Discussion For Improved MPL Tokenomics – veCRV Model

Written by Regan Bozman and Pierre Chuzeville from Lattice.
Disclosure – Lattice holds positions in Maple

Over the last few weeks, the Maple team has drafted some interesting proposals around MPL tokenomics. It has been clear that the Maple protocol needs to deliver more utility to holders and ensure that all participants can benefit from using it on the platform.

Recently, the community approved a first update ([MIP-008], and the team aims to implement these changes for launch in May.

As a reminder, the three changes are:

  • Introduction of xMPL and the use of establishment fees to buy back MPL and transfer to xMPL holders
  • Enabling tokenized assets to be deposited single-sided as Pool Cover
  • Token distribution ratios for the new Solana token ‘SYRUP’

Even if the team wants to see how effective the xMPL and Single Sided Cover are in attracting depositors to Pool Cover before adding in additional complexity, we think it’s worth engaging community members to discuss the implementation of the veCRV model.

Curve enables CRV holders to vote to lock their CRV into the Curve DAO to receive veCRV. The longer they lock for, the more veCRV they receive. Vote locking allows you to vote in governance, boost your CRV rewards, and receive trading fees.

The critical reason that CRV outperformed the rest of DeFi in 2021 is that 25% of the circulating supply is locked up as veCRVand therefore unable to be sold (tokens can be locked up for up to four years).

We are convinced that instead of replicating the very same mechanisms, Maple should consider its specificities and implement a revisited version of the veCRV model to get the most out of it. This is what we have been working on.

We have been focused on two significant modifications:

(i) UMA KPI options
(ii) A user reward multiplier

(i) UMA KPI options to encourage early stakers

KPI options are synthetics that give more rewards when a project reaches its predetermined KPI targets before a given expiration date.

Naturally, every KPI option holder is incentivized to overperform and improve the KPI, because it will accrue the value of their option.

By doing so, token holders’ interests are aligned with the ones of the protocol.

You can learn more about KPI options here.

Here, the metric we focus on is the amount of xMPL (introduced by MIP-008) locked in the staking contract, and the equations could be as follows:

  • If at least xxM (depending on early traction) MPL is staked by the agreed snapshot date of xx/xx/2022 (depending on launch date), the xxM KPI options will convert to xxM MPL, distributed to all KPI option holders shortly after the snapshot date.
  • If xxM MPL is staked, the xxM KPI options will convert to xxM MPL.

If xxM or more MPL staked KPI is hit by xx/xx/2022, you can get xx MPL per every KPI option a token holder has been airdropped.

The eligibility criteria for the KPI option airdrop is elementary – a user would just need to hold MPL by a specific date. The number of options received will follow a pro-rata rate to the share of MPL they have versus the total.

UMA KPI options are great because the treasury does not need to spend funds unless the objective is met while encouraging as many people as possible to stake.

If such a proposal passes, a certain amount of MPL from the treasury should be moved out to be used as collateral to mint the KPI options, as specified in the official guidelines.

(ii) Apply a user reward multiplier (similar to Badger Boost)

What Curve has implemented with the vote locking is excellent as it creates additional utility for the token.
Many protocols have been working on similar models with slight edits because such a system can bring a lot of complexity to tokenomics. Intending to cut out as much complexity as possible, we think applying a user reward multiplier, inspired by Badger Boost, is very interesting.

The principle is straightforward – the higher you “boost,” the higher percentage of the reward pool you earn. Users can earn more rewards based on the value of the token staked relative to the value of their deposits (in that case, in BTC) in the platform. The calculation works as follows:

[$ value of BADGER Balance + $ value of DIGG Balance] / [$ Value of non-native staked sett positions]

With that system, users are incentivized to stake the rewards they earn to get a much higher return.
For Maple, what you get by lending would be boosted by the amount of MPL you stake (relative to the amount you lend). The formula is, once again, pretty simple:
[$ value of MPL staked] / [$ value of assets lent across all pools]

For example, Alice has $10M USDC to lend across pools and $1M worth of xMPL, while Bob has $1M USDC to lend across pools and $500k worth of xMPL.
Alice would receive a lower boost (1M/10M = 0.1) than Bob (500k/1M = 0.5), but Alice, by lending ten times what Bob is lending, would receive more MPL. Bob would get a higher ROI relative to what he is lending though.

The idea behind these proposals is clear – we want to increase the usage of MPL by giving community members more reasons to own and hold MPL.
These first proposals intend to lay the foundation for further discussion with community members, and so we are very interested in getting feedback to work on these as a collective.

Thank you for the contribution. I particularly like the incentivization of staking to add greater utility to MPL a la the curve model and hope the community pushes in this direction.

With respect to option payouts, I am reminded of large growth-fueled stock-based compensation schemes that dilute existing shareholders. As you know in tradefi there is limitless ability to issue stock, whereas Maple has capped MPL issuance to 10m. Is the intention to balance the above incentive scheme with a buyback and thus limit dilution in year one?

It’s important to balance rewarding existing holders with preserving treasury assets for future growth/incentives. In particular, if Maple is to really expand outside of the prime brokerage space with new products, it will need growth capital to do so, and so my key concern would be the burning of too much treasury capital on long-dated option commitments.

In my opinion in the ideal case the changes to MPL tokenomics should ensure two things

  1. That MPL utility increases with increasing adoption of the protocol
  2. That MPL liquidity flows back into the protocol and serves an economic purpose

A curve model with staking and MPL buyback and/or reward multiplier is a good way to ensure that MPL utility increases with increased adoption.

However, the MPL liquidity locked up in staking will fulfill no economic role, unlike MPL that is used as pool cover. I believe the main reason MPL is not having great utility right now is because staking as pool cover is not attractive and there is no system in place to ensure that risk-adjusted returns are balanced between lending and providing pool cover. Currently pool cover generates barely more APY than lending while facing a much higher risk of wipeout.
The concept of pool cover in theory is quite ingenious as it basically allows the protocol to underwrite its own products, improving risk-adjusted returns for LPs, so it shouldnt be abandoned so quickly.

Some suggestions for making pool cover tenable:

  1. Limit the extent of liability for stakers (not for pool delegates). That is, limit the liquidation that pool stakers can face (e.g. a maximum of 25% of staked pool cover can get liquidated) or make the liquidation proportional to the losses incurred by lenders (e.g. for a 10% loss of lenders 20% of pool cover gets liquidated).
  2. MPL rewards for a pool should be split between lenders and stakers algorithmically based on distance to the target.
  3. Pool cover should be payed out in MPL not in the pool currency or stablecoin. As long as staked MPL needs to be backed by USDC it does not provide additional liquidity to the protocol (because the USDC could also have been invested into the protocol pools directly). Perhaps this is coming with single sided staking anyway?

Once pool cover becomes an attractive investment it ensures that MPL buying pressure increases with TVL and that most of MPL flows back into the protocol.