Now that the ANGLE token is live, the question of the utility of the token becomes even more pressing. In this post, I will share some considerations and thoughts about how we could improve the governance model and the ANGLE token.
The ANGLE token is the governance token of the protocol: for the moment it allows to participate in governance votes deciding the structure of the parameters of the protocol, or what to do with the surplus of the protocol.
In order to give more power to this token we have reduced the quorum necessary to make governance votes active. Now it is 5m. The consequence is that it’s easier to participate and make governance votes even with a very low circulating supply.
To increase usage of it, soon, Snapshot votes are going to be used to decide how to allocate Liquidity Mining Rewards each week across different pools. The Core Team has a multisig that can implement liquidity mining weights but the idea is that just like Convex does, what’s implemented will be the results of the votes
This token is majoritarily distributed through liquidity mining. This allowed the protocol to grow fast ($100m TVL in 3 days) but a lot of the capital right now is mercenary capital from people here for the rewards dumping the token. The main reason for this is that there is nothing incentivizing them to hold the token.
One reason for this is that there is no hard coded way of how revenue is distributed to governance token owners. In our tokenomics articles, we mentioned the fact that the governance token gives right to decide what to do with the surplus but this remains quite vague and nothing concrete has been implemented. We believe it’s one of the reasons why people see no utility in the token and sell it although the protocol has made (and mostly for reasons we’ll detail later) a significant surplus of >2m.
The last side problem is the gas cost for delegating + voting: actually if it stays like that we are not going to see a lot of people participate in governance votes because it’s just too expensive to give a voice.
The Angle Protocol makes revenue from several elements:
- transaction fees from users minting and burning that are not distributed to SLPs
- yield from the protocol’s strategies that is not distributed to SLPs
- and collateral appreciation when the protocol is not fully covered by HAs
This last element is the main reason for which the protocol has made a surplus. The thing is that if the protocol can make money when prices increase and it’s not fully covered, it can also loose money when prices decrease and not enough HAs are here.
The consequence is that the protocol should always try to keep some surplus (like an insurance fund) for these situations. If all the surplus had to be distributed to gov token owners, the protocol could run into some issues in bear market conditions. Like any stablecoin protocol, Angle needs to keep some reserves and the distribution of its revenue and surplus to gov token holders should not be made in an irresponsible way.
Some should always be left aside. The question is then how do you calibrate that.
With this in mind, and with all the remarks of the community, we think that a better system for the ANGLE token could be designed. The Core Team has converged around a high-level idea, but there is nothing fixed here and it can always change.
The idea is to inspire the Angle system from a system like Curve with the following properties:
- A new token veANGLE (voting escrowed ANGLE) introduced. This is a token that should not transferrable, and it could only be obtained by locking ANGLE tokens. Something like 1 ANGLE locked for 4 years gives 1 veANGLE, 1 ANGLE locked for 1 year gives 0.25 veANGLE.
- This token would be used for governance votes and for allocating liquidity mining rewards. The advantage of having such a token is that it alines incentives for people who are here for the long term of the protocol: you want to make decisions for the token, then you should be here for a long period of time and have locked your tokens. The other obvious advantage of locking tokens is that it reduces the circulating supply of ANGLE
- Owners of the veANGLE should be rewarded more ANGLE tokens when they stake in the protocol’s LP contracts. You own agEUR, you want to stake it in the protocol, if you own enough veANGLE you can get more ANGLE rewards (up to 2.5x) what you’d get if you did not have any. Imagine a situation where 35 ANGLE are to be distributed to two people who staked agEUR: one with veANGLE and one without => then the one that owns veANGLE would receive 25 ANGLE and the other one would receive 10 ANGLE
- Each time interests are accrued by the protocol a small portion of it (not too much in order for the protocol to still keep some reserves and for SLPs to make a significant yield) should be left aside. These left aside interests could then be used to buy back ANGLE tokens. Bought back ANGLE tokens could then be distributed again to owners of veANGLE in a way that’s proportional to how much they own. The reason for distributing bought back ANGLE tokens to veANGLE owners and not to simply burn it is to simply advantage people who locked their tokens and are here for the long term compared with people that did not
These was just a proposition, the main question is generally how and in which form the protocol’s revenue can be given back to key stakeholders of the protocol. One way to do thing could be to do single-side staking. We feel that single-side staking (like done by xSushi) could in itself improve the protocol but the system like Curve has all the benefits of single-side staking mechanisms with almost no drawbacks: it has revenue distribution but with locking on top of that.
The only drawback of such system is that protocols like Convex could start and emerge around Angle and do some vampire attacks. I personally feel that it’s not a real issue and that it just pushes the governance layer one step further: instead of deciding on Angle, you decide on Convex
If such system had to be implemented, community should be aware that it’s going to take a bit of time: even though most of the code could be forked from already audited contracts, there would be some core modules to modify. Audits would be needed for that and it may delay the process by some weeks or even months.
There are some more refined governance systems we’d like to explore, like Element Finance one. In such a system, not only holders of veANGLE could participate in governance vote, but we could have also owners of agEUR attributed some voting power. This is more complex and would take us more time, but for sure we could have something like that!
Let’s not forget also that growing the usage of agEUR is the most critical thing to do for the success of the protocol. If agEUR works well, ANGLE should work well. That does not mean that nothing should be done to improve ANGLE!
In any way, now is a time for discussion with community and Angle holders, we appreciate your thoughts and feedback and hope that together we can build the best governance infrastructure to support Angle’s stablecoins.