.
No real downsides except usage of the token, but if the proposal passes, then it is assumed the community believes this is a worthwhile use of the token.
“Yes” - Means allocate 1.51% of GFI to early Backers as a retroactive airdrop, and allocate 2% to Backer Liquidity Mining, as already designed and deployed.
“No” - Means do nothing.
Update 1/18/2022 - There was one Backer who was not included before. They have been added back in. We’re now confident all Backers have been included. This changes the total Backer distribution to 1.51%. The transaction representing their deposit is here. No one’s distribution amount has changed The formula is completely still the same. There’s just one additional deposit that is being tracked, and hence the total amount went up.
Also , @Igor has offered to do the engineering work to implement the airdrop for 550 GFI. He did basically the same work before when helping with the community Flight Academy NFT’s, so he’s a great candidate for this. So that will be added into the final amount, and sent to him upon completion.