By far the most important action we can take in regards to the FinNexus Protocol for Options (FPO) is to adopt a reasonable policy towards vesting FNX mining rewards.
In the past few months, we have observed the following:
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High APY liquidity mining rewards attracts deep liquidity to the pools that we direct the rewards to, at least in the short term. However, these liquidity providers (LPs) do not seem to be interested in long-term health of the protocol and are only there to farm-and-dump the rewards.
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Low APY liquidity mining rewards do not attract deep enough liquidity pools, neither to our Uniswap FNX/ETH pool nor our FPO liquidity pools.
The solution:
Raise APYs!
But with one caveat. All mining rewards are locked up for a reasonable time after being earned.
In project after project, most notably HEGIC and CVP, we have seen that the implementation of vesting or an escrow service has provided downside protection for token price. When Hegic changed the token for mining rewards for contributors to their options pools from HEGIC to rHEGIC, an inert token that is only convertible to HEGIC after certain protocol goals have been met, the HEGIC token price almost immediately increased by 40% in the following days. After reaching a low of $1.35 or so earlier this month, Powerpool implemented linear vesting of mining rewards via smart contract for all of its reward pools and within weeks saw almost a doubling of its CVP token price.
Even the OG liquidity mining project, Synthetix, requires 1 year vesting of all of its liquidity mined SNX, with the caveat that the mined tokens can always be used as backing for the minting of sUSD even while the SNX remains locked up. In DeFi project after DeFi project, we have seen that vesting is the correct choice for building a long-term-oriented community and attracting more permanent capital.
Therefore, we need to implement vesting for FNX mining rewards immediately!
Proposal:
Implement a 6-month lockup for all mined FNX for both FPO and Uniswap. To compensate for the loss of immediate liquidity, we will adopt a targeted mining APY rate of 75% for the options pools and 50% for the Uniswap pool. As the liquidity pools grow larger, the community reserves will be accessed to ensure that the FNX mining rate, currently at 9,666 FNX per day across all 4 liquidity pools, will be adjusted weekly to be reset to the above target rates of 75% and 50% respectively.
Discussion points:
I believe, first of all, that we should have a snapshot vote to determine whether or not we SHOULD prioritize the development of a vesting mechanism. Once we are agreed on that, we could have a snapshot vote of protocol token holders to determine what the consensus is on the following topics:
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Length of vesting time: I actually think 6 months could be adjusted longer, at least in the FPO pools, IF we allow the earned FNX to be locked to the mining address but also serve as collateral in the options pool, thus allowing users to compound their FNX. Although this does present some difficulty at the smart contract level, i.e. How do you liquidate locked reward tokens should that be necessary? I think we should research some methods for facilitating this to make it happen.
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APY rewards rate: In fact, considering that HEGIC provides a nice hefty 300% APY for providing liquidity to their options pools, we ought to consider raising our liquidity mining APY rewards further. After all, if we implement vesting, farmers cannot farm-and-dump. Moreover, most farmers only look to headline APY to make their ape-in decision. So, although I believe the target rates in my proposal are very reasonable, we should definitely consider raising them if we observe that those rates are not high enough to attract deep enough liquidity in the pools.
Thank you for your time and I hope we can have some meaningful debate here about the future of our protocol!
Best,