Protocol Interest Distribution to veANGLE holders (classical veTokenomics)

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Dear sirs,

I have been thinking about the possible conceptual imbalance of the mechanism associated with veTokenomics with regard to the protocol’s income distribution to the holders of locked Angle Tokens (the same applies to the other protocols with veTokenomics).

According to the classic veTokenomics system, the voting power and the share of income distribution are both proportional to the veAngle balance. If, on the one hand, it is perfectly acceptable for voting power to be diluted throughout the lock period in order to concentrate decision-making power on loyal investors involved in the protocol, on the other hand, it is not financially correct that the capital invested in Angle tokens not be 100% remunerated in interest distributions during the lock period.

We know that the classic veTokenomics model was created essentially to promote competition for voting power in targeting gauge rewards. However, this mechanism does not allow for a proportionally correct relationship between the invested capital and the income obtained over the lock time, that is, it is not coherent for the real yield investor.

If we compare the acquisition of Angle tokens with the acquisition of shares in a company, what happens is that in the case of holding a share that pays dividends, I have the right to receive 100% of the dividends proportional to the volume of shares in my power, which is not the case with a veToken.

I would like to get your comments on this matter and if you are available to promote innovation in the Angle Protocol here as well.

Best regards,
Pedro Lopes

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Hello @pedrolopes.vng !

First, on this:

I think you shouldn’t compare ANGLE tokens as a share of a company paying dividends! Both are very different in nature, though tokenomics in general have shifted towards a similar model recently. However, this doesn’t mean it couldn’t change in the future.

There is a discussion on this here: AIP - 17: Redirecting a portion of fees to veANGLE holders. This is something that has been on the table for a while and on which the protocol should move forwards at some point. Let us know what you think!

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Hello @tuta

Thanks for the answer.

Yes, I know the AIP-17. The proponents of the AIP-17 want an increase in the share of the proceeds to be distributed to veToken holders. What I propose is to keep the share distributed to veToken holders, but with a constant and non-decreasing distribution (associated with the veANGLE balance).

I know that, in the current context of WEB3 (gaming theory, paying for users, yield and liquidity wars mechanisms), I shouldn’t compare ANGLE tokens as a share of a company paying dividend, I shouldn’t compare crypto governance with classic governance. However, it is this last point, the division between crypto and classic that I want to highlight. I believe that crypto governance systems should have hybrid mechanisms: a fusion between gaming theory, user incentives, yield and liquity incentives and classic concepts such as dividend distribution, asset valuation and buybacks.

What we have today is a system that promotes the dumping of governance tokens, extracting value from investors / protocol users (with the constant devaluation of the ANGLE token); the wastage of protocol capital through the issuance of tokens that end up not efficiently promoting the retention of the various investors / users interested only in token farming.

My purpose for launching this discussion is to highlight the need to get a little closer to classic incentives in order to broaden the base of potential investors/users of the protocol. The launch of veTokenomics is a clear example of the success of this “more classic” approach, through which it was possible to assign additional layers of utility to the tokens of the various protocols that adopted it.

I believe that allocating the protocol’s predicted earnings distribution to the LOCKED Angle balance (keeping the proportionality of earnings constant over the LOCK period) is a #realyield argument that allows you to add a layer of utility to the ANGLE token completely distinct from the competition, which could avoid the constant dumping of farmed tokens and, above all, promote the flow of liquidity through new investors/users for the protocol’s operations. We must understand that the double dilution of the income distributed by the protocol to its users / investors, resulting from the constant issuance of tokens and permanent reduction of the veANGLE balance is not exactly attractive in the medium / long term, in fact promoting the settlement of the issued tokens. Of course, the proportion of voting power and yield boosting must remain associated with the veANGLE balance in order to promote the dynamics necessary for yield and liquidity wars.

In short, I would call this a VRE (Vote and Revenue Escrowed) system, whose concept would be to create 2 tokens after locking the ANGLE token. veANGLE (with decreasing balance - from 100% to 0% over the periods provided for in the veTokenomics mechanics) and reANGLE (constant balance of 100%) whose balance would constitute the proportion of “dividends” receivable.

Note: I recognize that I have no way of perceiving the impact that a measure like this would have on the speed of capital accumulation in the Angle Protocol.

Thanks for your attention,
Pedro Lopes

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Thanks for the proposal Pedro! There are some interesting concepts here!

Not sure to completely understand what it’d change to have a reANGLE token with a constant balance with respect to a veANGLE token from an economics perspective. Like it could misalign incentives where people no longer have a vote in the governance of the protocol but can still receive rewards.

Overall, I still think it’s early in the days of the protocol and as such distributing too much rewards to veANGLE holders could prevent the protocol from capital that could be useful to its development. I am not saying that there shouldn’t be no rewards, just saying that we shouldn’t do too many.

I also agree on the need to change the current market cycle, but I wouldn’t spend too much time building tokenomics related stuff when we can work, like we’re doing at the moment on value added features (new collateral types, new agEUR integrations, …)

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Hi @sogipec,

Thank you for your time.

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