Psp-ip: PSP 2.0

Just a question for clarification. In what token will the fees be shared? In PSP, or in a different one. BTW: A great proposal.

Super happy to see the community as excited for this ambitious proposal! I personally love the direction from this, and just wanted to voice a couple of my own thoughts

Maximum Lockup Times

If we have to choose between a 4 year and 1 year lockup, I’d rather go to the lower end of the scale for long-term sustainability reasons. Balancer did something similar with their veBAL model, and I think Fernando did a great job at explaining it so I’ll just quote his reasoning ( Introducing veBAL tokenomics - General Proposal - Balancer ) :

To get veBAL, anyone will be able to lock BPT of the 80/20 BAL/ETH pool for any amount of time between 1 week and 1 year. Notice this is a change from the max duration of 4 years initially proposed in [1] . This is proposed to allow for an eventual migration to a new governance system with a wait time of 1 year instead of 4. Of course this migration can only happen if the veBAL governance approves it.

Basically, years are a very long time in DeFi. The whole space is barely more than a couple years old, and within that DAOs are still continously changing. Just recently for example Vitalik has been talking about souldbound tokens and how they could revolutionise the space ( https://thedefiant.io/vitalik-soulbound-tokens/ ). A 4 year lock would mean having to wait until 2026 until we can fully transition to a model like that!

Personally, I feel the Goldilocks zone might be around 18 months. A year and a half is a long time, but still short enough to implement some sort of fair transition system were we to migrate into another model.

Removing of Stake Signalling

Even without considering how much more efficient the system will get by automatic MM reward distribution, I wholeheartedly agree with this just because of how much easier integrations could get in the future without having one ERC-20 per market maker!


From what I understood, the competition between them would still exist, as they have to offer better rates compared to both other MM’s and the entire market to get volume. Maybe we can still give a better reward distribution for the top 3 market makers, as a ’ bonus ’ for good performance? In either case, I feel a well enough designed distribution method would beat the manual staking mechanism we have now.

Agreed completely. I would even say that, if possible, we should give higher refund rates even for lower stake levels for these operations, as we want to incentivise long-term locking. Maybe we could do an offer of 100% refunds for the first month to get people interested?

Love this idea, a ‘lock streak’ of sorts :+1: I’m also not sure about whether it’s been done before, but this could reward long-term commitment without causing the problems of longer locks. If we refund these transactions, this could also be an efficient way of checking if a user is active and keeping an eye on their stake. Maybe if they re-stake too late they lose the streak?

5 Likes

I understood that all PMMs received 900k PSP as long as they exceeded the minimum 2% volume share requirement. If there is a difference in rewards for PMMs based on their volume, it would encourage them to perform as well as possible rather than the minimum requirement (as long as they don’t get along with each other).
I would be curious to know how these “competitive” rewards would be distributed.

Very good idea in my opinion, All $PSP holders should be encouraged to lock them, regardless of their means.

Regarding the lock duration, I understand that the standard introduced by Curve to get the maximum return is 4 years.
But I agree with your comment that this duration is not in line with the speed at which the ecosystem evolves.

There’s also the current market state and let’s be honest, the evolution of the $PSP price action that can put you off. Not asking too much of holders would make it easier to commit.

Regarding that, 1 year doesn’t shock me.

In any case, as far as I’m concerned, this is a proposal that goes in the right direction. Only the objectives of the PMM and to allow all to be able to lock at lower costs are to be defined.

1 Like

Yes that would probably do, something convex-like where re-lock delay would cause linear penalty on the bonus.

1 Like

Better late than never. This proposal is definitely an upgrade of the current tokenomics. With the right publicity, partnerships and support PSP could finally claim it’s rightful place in the market

Hi everyone, Fernando from Balancer here. For starters I’d like to say I’m a big fan and user of Paraswap =)

I can only say good things about the ve-model, it has been working great for Balancer so far.

You should though definitely consider the idea of doing an 80/20 PSP/ETH ve-locking system instead of locking pure PSP. This means that instead of users locking just PSP (like Curve does with CRV), users would lock BPTs of an 80/20 PSP/ETH pool (like Balancer does with veBAL). It has lots of advantages, mainly:

  1. You have guaranteed liquidity that you don’t have incentivize elsewhere (like on Uniswap): the ve-model itself is already incentive enough for users to lock liquidity. Locking pure PSP would have the opposite effect of shrinking liquidity, which is not good for any token.

  2. The pool will be the main source of PSP liquidity, so with a higher fee of say 1% you can generate a lot of revenues from swap fees. That pool can have dynamic fees controlled by the Paraswap DAO so that you can increase it in times of high volatility and lowering it in calmer times, optimizing fee generation.

  3. Users have some exposure to ETH (20%) so it gives them some hedge. However, since the pool has 80% PSP it has a lot less impermanent loss than a 50/50 pool would, meaning you are still mostly long PSP (i.e. long-term alignment).

  4. This one is probably the coolest: because of how Balancer works, the price of PSP has a lower boundary relative to ETH because for PSP to go down relative to ETH, the 80/20 pool has to absorb PSP from the market. The more PSP is locked in the pool, the less the price can drop relative to ETH because of this effect.

Happy to answer more questions and help with the technical implementation as much as I can!

11 Likes

The proposal has mainly talked about the benefits of venomics and most response has been in support, but what are the down side in comparison to the current model.

Also, judging by the market reaction to governance tokens from Uni to 1inch, dydx, psp and even the newly launched op, the downward trends of this tokens especially in volatile periods shows that the key to the success of governance token is yet to be cracked and that key in my opinion lies in utility…real utility.

We need to drive demand for the token if people are going to buy and hold. There has to be a need. People must feel the need to have a share in the ecosystem. That is why I live the idea of fee sharing has proposed.

Staking rewards which still remain the way PMMs are rewarded is part of the problem because of the inflation it creates. It would be difficult to significantly cut inflation without finding other means to reward PMMs. We need the PMMs to remain competitive except if the devs crack another way to beat market price without them.

Lastly, it would be great if we know what PMMs are doing with their rewards, are they staking it or dumping it? What happens if a PMM decides to dump his millions of psp on the market. Do we have any plan to handle such occurrence?

4 Likes

This upgrade seems a good first step for tokenomics and governance and it’s a right time to implement it.
Go for it !

How does a buy-back & make system sound? I bumped into this article from Placeholder and it sounds like a very interesting approach. I believe that if we combine it with @fcmartinelli idea, we can build a solid foundation. We can test this model with a 2-3 months pilot then evaluate ?

2 Likes

Two things that would help paraswap v2

First:
Like @fcmartinelli said: open the possibility to lock balancer PSP-ETH 80/20 LP
He well explained the reasons, I don’t have anything more to add except I think to give overall more power to the person who locks LPs rather than PSPs alone (imo, that’s the best things to do to incentive and get more liquidity)

Second:
(Sorry in advance if this has already been mentioned, but I didn’t take the time to read every comment )

I don’t like the buyback (this is my personal opinion), I would rather receive ETH or anything else than buyback PSP

look at GMX price for exemple, they are stable during the bear market, the system work for them atm because they give ETH

You think it will make a buying pressure, but with gas refund + staking that offers stable or eth, the buy pressure will make itself

If you do buyback and at the same time a gas refund depending on the number of staked PSP, what is my interest in receiving PSP if I have already reached my limit for the gas refund? I will sell my PSP then, right ?

In addition to that, I will add that there are coins that could interest the DAO, I think notably BAL ? with our Balancer pool to incentive more liquidity ?
why sell BAL for PSP when you can incentive and have more liquidity with it ?

1 Like

Thanks for your support @starny: another advantage I forgot to stress in my earlier post is that if you have your ve tokenomics using 80/20 PSP/ETH, you’ll likely be approved to get a gauge in Balancer’s liquidity mining (see the discussion going on for the MPH team who’s using ve8020).

This means that people locking 80/20 PSP/ETH will also get BAL proportionally to the amount of veBAL voting for your gauge.

A question I wanted to ask to @Mouph and the Paraswap team is: if Balancer had a one-click solution to deploy the whole ve system using 80/20 BPT as locked token (including the gauge for BAL liquidity mining), would this help/move the needle for you to adopt this system?

I ask because implementing the whole system can be quite daunting, but given we already just did it we could likely make it possible to replicate it more easily so that teams like Paraswap don’t need to go through all the work we had to go through.

Happy Sunday!

3 Likes

Where can I vote in favor of this?

The ve model is quite scary for some. The idea of locking your tokens is a sign of trust and sincerity, but is that what the protocol needs? Rather than asking holders for trust, let’s give them ours. Another problem with the ve model is that you have to re-stake regularly during the maximum period to get the maximum rewards. This is a huge constraint and a waste of gas. As a result, there may be a temptation to instantly sell one’s rewards to “recoup” the initial investment.

Instead of forcing people to lock their tokens for a long time, we can lock the rewards. An escrow system like synthetix or GMX could be considered. The aim being to favour those who don’t sell their rewards due to PSP inflation to give them a bonus on profit sharing.
An additional bonus percentage could be distributed according to the ratio between the number of staked PSP and the number of staked escrowed PSP. Committing to convert your staked escrowed PSP over an x period of time results in the lost/decreased of the bonus.

To complete, but this is a very personal opinion, I don’t like the buyback, it will only accentuate the selling pressure.

1 Like