P3 Proposal: A NEW DAWN

[btub]

Premia Proposal - Changes to the Tokenomics of $PREMIA

Authored by vxToasted, vxH0rny, and GeneralObligation

Summary

This proposal seeks to bolster the strength and liquidity of the $PREMIA token with revenue generated from platform fees, while distributing bootstrapping rewards for both traders and Vault depositors as proper incentives.

Abstract

$PREMIA, the governance token of Premia, was introduced through a modified bonding curve sale in 2021. Since then it has served as a Governance token as a means of voting on protocol proposals, distributing platform revenue, and directing liquidity mining emissions to users. Tokenomics were then later updated to use the “vote escrowed tokenomics” model inspired by Curve Finance (https://dao.curve.fi/). However, vote escrowing tokens for 4 years has since become unpopular for crypto participants and protocol revenue redistributed to stakers has not effectively moved the platform forward thus far. Instead, the proposal to replace the 4 year lock with a friendlier system, and change the revenue share to a partial Buyback and Burn model to provide further support to the market and make the $PREMIA token deflationary over the next year, at minimum.

Motivation

The proposal addresses community concerns transparently and effectively, ensuring no detriment to any party. It focuses on creating sustainable, measurable strategies for managing platform revenue, encouraging platform usage, and providing value to all platform participants.

This proposal seeks to make it easier and safer for new market participants to join Premia governance (by not requiring capital lockups) and to also fix protocol emissions, resulting in them being properly retained within the protocol rather than escaping it.

A weekly Buyback and Burn strategy will provide regular liquidity for the PREMIA/ETH pair, enhancing market stability while also creating a deflationary pressure to incentivize early participation as fewer tokens remain in circulation the longer a user waits to join.

Specification

Fee Structure

https://forum.premia.finance/t/8-p3-sustainable-premia-fee-schedule-and-distribution-enhancement/264

The proposal assumes the present platform fee schedule. This proposal will use the vxPremia holder revenue in ALL categories for Buybacks, and allow the Premia Operating Team to use their share of the funds for continued developmental purposes.

Trading fees:

• 50% Operating Team

• 50% Buy-Backs

Exercise fees:

• 100% Operating Team

Vault Performance/Management fees:

• 100% Operating Team

OLM Proceeds:

• 90% Buy-Backs

• 10% DAO

Yield Distribution

• Referral Fees: 5%, 10%, 20%, ?%

• Buyback and Burn: 50% (minus referrals)

• Operating Team for Development Funding: 50%

Platform Rewards Distribution

The rewards distribution will continue to use the DAO’s existing liquidity mining schedule of 2,000,000 PREMIA annually, however it will now direct 30% to market takers to encourage active trading while still focusing on liquidity bootstrapping.

Treasury Information

• Liquidity Mining Allocation: 16,000,000 PREMIA

• Emission Rate: 2,000,000 PREMIA, annually

Emissions Split

• Premia Vault Rewards (OLM): [70%]

• Market Takers: [30%]

Staking Distribution

To replace the loss of USDC yield & align governance incentives with growing the value of the Premia ecosystem, stakers will receive a constant emission of PREMIA tokens, claimable at will but cliff vested for a year on claim. This will use the AirDrop/AirDrip allocations decided in last year’s tokenomic proposals, and thus no additional allocations are needed.

• Total AirDrip allocation: 10,000,000 PREMIA - 2,000,000 allocated in August 2023’s AirDrip

• Proposal: Emission Rate of 2,000,000 PREMIA to stakers, annually

A cliff vesting period of 1 year will be applied to all staking earnings from the time of their claiming, ensuring that long term value is incentivized and any mercenary capital will be forced to gradually divest earnings over a year after participation, thus making it unappealing to short-term “visitors”. For example, if you claim the rewards from token staking on May 30th, 2024, they will be available May 30th, 2025. You could claim additional rewards on June 5th, one week later, and those would be available June 5th 2025. So on, and so forth.

This will functionally be a step-vesting schedule based on the length and frequency a user is on the platform, that starts a year ahead of when they begin claiming and ends a year ahead of when they’re finished claiming rewards.

Vesting Tokens

The tokens acquired via staking rewards will be locked into the platform, however will still count towards a user’s influence. This way the rewards can be productively used immediately to govern the platform.

Staking Boost Mechanism

To replace the 4 year lock system, a GMX-style “lookback” time boost is proposed. It is described in detail here: https://docs.gmx.io/docs/tokenomics/rewards#multiplier-points

The boost will apply to the following:

1. Staking Distribution will be linearly boosted up to [100%] over [52] weeks

2. vxPremia voting (Emissions and Governance) will be boosted

The flywheel will then be:

1. Deposit Capital, earn PREMIA

2. Stake PREMIA, direct emissions to your Vault

3. Earn boosted PREMIA from staking & Increase voting power over time

4. Earn even more PREMIA to stake

By boosting native staking rewards as well as voting power, this will further provide incentives for long term users of the platform to own the token and participate in governance / utility of directing emissions.

Rationale

The current system has an effective flywheel of rewarding capital depositors and users with platform rewards that can be used to further their earnings and rewards. This proposal will enhance this flywheel so that capital does not leave the ecosystem and long-term users are rewarded.

Current Tokenomic Statistics

(https://dune.com/premia/premia-blue)

(https://dexscreener.com/arbitrum/0xc3e254e39c45c7886a12455cb8207c808486fac3)

(https://dexscreener.com/ethereum/0x93e2f3a8277e0360081547d711446e4a1f83546d)

Market information

• Average daily fees oscillate around $1,500. Weekly is $10,500.

• Average market volume on both Ethereum and Arbitrum markets is 100,000 PREMIA, weekly, or about $30,000 (as of May 8th, 2023).

• ~39,000,000 PREMIA (39%) are circulating out of the total supply.

• The total DAO allocation of the total supply is ~22,000,000 tokens

Buyback and Burn Information

Buyback and burn as ~50% of revenue would:

• Provide an additional $5,000 a week currently in market liquidity

• Permanently remove about 15,000 Premia from circulation, weekly

• About 1.8% of the circulating supply per year, or 0.78% of the total

• About 3.5% of the DAO’s total supply in a year

• Ensures Premia is always available and indexed in online terminal searches by meeting minimum volume requirements

Note: OLM Revenue will be reduced with the 30% split to market takers, therefore the average daily fees will potentially decrease unless trading volume makes up for it. However the numbers posted should still serve as a useful guide.

It is important to know that these numbers will change as the market does, and that as token price increases, fewer tokens are burned, and as token price decreases, more are burned. This is not a prediction or advice on the future market valuations but rather an estimate based on the market at time of writing.

Staking information

• ~6,000,000 PREMIA is currently staked as vxPremia (17% of supply)

• Average Lock Time is ~1 year

Technical Investment

Most, if not all, of the prospective changes in this proposal are not novel or unique to Premia. Therefore, tech debt should mostly require taking existing concepts and applying them to the Premia ecosystem. It will likely involve:

1. Replacing the staking ‘drip’ of USDC with PREMIA tokens

• Most of this logic exists. Perhaps use a mapping and iterate through, to allow for any future tokens from partner platforms.

2. 1 year escrow on claiming native staking rewards

• This can reuse the existing OLM 1 year lock

3. Re-Implementing the V2 ‘xPremia’ Buyback contract with a burn function

• Boolean toggle to burn or send to DAO (so we can turn off burns and retain tokens at any future date, easily)

4. Removing existing token locks via contract call

5. Implementing the GMX system for stakers

6. Applying boosts to influence count for voting, emissions, & staking rewards

• implement this so that future contracts will GET ‘total influence’ from staking contract, so any future tokenomic changes are seamlessly integrated

This is not a true technical review of the technical investment required for these changes, but rather an educated guess at the type of work involved. The authors’ views should not be construed as advice or a prediction of any kind.

Parliament Duties and Requirements

These tokenomic changes are made with best intent and current market conditions in mind. However, markets are volatile, and changes will need to be made promptly to ensure the project’s safe & stable future. With this in mind, this proposed update will require the following duties of the elected Parliament:

Epoch Policy Updates

There are several specific levers to encourage use of the platform. These levers will need adjustment over time. The Parliament will decide on what time frame is necessary to meet and discuss this plan and accordingly vote to change the parameters. These parameters are as follows:

On a [Monthly] Cadence, discuss:

1. Rate of Emissions in total [2,000,000 tokens, annually]

2. The split of emissions between underwriter Vaults and traders [70%/30%]

• Ideally a smart contract is written so that future additions can be made.

• Mapping of addresses (to other contracts that will implement an emit function) and weightings

• Add/Remove Mappings via governance

3. Maximum % Boost by meeting staking duration [100%]

4. Time to reach Maximum Boost [52 weeks]

5. Percent of DAO Revenue to Buyback [100%]

6. Buyback of tokens [True]

• Contract can send USDC to DAO on FALSE

7. Burning of Buyback tokens [True]

• Contract can send tokens to DAO on FALSE

8. Another topic for another proposal: To consider OLM vs traditional LM [OLM]

Further Considerations

The authors have considered the removal of locks as incompatible with the design and goal of the original AirDrip which rewarded capital lockups of 1-4 years with accordingly well-boosted rewards. As the original terms and conditions can no longer be met (capital lock ups), the AirDrip will need some kind of adjustment.

Specifically, the originally planned AirDrip will need to be modified to ensure that the removal of mentioned capital locks respect the original requirements. Another proposal will be made to ensure that long-term locked boosts will still require the full duration investment to receive the boosted amount of rewards. Alternatives will be considered and discussed outside of this proposal as well.

Conclusion

This is a proposal that keeps the core of the incentive structures intact (rewards platform users by encouraging participation in staking and directing of emissions to underwriter Vaults). It modernizes the staking requirements and boosts rewards for long term platform members, while also stabilizing market liquidity and encouraging early participation in governance by new members. I will once more summarize as shortly as possible all the changes:

Staking Changes

• Remove token locks, replace with [52 week] GMX style lookback boosts

• Rewards long term stakers with increased staking & voting boosts

• Staking receives AirDrip allocations at [2,000,000] tokens, annually

• [1 year] escrow of staking rewards starting at date of claim

Platform LM Changes

• Add a split of LM emissions to include Market Takers

• [30% Takers, 70% Vaults]

Buyback and Burn

• Use the previously distributed USDC to instead Buyback and Burn the PREMIA token in accordance with Parliament Policy.

Revenue (Fee) Changes

DAO-allocated fees will now Buyback and Burn in accordance with the Parliament Policy Team, instead of distributing to stakers.

Trading fees:

• 50% Operating Team

• 50% Buy-Backs

Exercise fees:

• 100% Operating Team

Vault Performance/Management fees:

• 100% Operating Team

OLM Proceeds:

• 90% Buy-Backs

• 10% DAO

[mjp]

I suggest you capture all metrics that are changeable into an excel spreadsheet / clean list and you present what you want when this gets to stage 2. There are two things you have suggested, the high level changes, and the nitty gritty. You will get people agreeing to the high level then disagreeing in the nitty gritty. But I guess if we agree the nitty gritty can be voted on, on an ongoing basis, it helps get this through.

As you know, I am fundamentally opposed to taking the fees generated from a project, I would say the single best marker of its success, and buying Premia on the open market and destroying it. But I expect to be outvoted, so I wont spend any more time on it.

With every project I break things down to supply and demand. reasons to hold reasons to sell.

I agree with above in some/most but I would say airdrip 1 as this has already happened, still happens and is allocated to people / unlocks over 12 months as it was originally intended. At that point in time, users of Premia [disclosure I did this. I bought more Premia and locked for 4 years] bought and locked for AirDrip 1 and it would be poor form to go back on it now. So yes it still happens and if you disagree, I suggest you come up with a mechanic to change how it influences Premia on a look forward basis, not rewriting the past.

[Lynch]

Beyond what was discussed elsewhere regarding replacing the USDC yield with Premia (and this potentially being a bad thing because it conditions people to sell Premia so they can reap some reward), in agreement with all else.

@mjp is correct, there are a lot of numbers being fudged with here. It’s difficult to determine whether this number or that number is the best decision without looking at the totality of changes in a spreadsheet. Passing this general proposal and then having more debate over specifics is necessary.

Fundamentally I support the buyback of Premia, as this will add substantial buy volume as noted elsewhere + do a lot more for Premia holders than increasing yield

[JCDenton]

I support the removal of the lock system, and most of the changes proposed. However I’d like to keep some of the revenue directed at revenue sharing still, roughly 10-20% of the revenue intended for buybacks should stay as revenue sharing for stakers.

My reasoning is that removing revenue share completely hurts more than the last 10-20% bit of revenue would help buybacks.
Even though this revenue would be quite small, it would still be infinitely better than none. Being able to claim that the protocol shares its revenue legitimately and still getting a slow drip of USDC for your staked position is important in my opinion.

[drophunter]

I can definitely say that I’m in favor of changing the locking system. I agree with @mjp we should not change the conditions for the first airdrip. I also want to agree with @JCDenton to leave stackers a small revenue in usdc, additional though not big yield will be pleasant for stackers. On the other suggestions, I mostly agree, but ideally we need to look at all of these as separate proposals to get a better result.

[btub]

Hey drop, mjp, thanks for the comments.

If you don’t want to change the conditions of the first airdrop, I think that could work. Maybe we can make a token lock for those people as part of claiming the airdrop rewards. Or unlocking early forfeits a corresponding % of rewards.

Otherwise it doesn’t make sense to me to unlock everybody after doing an airdrop (that hasn’t happened yet) meant to reward people for locking tokens, especially if the largest % of people voting on this proposal will be the 2-4 year lockers, who will be incentivized to unlock early at no cost and still get the outsized rewards.

@JCDenton and @Lynch thanks as well for the comments. I put a section into the draft that contains everything to be voted on / decided as parameters here: P3 Proposal: A NEW DAWN. I can make a spreadsheet too, though.

As this proposal requires quite a bit of tech debt (although nothing crazy, it is all things that have been done before), this will not go live immediately. There will be plenty of time to vote on the parameters – this proposal is just a framework with (strongly advised) suggestions from the authors.

[btub]

Going back to the questions on airdrip 1:

Currently best plan is:

1. unlock all base staking capital
2. change airdrip’s linear vest from 1 year to the original lock duration at time of snapshot
3. if you unstake early (now unlocked), you forfeit remaining rewards & they distribute to the other stakers.

Airdrop tokens remain bound to same “agreement” essentially. If you locked for 4 yrs previously and chose to exit early you’d lose a significant portion of your locked position while retaining airdrip, and in this model you retain all of your pre-lock tokens but only receive the airdrip if your commitment remains the same as it was pre-change (thanks vec0zy for translating this earlier in discord).

Another way to look at it is before, if you had 100k premia staked 4 years, you would get an airdrop that is some smaller % of that (about 75-80%) in one year. In the idea above, you get access to all 100k of the premia immediately, and the linear vesting continues over the old locking period that had no linear vest (while the 75k or so would linearly vest at most over the next 3 years , that 100k would have not be available in any amount until 2027 or whatever).

The end result is more premia tokens, and earlier, for anybody staked longer than 1 year (or however long it’s been). I’m actually surprised to hear pushback on this because for long term stakers they would be much more liquid than they were before. There was a commitment made on both sides - although things are changing if the commitment remains so does the allocations. I don’t see why anyone would want to unlock all stakers, and then give more tokens to ppl who choose to sell. And if the plan for somebody was to not unlock anyways, then it also really makes no difference because they have the same amount of tokens, at the same time anyway!

But, if you both agree the original conditions should be met, then there needs to be some kind of token commitment to hold stakers to their original T&C dictated by the original airdrop (a locked token commitment). So far what I posted is the best idea (in my opinion) that I’ve heard to accomplish this.

Anyways it’s for another proposal because we are still looking for good ideas from the community on how to resolve that gap between tokenomics. But since that’s the majority of the discussion at the moment this is some clarification on why we stated that airdrip 1 needs to be updated too.

With token unlocks, the old systems relying on those locks need to be also updated to match incentive alignments. And if it’s confusing in any way, I would recommend calculating how much premia you would get over 1 year from the airdrip, and compare it to how much premia you would have immediately unlocked by this proposal with 1 year of vesting from the airdrop (hint: the latter is more!). Or if you like to do financial math (I do not), you can calculate the discounted future rate of earnings. Which is the larger number? Things to consider…

[Salty]

I completely agree with @btub here. I think if we are actually committing to the airdrop, we can’t unlock immediately, so it’s either fully unlocked or airdrop and maybe lower the lock period.

as for other proposals I’m all in favor

[btub]

A few updates:

1. There has been a lot of internal discussion on how to handle the airdrip with the proposed unlocks. The formalized solution that a majority of people on the team (who commented) and parliament found reasonable was to apply the unlock date at snapshot to the airdrip for vesting. This is because the airdrip required the capital lockups to receive the boosted rewards, and it also helps align everyone to hold onto their token unlocks.

To help visualize the vesting schedule in old system (25/25/50/75% of staked amount per year + airdrip vesting in Aug '25), and the new system (all immediately unlocked, aidrip vests linearly until the unlock date), I put together an excel sheet that shows how this affects the earliest 4y stakers (Dec '22) and the latest possible 4y stakers (Aug '23) to provide a ‘bounds’ of sorts.

Hopefully it should be clear, that while the airdrip takes longer to vest, everyone will have more tokens liquid/available at any point in total during the entire vesting period than before. If the plan was to sell the airdrip and stay staked, it is still viable as a 4year staker will complete anywhere from 30-50% by Aug '25 still. And if others exit early, each person will receive a proportional bonus to their original airdrip based on influence/total influence, with the seller’s influence removed. Thus, the design encourages & rewards long term participation and those with the greatest conviction (4y stakers) benefit the most.

And as for the airdrip requiring stakers keep their premia staked for the duration of the lock period, this was also part of the original agreement:

As there was never any intention to be able to unlock tokens before the airdrip concludes.

2. (Thanks for making it this far) As this seems to be the point of largest contention, the authors are willing to separate the buyback + burn section from the unlock/new staking system section, as they do not necessarily require each other to perform.