Hi Klondike miners!
In an effort to improve the protocol and grow the value of KLON, we have previously mentioned some ideas which we believe would be beneficial for further expansion. One of such points was the idea for econ 2.0.
We were humbled to see so many community members reach out to us with ideas and their proposals to the draft. Let’s dive into all things inflation!
Let’s start off with why we and the community thought the changes would be needed. Continuous inflation of KLON is an incentive to provide liquidity and create liquid secondary market for synthetic assets. It could be seen as similar to how SNX bootstrapped the ecosystem with large staking rewards. It’s imperative to have it, and we see how subsidies in the real world are used to direct market participants and in turn influence consumer behaviour.
The current econ 1.0 as it was outlined at the start of Klondike, works just fine. We can’t tweak it beyond some small parameters, nor is there a need for it. For example, March 8 will have a planned 75% emission cut, see here. WBTC/KBTC pool will have 313 KLON per day as per reduction, and WBTC/KLON will have 685 $KLON per day — which stays the same.
Any important change would require a timelock as well as a community vote. Therefore, we want to make sure we explain our thinking process and openly discuss the protocol future with you — Klondike members!
About inflation / emission / subsidies.
Inflation is a directional tool. It amplifies both the moves up and the moves down. In our Basis Cash model variation, the stabilization fund captures the hype by piling up on reserves, which we have seen work great so far.
But it also can be seen as putting a cap on KLON growth because continuous constant inflation, in such a rapid manner, must have its limits.
It’s a thin line which is very subjective, same as the banks do it, and is not always so obvious at first. But some things in this design are more obvious. For example, the main token KLON must have more time sinks and thus be able to accrue more value. And that — we can do!
In all models to be considered, KLON is a growth stock in a way. It’s not a traditional revenue-accruing asset, it’s more than that. What is the value of a token if it secures a stabilization fund worth $8,000,000? Next to its governance and coordination value, KLON holders could potentially take this money. That’s about 20% of the current CMC. What is the value when new synthetics arrive, how much reserves would it accrue and create? A lot!
The above ideas are speculative, but after all, we all here are trying to design a modular and resilient economic system. This is for the good of the protocol.
So what’s the workaround?
Our initial idea was to introduce a second token for rewards, DROID — in light of the Star Wars meme where every Jedi has their droids. The model was to funnel selling pressure into that second asset and have KLON mature and grow. This is similar to how some of the Layer 1 projects made their gas tokens, so that the original asset could keep growing.
But there are some intricacies related to a new token.
- LPs might get scared that the reward is in some second-grade asset;
- It can over-complicate the system to the level where many participants are not sure what to do and simply leave the ecosystem;
- Potential issue of over-inflation essentially coming back.
This was the feedback we received from community members.
How the distribution would be done — in case the double model were to be approved — is quite simple to envision: give it to KLON stakers and LPs in the Boardroom. These are multiple ways to design this in a great way, fyi.
And then a few members asked us:
Why not implement the veCRV model?
Those who stay in the ecosystem for longer and lock up KLON for months to come, are able to enjoy higher rewards during positive rebases. That’s the model similar to CRV of Curve Finance. Also, the more synthetic assets are introduced, the more positive rebases there will be.
Similar to Curve Finance, higher incentives and growing product usage would stratosphere the APY, organically and sustainably.
But what about the times when there are no positive rebases? Firstly, the goal would be to have many a number of new assets where at least some of them would have enough hype to positively rebase. Secondly, veKLON would potentially be able to have a number of other perks:
- Higher voting power when it comes for gauge weights for synthetics;
- Getting a % of the positive rebases from the stabilization fund;
- Perhaps even some buyback powers and other forms of incentives…
This way the inflation could be high enough while not having any negative consequences for the market. The model has also proven to work with Curve, where unlike CRV with large investor premiums — KLON doesn’t have such a thing. Overall, Klondike could keep inflation very lucrative while not having secondary market negative effects. Balanced!
Based on the daily conversations with some of the community members and math people in our own network, we believe the veKLON model should prevail over the double token DROID model. The rough outline, we hope, is clear enough at this point. Next up is the concrete proposal with numbers — which can be put out for voting. Let us know what you think on the %!
Overall, the road from here is as follows:
- Inflation / emission are already scheduled for a cut, making the econ 1.0 healthier: twitter.com/KlondikeFinance/status/1367768723013074957;
- We are at the final stages of v2 of Klondike protocol;
- The model for econ 2.0 is being coded;
- Parameters for econ 2.0 will be decided by the voting later;
- New synthetic assets would be somehow distributed to KLON holders as bootstrap, which is the current idea community has in mind * TBD
We believe this push both for econ 1.0 and 2.0 will be a major step in the right direction. The appetite is to go for synthetic swaps, stocks in the future, and multichain trades… But when, ser? Oh, we are already coding it out.
