1/N
Some thoughts for @KlimaDAO and any $KLIMA fans out there. In everyone’s favorite format, a mega🧵 on CT!
I want to propose a sister-DAO, or additional functionality that KlimaDAO should implement.
These even a bonus handdrawn flow chart!
Some thoughts for @KlimaDAO and any $KLIMA fans out there. In everyone’s favorite format, a mega🧵 on CT!
I want to propose a sister-DAO, or additional functionality that KlimaDAO should implement.
These even a bonus handdrawn flow chart!
2/N
Some background:
I love KLIMA, and I’m a Professional in TradFi wit a particular focus on financial modeling.
Disclosure: I do own some $KLIMA, but I have no plans to ever sell it. Price is basically irrelevant, and my interest in them is not really financially driven.
Some background:
I love KLIMA, and I’m a Professional in TradFi wit a particular focus on financial modeling.
Disclosure: I do own some $KLIMA, but I have no plans to ever sell it. Price is basically irrelevant, and my interest in them is not really financially driven.
3/N
I have been too busy in my personal life to get into the discord and get involved. I also hate discord, just sayin.
I think some things like what I propose below are already in the works, and sorry in advance if I’m stepping on toes.
I still want to put this out there so:
I have been too busy in my personal life to get into the discord and get involved. I also hate discord, just sayin.
I think some things like what I propose below are already in the works, and sorry in advance if I’m stepping on toes.
I still want to put this out there so:
4/N
The current problem with KLIMA (and all OHM forks):
There is no incentive to hold / stake for the long term.
APY paid to stakers is far higher than is sustainable (based on revenue earned).
This forces downward pressure on the price when the premium to RFV is high.
The current problem with KLIMA (and all OHM forks):
There is no incentive to hold / stake for the long term.
APY paid to stakers is far higher than is sustainable (based on revenue earned).
This forces downward pressure on the price when the premium to RFV is high.
5/N
Before all the “but ser!” posts can roll in:
I do understand that this is by design in early stages to attract assets. The high APY decreases.
The potential oversight:
👉When premium to RFV is high, then (3,3) is actually discouraged by the price mechanics.
Before all the “but ser!” posts can roll in:
I do understand that this is by design in early stages to attract assets. The high APY decreases.
The potential oversight:
👉When premium to RFV is high, then (3,3) is actually discouraged by the price mechanics.
6/N
The point I just made alone probably requires a decent write up, and one heck of a spreadsheet (which I can make if desired, I truly love spreadsheets).
I cannot really do that in a thread, but I’ll at least try to explain it here. I also will generalize terms.
The point I just made alone probably requires a decent write up, and one heck of a spreadsheet (which I can make if desired, I truly love spreadsheets).
I cannot really do that in a thread, but I’ll at least try to explain it here. I also will generalize terms.
7/N
Definitions:
IV = Inherent Value (OHM docs)
RFV = Risk Free Value (OHM / KLIMA docs)
APY = APY paid to stakers
RFRev = Risk Free Revenue (see OHM dashboard on dune)
RFAPY = ( [Annualized RFRev] / [mcap staked] )
Prem = Premium = ( [price / RFV] -1) =* (RFAPY + Prem*)
Definitions:
IV = Inherent Value (OHM docs)
RFV = Risk Free Value (OHM / KLIMA docs)
APY = APY paid to stakers
RFRev = Risk Free Revenue (see OHM dashboard on dune)
RFAPY = ( [Annualized RFRev] / [mcap staked] )
Prem = Premium = ( [price / RFV] -1) =* (RFAPY + Prem*)
8/N
Where Prem* = “market sentiment” portion of Prem.
=* means I propose that =
Ok, even for me that looks a bit intimidating but the rest ins that bad, I swear. I just need those acronyms below.
In a normal market state:
Price > RFV > IV
Where Prem* = “market sentiment” portion of Prem.
=* means I propose that =
Ok, even for me that looks a bit intimidating but the rest ins that bad, I swear. I just need those acronyms below.
In a normal market state:
Price > RFV > IV
9/N
This implies the treasury is minting new coins that are mostly paid to stakers.
RFAPY =* the sustainable APY for the protocol. It is the actual fee income (at risk free value of protocol tokens) being generated.
👉Prem “should” trend toward (1 + [RFAPY] )
This implies the treasury is minting new coins that are mostly paid to stakers.
RFAPY =* the sustainable APY for the protocol. It is the actual fee income (at risk free value of protocol tokens) being generated.
👉Prem “should” trend toward (1 + [RFAPY] )
10/N
I haven’t gotten around to learning how to make a @DuneAnalytics query yet, but RFRev is not on the KLIMA db. RFAPY is not available for any POL.
Based on OHM db, RFAPY is not large (by any metric) for any POL (yet!).
👉For now, RFAPY is small and Prem is mostly Prem*
I haven’t gotten around to learning how to make a @DuneAnalytics query yet, but RFRev is not on the KLIMA db. RFAPY is not available for any POL.
Based on OHM db, RFAPY is not large (by any metric) for any POL (yet!).
👉For now, RFAPY is small and Prem is mostly Prem*
11/N
Worth noting:
Forward RFAPY is an unknowable variable.
All else equal, RFAPY increases when RFV of treasury does.
Most POLs are still heavy in accumulation mode, and (all else equal) RFV treasury should increase, thus increasing RFAPY.
Worth noting:
Forward RFAPY is an unknowable variable.
All else equal, RFAPY increases when RFV of treasury does.
Most POLs are still heavy in accumulation mode, and (all else equal) RFV treasury should increase, thus increasing RFAPY.
12/N
That brings us to a key point here.
👉For POL tokens, demand for the coin is mostly driven by desire for real gains against the base asset. Indirectly at least, by IV.
For OHM, that’s appreciation / income in denominated in stables. For KLIMA it’s BCT / carbon.
That brings us to a key point here.
👉For POL tokens, demand for the coin is mostly driven by desire for real gains against the base asset. Indirectly at least, by IV.
For OHM, that’s appreciation / income in denominated in stables. For KLIMA it’s BCT / carbon.
13/N
The above statement is true for a few reasons, but that was by design and should not be surprising.
(3,3) = we all make the most money. Stake, HODL, and POL revenue is ours to share.
The greedy “-1s” that sell bring the price down.
The above statement is true for a few reasons, but that was by design and should not be surprising.
(3,3) = we all make the most money. Stake, HODL, and POL revenue is ours to share.
The greedy “-1s” that sell bring the price down.
14/N
Finally, we can get back to the problem at hand:
👉Early stage POLs (literally all of them) attract investors to bond by guaranteeing a high APY (denominated in OHM / underlying).
👉Early POLs have low RFAPY until bonded assets produce meaningful revenue. So APY > RFAPY
Finally, we can get back to the problem at hand:
👉Early stage POLs (literally all of them) attract investors to bond by guaranteeing a high APY (denominated in OHM / underlying).
👉Early POLs have low RFAPY until bonded assets produce meaningful revenue. So APY > RFAPY
15/N
👉Therefore, an Early POL’s Prem is almost entirely based on Prem*
The staked / underlying tokens do not have (much) utility (yet!). So,
👉For an Early POL:
Prem* is paid by ➡️new-money⬅️ investors seeking ➡️long term⬅️ gains against the ➡️base-asset (stable / BCT) ⬅️
👉Therefore, an Early POL’s Prem is almost entirely based on Prem*
The staked / underlying tokens do not have (much) utility (yet!). So,
👉For an Early POL:
Prem* is paid by ➡️new-money⬅️ investors seeking ➡️long term⬅️ gains against the ➡️base-asset (stable / BCT) ⬅️
16/N
Please note, idk when I subbed $OHM, this applies to them all…for now.
Another note, I’m not trying to bash OHM or KLIMA at all. I own both lol. Let’s learn and grow together.
Ok, done with notes and back to the problem:
Please note, idk when I subbed $OHM, this applies to them all…for now.
Another note, I’m not trying to bash OHM or KLIMA at all. I own both lol. Let’s learn and grow together.
Ok, done with notes and back to the problem:
17/N
👉When APY> RFAPY, the increasing supply of underlying (OHM / KLIMA) is diluting the RFV of each token.
👉For Early POLs: Prem is (far) greater than (1 + [RFAPY]). Day 1 RFAPY is 0!
👉Early POLs lifeblood is Prem* which can only be maintained by long term new money in.
👉When APY> RFAPY, the increasing supply of underlying (OHM / KLIMA) is diluting the RFV of each token.
👉For Early POLs: Prem is (far) greater than (1 + [RFAPY]). Day 1 RFAPY is 0!
👉Early POLs lifeblood is Prem* which can only be maintained by long term new money in.
18/N
Yikes! 18 tweets deep... Sorry folks, but if you’ve read this, thanks. I usually shout into the void.
Based on above, for Early POLs:
⭐️RFV is decreasing
⭐️Prem is high, and dropping.
⭐️Price = [RFV] * (1 + [Prem])
⭐️Prem* = market sentiment = life
⭐️Prem* drops. Yikes
Yikes! 18 tweets deep... Sorry folks, but if you’ve read this, thanks. I usually shout into the void.
Based on above, for Early POLs:
⭐️RFV is decreasing
⭐️Prem is high, and dropping.
⭐️Price = [RFV] * (1 + [Prem])
⭐️Prem* = market sentiment = life
⭐️Prem* drops. Yikes
19/N
This has a few implications that are inherently anti-(3,3) at critical times for the treasury no less.
1️⃣ The early dynamics ⭐️ above are basically coded into the protocol. They cannot be changed without a new dynamic (new dynamics below lol).
This has a few implications that are inherently anti-(3,3) at critical times for the treasury no less.
1️⃣ The early dynamics ⭐️ above are basically coded into the protocol. They cannot be changed without a new dynamic (new dynamics below lol).
20/N
2️⃣ When Prem is high, then staking APY is likely to underperform selling all or selling rebases. Buyback when Prem is lower and have more underlying. This is anti-(3,3) by definition, maybe (-1, +0.5)
3️⃣ when APY > RFAPY (all Early POLs) new money pays old money.
2️⃣ When Prem is high, then staking APY is likely to underperform selling all or selling rebases. Buyback when Prem is lower and have more underlying. This is anti-(3,3) by definition, maybe (-1, +0.5)
3️⃣ when APY > RFAPY (all Early POLs) new money pays old money.
21/N
At least in appearance, right? New money is buying a price depreciating ⭐️ asset in hopes for an unsustainably high APY ⭐️ that will beat out further dilution. It’s not inheriently bad, but its’s not a good look. In fact, that decreases Prem*, the lifeblood of Early POLs.
At least in appearance, right? New money is buying a price depreciating ⭐️ asset in hopes for an unsustainably high APY ⭐️ that will beat out further dilution. It’s not inheriently bad, but its’s not a good look. In fact, that decreases Prem*, the lifeblood of Early POLs.
22/N
However, the APY is essential to attract new revenue, and rewarding long term holders isn’t bad either.
I think that there’s a far better way to incentivize long-term stakers, and I’ll get there below.
4️⃣ the dynamics above really work against anyone who buys mid-wave.
However, the APY is essential to attract new revenue, and rewarding long term holders isn’t bad either.
I think that there’s a far better way to incentivize long-term stakers, and I’ll get there below.
4️⃣ the dynamics above really work against anyone who buys mid-wave.
23/N
Why? Because of 2️⃣. Mid-wave implies that the premium is at or near peak, and about to collapse to something more sustainable.
In that case, staking APY over time simply does not keep pace with dilution of RFV & decreasing Prem at the same time.
Why? Because of 2️⃣. Mid-wave implies that the premium is at or near peak, and about to collapse to something more sustainable.
In that case, staking APY over time simply does not keep pace with dilution of RFV & decreasing Prem at the same time.
24/N
So a large cohort of relatively early adopters will probably feel like they made a mistake, and 1️⃣ basically guarantees this.
👉In effect, this means that POLs do not properly reward (3,3) under certain market conditions, guaranteed by 1️⃣.
So a large cohort of relatively early adopters will probably feel like they made a mistake, and 1️⃣ basically guarantees this.
👉In effect, this means that POLs do not properly reward (3,3) under certain market conditions, guaranteed by 1️⃣.
25/N
5️⃣ The combination of these factors really amounts to a lot of bad press!
6️⃣ All the implications above negatively affect Prem*.
7️⃣ Feedback loop ensues.
Good news for POLs and fam, it’s pretty easy to fix this. Bad news, it’ll have to be another 🧵
5️⃣ The combination of these factors really amounts to a lot of bad press!
6️⃣ All the implications above negatively affect Prem*.
7️⃣ Feedback loop ensues.
Good news for POLs and fam, it’s pretty easy to fix this. Bad news, it’ll have to be another 🧵
The ever exciting Part 2 picks up here:
https://twitter.com/Chees_eth/status/1492295738398846978?s=20
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