Proposal to Start Making Proposals - LC's Strats

[LifeCryptnautic]

Hello,

LC here with some governance discussion. I wanted to write some things that could pass into a potential proposal to move psyoptions forward. I’m participatinngggggggg.

TLDR; Implement a token plan, start to incentivize users while also discouraging farm and dumps, and prefers buybacks and make instead of burns. While also creating programs and incentives for coming into the PSY ecosystem and taking a vested interest. All Gas No Brakes, Let’s Send.

Protocol inflows as I understand it from limited information in Docs:

Psyfi
V2 vaults have a Fee structure of the following:

• Performance Fee: 10% of total yield returned to the user each epoch is gathered as a performance fee. If the vault returns no yield, there are no performance fees.
• Withdrawal Fee: 0.1% of total assets withdrawn from the vaults is gathered as the current withdrawal fee.

Psyoptions

• Trading fees from the serum markets ? (20% of 3bps-5bps taker fees)
• Other protocols options incentives programs (50bps) not sure of the underlying collateral or exercise values or other calculation
• Future Swap Dex fees (20bps?)
• Any other protocol controlled revenue I am missing?

*Some of these may not be in the protocol (need team confirmation)

My thoughts below are broad and maybe a couple proposals but here is a long token and DAO plan. Maybe this can be swept through as one proposal “it’s all psyops” plan, or smaller steps, depending on everyones’ support. So be sure to comment and give feedback. It would especially be good for some of the locked whales/ seed investors to come in and comment as well. These are just my thoughts as a PSY holder, Solana Defi power user, and daily crypto circus participant.

As a DAO and users/holders of PSY we should focus on a few things. Building up TVL. Increasing long term interests. Creating small uses for PSY. Diversifying the treasury. And more memes.

1: vePSY

I have been looking at several implementations of vote escrowed/ locked tokens that have gotten some interest and discussions started. They aim for community members to lock their tokens to participate in governance and increase their influence and decision making power.

If I had to propose a model here it would be to implement something like Curve. Along with some of its carry on potential.

Create the mechanisms for PSY to be locked into vePSY that scales based upon the period locked up for. The tokens should be locked up and based upon the duration of the locking period have a calculated greater impact on voting power.

On a scale of 30 days to 4 years. Where 30 days is base voting power of 0.75x and 4 years is 4x multiple of voting power. Done in increments that would be UI friendly. 1 Month - 3 Months - 6 Months - 1 Year - 1.5 Years - 2 years - 3 years - 4 years.

These lock ups could be extended or rolled into more during certain openings for users to decide how much voting power they would like to have.

I would like to stay away from astronomical multipliers on the longest lock up because smaller investors do not have the same time horizons and liquidity needs as a multi million dollar fund with a 10yr investment mandate. So I think it is fair to have a smaller sliding scale that a smaller holder can do 3 months and have 1x voting power and constantly roll over their lockings instead of having to compete with a Fund that can go the full 4 with a 500x multiplier and control all future governance. Whale influence will always be a thing, but it would be good to not astronomically abuse these advantages.

I would also add that proposals should come from people who have locked for more than 6 months and a minimum amount of tokens. This way people who want to come in and propose anything have a longer time frame that can align with the protocol instead of self interests.

2: Revenue Share to vePSY

In order to encourage the vePSY and active governance participation I believe we should implement a partial fee share to the vePSY contributors. 25% of the protocol fees collected towards rewarding the vePSY holders. Additionally with the caveats that an address must have interacted and voted in more than 1 of the last 5 governance proposals set out to on-chain voting in the realms. This way we have active and invested community members. Yes many may still just do the ⅕ and not look at anything else until validity rolls over, but it should increase overall voter turnout. When minimally invested parties are not paying attention a proposal could get snuck through to manipulate the treasury, so we want to keep people active and engaged. Keeping their fee split valid I think is the way to go for this.

The 20% of the protocol fees should be used to create LP with the DAO treasury of PSY as the selling hand then LP tokens being distributed out based upon vePSY holdings and locking period. Following the same model as the governance weight, holders of vePSY would be compensated in LP tokens based upon their lockup.

The mechanism could be something like settling all the protocol fees to USDC. Use half the USDC to purchase PSY from the DAO treasury at a time weighted market price. Now having 50/50 USDC PSY , create LP tokens in Atrix, and distribute the Atrix LP tokens or have them claimable based upon wallets’ vePSY holdings.

The recipients could hold on to the LP or pull out all the tokens to sell the PSY and have full USDC or to do with what they want. The people who hold to the LP would increase the overall protocol liquidity (and have possibility to use the farms and earn yield), and those who don’t have no issues leaving and just staying a vePsy holder.

3: Options Incentives

With the DAO treasury we should lock up a portion of the PSY into several different Call Option Strikes to be used as incentives. For example end of year strikes. DEC-30-2022.

PSY @ 2.50 @ $2 PSY @ 1.20 PSY @ 0.75 @ 0.50 @ 0.25 .

(Are some of these very high from the current market? yes. Are they going to come into the money? Also ………… maybe) I guess if you’re reading these forums maybe you have seen the comps and have hopium.

With a greater amount probably being issued in the further out of the money options than the options that are in the money or close to the money.

These options should be dropped to depositors in the PSYFI vaults. In a ratio of 1 call option token per $10 value locked per epoch. Or working backwards from the total Cap amount in this ratio. So that if a cap of a vault is $2.5M means 250,000 call options are dropped per epoch. If the vault is under filled then the depositors get a greater share of these options dropped based upon their portion in the vault.

As depositors stay in the vaults and roll over their deposits into the next epochs they become eligible to receive closer to the money strikes. Moving from $2.50 to $0.25 over 18 weeks. So that every 3 weeks they move up a tier in the strike price. If they pull out and redeposit then they restart this process. Or if they move to a new vault.

These variables could be moved around to incentivize new pools or incentivize specific pools and how fast or slow they get to the better rankings of strikes.

Additionally the $1.20 options should be given as trading liquidity incentives. The amount of volume being traded through the options markets is relatively low. I think we could either give these as incentives to quote on the main markets open BTC-ETH-SOL. Or on a basis of total volume traded through psy-markets. I guess I see the issues popping up with wash trading or just a few market makers getting all these incentives instead of a small wallet randomly yolo-ing a $100k BTC call. Which you need a balance of both. So open to thoughts here. I would like more trading volume and counter parties in the books. I would also like to be compensated if I quote the thin books. Let’s make a deal.

If any of the PSY call options are executed then the treasury gets the price paid to add into its reserves and can be used in the future for further development and growth. It can create a USDC income so that treasury does not just pay out in PSY which are immediately sold in the market.

Oh hey
(The Options are Limitless. Options are an important tool to any… | by Mithraic Labs | PsyOptions | Medium)

4: Vaults Creation

I want PSY to have some use and to start to open some more vaults and uses for Psyoptions. So I would propose an upfront fee payable in PSY to create PSYFI vaults for protocols in Solana.

These vaults should be monthly vaults as most of the protocols will not have the volume and demand necessary for weekly. And now that Psyoptions is having the Serum markets auctions for vault pricing, this could give those projects different use cases and user bases.

Example: NewTKN wants to set up a vault so that their token holders can deposit funds and sell call options to earn yield. NewTKN team or NewTKN DAO pays 250,000 PSY for the protocol to deploy the new vault. This PSY is burnt and destroyed. Vault established , PSY launches the Vault auction to establish the pricing for depositors. Continues to roll Month by month for participating protocols or until they do not meet a minimum deposit threshold established by PSY DAO.

Dopex is a project that has been looking to do the similar type of things for projects in their blockchains they are active in, and can be used as an example. I think it creates value for Psyoptions.

5: vePSY Incentive voting

To encourage vePSY holdings as well and in combination with the ability of new projects and people to launch vaults, we allow for incentives weighting voting. The variables mentioned previously on the time to the lower strikes or even the weighting of $ of TVL to options dropped could be voted on and weighted according to the vePSY holders.

If a project that launches a vault with PSYFI wants their depositors to also get PSY call option incentives dropped they will need to use vePSY to vote in on the ratios dropped to that vault compared to all the other vaults and sway the voting towards dropping incentives there taking from the main percentages to be dropped to the BTC-ETH-SOL strategies.

6: BuyBack and Make

No more buyback and burns. Now we buyback and make. Burns are nice and they help with your social media content gaps but I do not think that they get as far as you’d like them to. Every week I see the same burning Elmo meme from 9 different protocols that do buybacks and burns. Instead I would like to have a buyback and make initiative. Taking protocol fees and turning them into LP. Increasing the liquidity in the markets, and partially diversifying the treasury.

If we use all the protocol fees to buy PSY and then burn it the whole value was lost for the treasury. Instead we should take 60% of all the fees and settle to USDC, do an open market buy of PSY for 50% of the USDC value from the Serum markets. Then provide that 50/50 pool into LP in either Atrix or Raydium. Or some combination of both.

Now the treasury has protocol controlled liquidity. The LP is a step towards diversification as PSY price increases so does the USDC value held in the LP.

I would cap this though to say that once protocol is greater than 85% of all LP in AMMs over more than 14 consecutive days then should reduce to 75% of LP by pulling liquidity and just holding the underlying pairs in treasury. If we are already 80% then when buyback and make is initiated it would now be a BuyBack and Store. We can vote and come to a consensus of how much liquidity should be owned by the protocol and what would also be considered too low where we take from “storage” and deploy.

The protocol owned liquidity is a great way to ensure people are easily able to come in and out of the PSY market, and they do not have huge slippage in either direction.

As much as I hated that epoch of meme tokens that charge transfer fees and made AMM liquidity with it, I think the concept of making that LP for more people to easily exit and enter was interesting.

7: Options incentives-third parties

I know the protocol currently charges for helping with the options incentives issued for others, and would like to see that turned into Treasury diversification.

Psy recently had the JFI options issued and they were being given out to their users. Strike of $2 and were in the money for awhile as people executed them and sold off the JFI.

I am not sure where the value comes into PSY from this but it may be beneficial as a fee to take a portion of all the underlying to be held by the treasury. If the fee is 50bps then 50bps of the total underlying amount. That way as a new protocol is trying to gain traction and a footing in the ecosystem by issuing call options the PSY treasury has a vested interest in the ecosystem. Their growth would also be psyoption treasury growth. This would be good as even Writer tokens , where treasury can end up with the underlying if they expire unexecuted or collect the execution of the options if they go into the money and are executed.

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Maybe the way forward;

1. Vote Escrowed PSY started
2. Revenue Share to vePSY
3. vePSY to vote on vault incentives weighting and tier escalations
4. Implement BBAM
5. Onboard more Vaults and Protocols to have their call incentives

Also I only mentioned using 60% towards the BBAM and 25% towards the vePSY rewards. I think the remaining 15% should be set aside towards an insurance fund that can be called upon incase any main Psyfi vaults get rekt. We want to make sure the depositors are not just completely destroyed in one epoch and now their actual APY is negative. The 15% should be kept in stables or BTC/ETH/SOL and as the emergency fund for bad vault epochs.

Let’s get some things started in the discussions and out to a vote and implementation. The realms looks to be almost set up and would like to encourage people to deposit into vaults, start voting in governance, and getting a portion of the fees from the Protocol. Grow Psyoptions TVL. I want those AIRPODS

[satsu]

I think these are great to get more value to PsyOptions. The potential of the project and value of our treasury usage we can maximize.
With the locked tokens for participation community will have to be more engaged while what LC presents still attempts to take into account small investors.

[LifeCryptnautic]

Following up with trying to visualize the protocol incoming flows. If anyone has used the Machinations to do something like this maybe we can simulate few things. Look at how as TVL increases in Vaults how that would ramp up Treasury LP. Also maybe to make this more complex and include the Options incentives and as PSY price increases how they would be executed and also lead to stronger treasury.

Treasury ends up with LP and some USDC from the circular buy. vePSY holders get LP they can dump or hold. Insurance fund grows for vault depositors.

[SF_PSY]

First I just want to say you are awesome and these are the kind of threads and thoughts we need in the community.

Comments:
I am not a huge fan of the veToken model. This thread below explains my thoughts pretty well:

[Signal Request] gbMKR, a proposal to benefit long-term MKR holders

I agree with your thinking around a revenue share, insurance fund and my favorite point is, 6: BuyBack and Make

• I completely agree that the DAO should implement some sort of buyback that then roll into an LP position and earn additional interest etc.

I’m attempting to consolidate some of these thoughts and share them with the team, but I am super excited to continue to jam on this. We have a lot to build and it’s a long game. I want those AIRPODS TOO haha

[LifeCryptnautic]

To give the headlines of the MonetSupply points against veTokenomics

Reduced investor base

• Long term token locking (such as veCRV tokenomics) makes it difficult or impossible for many persons or entities to own MKR.

Staking derivatives

• long term locking creates incentives for staking derivatives which can potentially split economic interest from voting power.

Short term incentives

• perverse incentives, where locked token holders can increase the net present value of their stake by favoring short term focused payout increases .

Bribery

• forcing investors to effectively discount the value of their tokens through locking, the threshold to get owners to accept bribes is much lower.

Prisoners’ dilemma

• vote locking also raises the cost of defense against governance attacks and takeovers

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I could not see the final results and how they tallied up but it does seem from the conversation there were a lot of Abstaining votes. If someone has the level of trust needed in their forums to see the poll results please share.

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So I have some thoughts and questions around these points they brought up. I am not positively set one way or another just think exploring the topics expands understanding and leads to new ideas as well. All my above token ideas are for toss up and love to hear why something would work or would not.

When it comes to the lock ups in MKR it seems there was immediate disconnect with incentivizing it. Lockup for governance needs to be incentivized because holders prioritize liquidity over governance impact. Vote or Die does not apply to crypto. So there is a need to incentivize lock ups as a precursor to much more. That is also why above I tried to place a revenue share. Lock Up and qualify for revenue share ++ make sure to be active in voting to continue to qualify for revenue sharing.

With the reduced investor base, I do not think increased investor base means higher quality investor base. Or better yet increased investor base does not equal greater portion of active investor base. There is something to a large distribution of tokens and having a lot of people holding the token as far as decentralizing the community. But the point is odd. If crypto participants want the token holdings, there should be some freely circulating supply for them to hold and/or to lock and participate. Maybe from farming incentives, or in a AMM, but should not eliminate holdings. And if all treasury is depleted, all tokens are staked for revenues and voting share, then someone would be prioritizing short term lock ups for the selling optionality at premiums of the empty market, or let unlock portions of their locked tokens. Or if it coincides with veToken hoarding under staking protocols then likely to maximize value they can tokenize their portions and sell it off like an income product.

The staking derivatives here can be a concern, they can control a large amount of voting power from token holders that do not want to actively farm and compound or do anything with their actual voting powers. I kinda see this consolidation eventually happening anyways with anything incentivized. What you hope is that the staking derivatives have good management and that staking derivative protocols have good governance as well to manage the managers. Maybe this is where you implement fail safes, and encourage using protocols that start to talk about proxy voting. Managers that are not directly exposed to token and they will prioritize their gains for depositors or themselves. The lock ups and inability to exit cause issues. Best case scenario is that it can turn into something like a Sub Governance, where vault depositors vote on what whole vault vote throws their weight into if unable to split it according to depositor vote share. Worst case is rouge vault manager with 50%+ voting power just rek-ing the protocol. Mint ; to → Managers wallet.

Short term incentives are the same for locked as unlocked aren’t they? Just easier to exit if your short term plan didn’t work. Buy enough liquid token to vote or make a proposal, proposal to pump bags, bags pump, exit. There is a lot more investment math there to come to why someone would vote for short term incentives but just feels like same issues locked or not with short term incentives. I guess favoring payouts faster or higher revenue share would be the attacks with short term focused locked tokens. If they mark down their “perpetual bonds” to zero but want immediate income from it.

Direct bribery I like for a potential to be better defended against than subtle bribery. I understand the concerns for any protocol with the breadth of governance that carries more risk with bribes influencing votes. Yet having a straightforward bribe mechanism, openly saying bribes, is better than other distractions and incentives that could change votes. You get a tip off that somethings up.

I like that better than my “if i did it” in liquid token scenarios.

The markets are starting to be sophisticated enough that you can get large borrows of tokens from various sources. You go to as many desks as you can to take a borrow of governance tokens. Or if perps market available you Buy Spot and sell perps to net out. Carries a lot of capital costs but possible. Or maybe you spin up a Solana Lending Program with some basic base interest rates but you airdrop some food token at ridiculous rates so you have your own lending pool/ deposit base to bribe they think they are just farming. Lock Withdrawals and vote with pool.

There are more fun attack vectors i’m sure but not impossible to borrow your way to vote in your own direction. Or bribe liquid token for the vote power. In some liquid token protocols around $1m or so in costs could take over $50M+ in treasuries.

For the prisoner’s dilemma I think raised costs to defend are also raised costs to attack. If the council votes stick around or some other fail safe is there as well it does also help these worst case attack scenarios.

I like the following as well on the ve tokenomics. Tried to link it and got blocked. but the tldr.

With all that said im probably 70/30 for ve tokens. I think its good way to have more active interested base but also I get all the concerns. I like a lot of the other concepts I brought up and think they mix better with vePSY instead of just liquid PSY but could work either way. Hope to hear more ideas and feedback on possibilities. What others have in mind if it doesnt follow the vePSY model, what mechanism we could do still for revenue share, and encouraging active voting.