Authors: Policy Committee Working Group Members
Summary
Reduce the INV inflation rate to reflect new liquidity strategy while maintaining DAO operations at current levels:
- Deployment of new liquidity management strategy that reduces reliance on new INV emissions without losing significant TVL
- Temporary reduction in monthly bond emissions for Bond Protocol (formerly Olympus Pro)
- Maintain current dilution protection in parity with bond emissions, resulting in reward rate below 100%
Background
Please see the Q4 Mint proposal here.
Please see the original Inverse Plus proposal here
The Inverse Finance Treasury requires additional INV tokens early in January to ensure operations and rewards continue uninterrupted. The majority of INV token emissions go towards INV Stakers (dilution protection), DOLA liquidity incentivisation and bonding.
As has been established as the DAO’s common practice throughout the year of 2022 beginning with the proposal for Inverse Plus in Q1 2022, there is a DAO-approved mint of INV tokens roughly every 3 months. The Policy Committee recommends 50,000 INV tokens be minted, to cover the next 90 days of estimated INV staking rewards, liquidity bribes, and our Bonding Protocol program. However, this proposal is not a guarantee the INV token’s rate of emission for the future, the next mint proposal may come sooner or later than 90 days.
In order for the Policy Committee to continue supporting the Bonding Protocol program, which is currently vital for funding opex and paying down DOLA and non-DOLA bad debt, a new INV allowance of 12,000 is requested.
Moving Forward: Revised INV Staking APR & Market Cap Protection Strategy
The INV+ proposal that passed in early February 2022 outlined new INV tokenomics where INV stakers were provided dilution protection from the inflating supply via INV rewards. In essence, how this works is when INV circulating supply inflates, the majority of the new INV tokens are directed to INV stakers. This ensures that the INV tokens emitted to other activities (incentivisation, bonding etc) will not dilute a stakers holding (maintaining ownership as a % of circulating supply).
The INV+ proposal recommended that the APR to stakes would not drop below 100% during this process, which has been abided by throughout 2022. To maintain this, it often meant that INV emissions going towards stakers was significantly larger than was needed to guarantee dilution protection to stakers. This has come at a cost to INV holders who are not staked, including liquidity providers on exchanges (DEX’s and CEX’s), while also causing large downward pressure on INV tokens market price (due to this, the best way of judging value as an INV token staker is via INV’s market capitalization rather than market price).
Going forward, the Policy Committee recommends that the DAO trial a move away from the 100% minimum APR to stakers. Dilution protection can be achieved for stakers with APR being lower than 100%. Gaining flexibility in this regard will allow for more users to provide liquidity (at a cheaper cost to the DAO), it will also allow the DAO to achieve higher efficiency on longer maturity bonds. With an APR of 100%+, the rational participant would require a larger discount when the maturity of the bond is longer (10+ days), as market buying and staking INV for the period would achieve a similarly high return in INV terms. With a lower APR for naked INV exposure (staking), the Policy Committee will trial focusing on these longer maturity bonds (28+ days), as logic suggests that the longer maturity bonds attract more genuine investors to the DAO rather than marketplace arbitragers seeking a quick profit.
Market Reaction: INV Inflation Measures
It is important to note that INV’s market cap has performed quite well when compared to other stablecoin DAO competitors in DeFi. Data taken on December 29th comparing market cap drop from a few competitors show:
| June 29 | December 29 | % Drop | |
|---|---|---|---|
| LQTY | 75.2 | 52.7 | -29.9% |
| QI | 19.4 | 7.1 | -63.4% |
| ALCX | 31.6 | 23.2 | -26.6% |
| FXS | 333 | 315.6 | -5.2% |
| MKR | 817.8 | 469 | -42.7% |
| SPELL | 92.8 | 57.2 | -38.4% |
| INV | 11.2 | 8.3 | -25.9% |
The median (excluding INV): -34.1%
The mean (excluding INV): -34.4%
With upcoming product and partnership announcements, setting up an environment that does not threaten to dampen positive momentum is beneficial to the DAO. This is as a more favourable market performance of INV token:
- Allows for deeper liquidity to be incentivized using less INV, meaning larger lending capacity for FiRM
- Larger revenues from bonding using less INV
- Increased retention of core contributors with a vested interest, and stronger attraction in contributor recruitment process
To prepare this environment, the Policy Committee is trialing a 66% reduction in monthly bond emissions, with the starting focus solely on the 28 day DOLA bond. In addition to this, the TWG is executing a new strategy that aims to significantly reduce new INV emissions during liquidity management, without losing significant TVL; this is achieved via utilizing the many tools and protocols at the TWG and Fed Chair’s disposal. These planned actions will allow 2023 to start with a significantly reduced inflation rate to the circulating supply of INV token.
The situation is constantly monitored, and the intention would be to increase the INV spend again further down the line when it’s of greater benefit to the DAO.
Other Business
Claim the INV from Nour’s deprecated vester, which has now expired. The INV in this contract (3,333.34) will be sent directly to the DAO Treasury on claim.
On-Chain Actions
- Mint 50,000 INV to DAO Treasury
- Set INV Staking Contract INV allowance to 40,000 (this allowance is what allows INV to flow from the treasury to INV stakers)
- Set Policy Committee INV allowance to 12,000 (to facilitate Olympus Pro bonding program)
- Claim Nour’s deprecated vested INV.