End of liquidity mining program and how to move forward

Two months ago B.Protocol community members voted to tokenize their voting rights.

The vote also dictated a token distribution schedule, which included 250k BPRO distribution for the first 3 months.

This distribution will end in 30 days.

Orthogonal to this distribution, a yearly distribution of 1,325,000 BPRO is given to the DAO reservoir, distributed per block.

The purpose of this post is to share my thoughts on the ending program, and to discuss ways to move forwards.

Distribution Purpose

Ideally the token (i.e., governance rights) should be distributed to community members who empathize with the vision of the protocol, and could contribute to its success.

Analyzing the 1st liquidity mining

In my view the program failed in two aspects:

  1. The big users of the platform did not hold the token and decided to transfer their governance rights. Moreover, despite having big players managing their funds via the platform, there was little to no effort from these players to contribute to the success of the protocol.

  2. There was a significant decrease in the number of users and amount of deposited funds. While this is somewhat expected, due to signs of a bear market, the liquidity mining did not help in bringing new users to replace those who left or to add on top of them.

Ironically, the biggest community contributions, namely, mobile support by @jnssn, moderating by @a7om and @Commiekiller, reddit sub by @TragedyStruck and bip1 dashboard by @vipineth were done without any token distribution from the DAO.

Moving forward

Imo the next program should have the following characteristics:

  1. Much fewer tokens should be distributed each month (and the rest will just stay at the DAO reservoir until the community will find a good use for them).

  2. Most of the tokens should be distributed to users who stay, and who could contribute to the governance. This can be done both in ways of staking, and/or KPI based distribution.

  3. Some minimal amount of tokens should still be distributed based on usage alone. This is to encourage 3rd party integration, who would still be better off than just integrating with Compound or MakerDAO.

  4. Further distribution should be decided ad-hoc for specific purposes/users by DAO votes, and not as part of the liquidity mining program.

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Agree.

I guess this should bring the veBPRO proposal back into discussion. Doesn’t have to be an exact clone of veCRV but if we are looking at staking designs, Curve’s approach has a lot of good ideas. We should get all the options available and have a scattershot vote for the best option.

Perhaps halve the distribution quarterly until some threshold that will be continued in perpetuity? Give people a sense of urgency to join sooner rather than later.

Agree.

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I will take a deeper look at curve model next week and see that it is technically feasible.

yes, this is also a good idea.

The LP Reward program as was expected not made nothing good to protocol and BPRO holders. I think such a decision should be better analyzed within the community (on the forum rather than the discord).

The mentioned members absolutely deserve some reward from DAO because they contributed to the fundamental value of the protocol.

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LP reward program was helpful and could be helpful going forward too.
Before LP reward program , only 3-4 users provided liquidity but after it started this went up to 25.
LP reward program ensured that there is deeper liquidity for easy entry and exit for small/medium sized positions and lower price fluctuations for bigger positions.
Major price fluctuations are deterrent for new users to enter the protocol and for existing users to retain the governance rights.

LP reward program provides additional utility to BPRO token apart from governance and should be continued until we figure out some new utility like distribution of some % of proceeds from liquidation to stakers of BPRO.
Or if other protocols allowing farming of their tokens using LP. Again this would need marketing and new partnerships.

I would suggest to retain the current reward structure for atleast next few months.

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I stumbled across a unique token distribution method that might address some of the issues raised above. It’s aimed at encouraging active participation in the governance and development of ‘early life’ DAOs. It may not be right for us here but I think it’s worth mentioning - so I’ve described how it might work below.

The underlying premise of the method is that a DAO (and it’s protocols and token) can only ever be successful with a strong, productive community. However, users of protocols and token speculators have consistently proved to be pretty average DAO community members. In order to get productive community members, DAOs should invest in targeting good community members directly.

The most common token distribution for early life protocols is liquidity mining (LM), which is great for attracting a broad base of users because anyone can participate and make money. However, even if those users don’t dump their rewards, very few LM participants will participate in the community in any meaningful way. Essentially, LM is a very poor and imprecise way of building a decent community in the longer term.

A popular method for strengthening community in early life protocols is to ‘pay’ existing community members who prove themselves to be useful. This is a much more precise way of getting some dedicated, active community members. However, it also potentially limits the number of people who will become one of these active community members (as many will see the uncertainty of a future reward as a hurdle and not bother). In addition, it’s generally considered of secondary importance to LM and only allocated with a nominal token distribution.

The potential solution to building active community is a kind of middle ground between the two methods referred to above. It would involve the DAO inviting anyone in the DeFi community to apply to become one of 50+ ‘key community members’ of the DAO. Successful applicants are rewarded with a reasonable allocation of protocol tokens that vest over a long period. These ‘key community members’ would otherwise have no special status or responsibilities over and above other token holders.

The process of applying to be a key member would act as a filter. It would need to involve a decent amount of work on the part of the applicant (eg, completing a typeform with questions that force proof of knowledge about DeFi and the protocol, proof of activity in other communities, proof of intent to remain an active community member, and proof of some specified skill, experience or ability).

This method has the benefits of providing attractive rewards in a way that’s open to anyone to participate (like with liquidity mining) while targeting people who are more likely to add value (like with the ‘paying already useful community members’ method, mentioned above). It’s also capital agnostic (so it avoids increasing whale control and dumping). In addition, a good announcement of the program would likely generate decent interest in the project.

I’d also imagine several benefits to running such a program on a rolling basis (much like how LM programs are ongoing). The first benefit would be to ensure participation is ongoing. A second would be to avoid asymmetric incentivisation of early adopters over capable, fresh community members. Lastly, the program could gain general traction in the DeFi community - with people talking about how “round x of the BPRO applications are opening next month”.

I haven’t mapped costs, but my gut feeling is that it could be successful with an investment that is orders of magnitude less than a standard LM program - even with a large number of ‘key members’ onboarded.

This method is certainly not infallible. But it should be less gameable, more fair and get a better long term return than a simple LM program. To minimise wastage, you could make it clear that the chosen ‘key members’ would be expected to make positive contributions - and implement a mechanism for the DAO to cancel vesting tokens in extreme cases where a key member was malicious or contributed absolutely zero for a long period of time.

Soo… with my apologies for making you all read a wall of text, that’s a basic outline. Hopefully, it’s an interesting take, if nothing else. Happy to discuss further if it seems worth it to look into further.

4 Likes

Thanks @Stackler for posting this idea. I think it correlates in a way with the Growth Squad and Ambassadors Program I have suggested on a different post [Forming B.Protocol DAO's Growth Squad].

Maybe the 50 key members can be divided into 5-10 “rounds” as I believe it will also be hard to onboard and process so many applications and getting high profile members in one go.

Anyway, I think this might work as a separate part of the LM and rewards distribution plan and that some KPIs/expectations should be put forward by the DAO to assess the success of the Key Members otherwise how can we filter free-riders who have just invested in the onboarding process?

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Idk if it was expected, but I agree I did not achieve much. And in favor of not resuming it after it ends.
@zer0sumgame to answer some of your concerns, the suggestion @a7om did about staking according to CRV model might be a good replacement.

I am starting to learn the CRV model, and will report what kind of adjustments will be needed to support it with the BPRO token.

I respect your opinion, but due to the limited BPRO distribution LP reward program will stop at some point and the number of liquidity providers will decrease again. I understand that this reward program holds liquidity providers above the line with profits, but creates a huge opportunity cost for DAO.
I think it would be more effective to redirect funds from LP reward program to community development, strategic partnerships, marketing etc.

At this stage of protocol development , it is much more important

  • incentivize users and enable them better accessibility to use Bprotocol

  • align BPRO utility with protocol usecase and “business” model

  • connect with projects from crypto space (DeFi, NFT, dweb…) with which it is possible to achieve synergy through usage

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Thanks @EitanK. Yes, I liked the proposal for setting up squads. I picture the program I describe above as something that’s much closer to the scattergun approach of LM. The goal would be to attract the kind of people that would be likely to sign up for things like squads.

I’d define the approach as a direct investment to attract ‘half-decent’ community members to strengthen the DAO - with a secondary expectation that a strong DAO will go on to solve problems, such as user numbers and liquidity depth.

LM, on the other hand, could be defined as a direct investment to attract users or deepen liquidity - with a secondary expectation that a community will develop around the project.

In a sense, the method is a bit of a paradigm flip. It’s novel, but a few projects are experimenting. TracerDAO is doing something similar by distributing tokens pre-sale to a large number of people who prove (using a pretty simple typeform) that they would likely be good general additions to the future community.**

The question of what KPIs should exist is certainly unclear. While standard LM programs are pretty inefficient, they do have a kind of KPI ‘built-in’ to them (because rewards cease to any person who stops LPing). I’d argue some KPI’s would be needed for this approach too, but that they couldn’t be too onerous such that they start to resemble an ‘employed contributor’ situation.

In respect of the number of ‘key members’, I’d think that the method would struggle to jump start the community if it were deployed on a small scale. I see its success as relying on volume and network effect. But I do totally agree the process of selecting and on boarding a significant number of members would be daunting - and I don’t have a solution to that.

Just to clarify, I’m not advocating that this method is the best approach for BProtocol right now. It’s more that I think it’s a fascinating take on LM (maybe we should name it ‘community mining’??) that’s worth throwing into the mix when discussing LM.

….

** I suspect this route was part of a cautious regulatory approach to achieve early decentralisation (as the project is backed/supported by a public university). But I also understand there is some DAO related research supporting the model.

2 Likes

I do not completely agree with this. Its not always necessary that LP providers are always at profits because there is always the risk of IL and considering where we started and when we started LP program and the price action of BPRO those IL could be high enough to offset the profits because this IL was negative as price BPRO went down.So LPs are always the ones with a higher risk

This is not about profits to LP but to also ensure easy entry and exit for protocol users. Tomorrow if a new user with 1mn in liquidity is willing to use B protocol vaults and if he needs to be a stakeholder in the governance process too he would want to acquire tokens and with a shallow liquidity this might be an issue. SO we shouldn’t be ruling out liquidity crisis that may occur once the protocol gains traction again.

We also shouldn’t be ignoring the fact that the LP providers chose to provide liquidity for the entire period of the program even though the rewards were to be distributed at the end of 3 mo period. We have seen more loyalty here than the protocol users.

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I agree that the token distribution should be kept minimal and a certain portion of tokens should be provided to users of protocol.
Although providing stakers of BPRO with additional BPRO rather than redirecting a portion of protocol fees, is not sustainable long term.
We also shouldn’t do away with LP mining program on DEXs but slash the rewards significantly maybe by 60-70%

Why not chose something like a 40:20:40 model (or any percentage distribution that community finds suitable) wherein 40% of tokens are allocated to existing users, 20% to LP providers and remaining 40% to be hold by the treasury.

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lol, I wonder how loyal you will be without reward program

I didn’t know observations would lead to personal attacks.
Just because I am proposing an idea doesn’t mean I will benefit out of it. I am not a LP provider though.
If you start viewing everyone by the same lens there will never be a constructive discussion. I am not here just proposing an idea but also giving valid reasons.

I could have trolled you too but if discussions are filled with personal attack I am not sure if anyone would ever want to be a part of it.

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its not personal attack, I’m sorry if you took my comment it that way.

  1. You cannot compare protocol users with liquidity providers (loyalty?)
  2. I think that we need deep liquidity, but what price are we as DAO willing to pay for that liquidity? With given mcap, how deep pool can be?
  3. In order to develop the protocol in the long term and given the development phase in which the protocol is, should we focus first on product development or liquidity?
  4. If we are going to call out people on loyalty, I suggest retroactively rewarding LPs.

I understand and respect the proactivity of BPRO holders to raise their capital but DAO should not fund liquidity providing, at least not currently.

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