Popsicle Finance Tokenomics Proposal
The Reasons for a Token
The Popsicle Token (ICE) has three main functions:
- Governance
- Utility
- Community alignment
Let’s walk through exactly what these three functions mean.
1) Governance
A token that allows holders to govern the network is the key to making that network decentralized. It is the means of decentralization.
Decentralization is not simply about distributing the decision-making power of a network, but about making sure those who possess the power also have a stake in the overall performance of the network. That’s why a governance token is a perfect synergy; the quantity of ICE a user holds correlates to the weight of that user’s vote. It incentivizes best practices.
With the cross-chain Governance Portal we have built, we are on a strong path to genuine decentralized governance.
There is an added bonus to such a governance token. Rather than decisions coming from a central authority, or someone who is unfamiliar with the real usage of the network, a governance token is held by those who use the network. So not only does stake align with decision, but decision aligns with usage; this means that those making decisions are the ones who understand the product, and know what features would improve it.
2) Utility
Governance votes will choose how best to utilize the token within the ecosystem. The token must, therefore, represent utility. In this sense, the token is the fuel of the entire Popsicle Finance ecosystem.
3) Community growth and engagement
The token acts as a way to grow and engage the Popsicle Community.
Yield farming means that you can draw new users and community members to a project by token emissions. This is something we experienced with our IFO; and, without the token, we would not have been able to create the engaged and growing community we have today.
There is, however, an asterisk *. If you need to constantly incentivize your users with free/discounted tokens, then it probably indicates a problem with the product. For example, Uber may have given its first rides for free to incentivize the adoption of the product, but then stopped when usage and interest grew. The same is true for us — while it is an important part of our growth, we do not plan to emit tokens to our users and community endlessly.
We need to make sure the product fits the market. Three successful products to look at, which have adoption but no incentivization by token emissions, are: Yearn, MakerDao, and CREAM. The first two are also fee capturing protocols.
The bottom line:
The token is here to encourage incentivization of usage of the product, in order to grow our community, to benefit from market insights, and ultimately run the project in order for the user and the project to benefit in a long-term win-win scenario.
Tokenomics: an overview
What is the best token model for Popsicle?
If we look at the history of tokenomics, we can see that most projects follow the Bitcoin model. But a token for a project that is not a store of value should not follow the tokenomics for a token that IS a store of value (Bitcoin).
Bitcoin tokenomics work around: a) a fixed supply of tokens and, b) a set inflation rate. This is based on the original intent of the product acting as digital cash.
A project that generates yield is very different, and so the tokenomics should reflect that.
Remember, the ICE token is used for the following: governance, utility, and community engagement. ICE is more than a store of value. A governance and utility token incentivizes growth, product changes, and upgrades; it will be a flexible network, and the tokenomics should reflect that. Therefore, we do not believe a fixed supply and fixed inflation rate is something we can stand by, especially given that we are only two months into the project. We are innovating, and want to remain flexible.
The downside of fixed supply and inflation:
- It forces a prediction of token usage.
- It may be irrevocable.
- It focuses price of the token on inflation, rather than usage.
- As a project evolves, fixed supply gives only initial users voting power.
For us, the project is successful if we have a large volume of users, a high TVL, and, most of all, a high % of the AMM market share.
Popsicle Finance Team Tokenomics Proposal
So how can we translate this into the tokenomics?
A dynamic inflation rate aligns with our project goal: mainly, to enable constant growth, and capture greater AMM market share. Ultimately, we want to make sure that the cost of inflation, which is the incentivization cost by token emission, is lower than the fees generated.
As a formula, we can put this as:
Or the overall goal can be looked at as the following formula:
In practice, this means we will know more about our inflation rate after Sorbetto is released. We can then optimize the rate to align with our goals: to gain a large market share, whilst at the same time ensuring the fees generated are more than the cost of incentivization. The end goal here is to have no need for incentivization at all. The fees and subsequent incentivization emissions are simply a bonus.
Next Steps:
Popsicle Finance has already achieved its initial goals of:
- Creating a very strong, engaged community.
- Beginning the adoption of fUSDt.
- Market exposure — a lot of teams are reaching out to us for collaboration.
The incentivization could, in theory and practice, now be turned off.
Looking ahead
The goal of Sorbetto is for users to deposit funds and optimize yield for LP providers. Once Sorbetto goes live, we would start with the same emission rate as we did for Round One of Popsicle launch. That’s the benchmark; from there, we can assess the balance of factors between the cost of incentivization against the fees returned. For example, if we are spending too much in comparison to the growth of the market capitalisation, inflation gets reduced. Equally, if the fees generated by the protocol are high, then a cap can be implemented, until the project feels that there is a need for incentivization of either a new product, or to add further growth.
Remember that the reward is not ICE, but the yield you make with the tokens you provide for LP.
The process of changing emissions:
Every 3 weeks, we change the emissions and see how the change affects usage and market share. This will be a process of discovery in order to see what rate gives us the correct balance of AMM market share and lowest possible costs. We expect to find the optimal formula within 6 months.
The proposals of increasing or decreasing emissions will be done via the governance dashboard. True to our vision of making a truly decentralized network, we think that it makes sense to put a bounty out for teams to attempt to make calculations about the optimal formula.
Like what you have read so far? If so, visit our Governance Portal to support the proposal.
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