Hi ProtoFiers!
It’s been a while! We have been working hard over the past couple of months, and we are finally ready to share more details on probably our most anticipated and exciting update — the Gauge Votes & Bribes System.
As you probably well know, gauge votes and bribes, popularized by Curve, and extended by the likes of SpiritSwap and Solidly, have been an exciting narrative in DeFi, and a big reason behind the initial Solidly hype.
If you have been following our developments, you know we have been working hard on implementing this functionality for ProtoFi as well. Today, we are excited to announce we are now closer than ever to integrating our own Gauge Votes & Bribes System!
How Yield Farming Works
Before we get into it, let’s start with the basics. If you are new to yield farming, you may be wondering where the APRs on all the farms come from, what the pool Multipliers mean, and how the entire system works put together.
A yield farming protocol works on the basis of emitting a fixed amount of reward tokens per block. These are platform tokens — in our case PROTO and ELCT — that get issued to LP providers as incentives for them to provide liquidity on the protocol, so that swaps can be performed.
That fixed amount of emitted reward tokens per block is then split amongst all of the different farming pools listed. However, rewards are not always evenly split amongst all of the pools. Rewards usually get split between pools based on each pool’s Multiplier, which acts as a weight.
Let’s take a simple example. Let’s say we have an emissions rate of 10 PROTO per block, and 2 farming pools in total, each with Multiplier x1. Since they both have equal Multipliers, each pool receives 5 PROTO per block as rewards.
Now, instead of equal Multipliers, let’s see what happens if one pool has Multiplier x1 and the other pool has Multiplier x4. In this case, the total weight is 5 (1+4). The first pool will receive 1/5 of emissions — 2 PROTO per block, while the other pool will receive 4/5 of emissions — 8 PROTO per block.
Now that you understand how farming pools get their rewards, let’s look at what happens with each of the farming pools.
Once the rewards per block for a specific farming pool have been determined, those rewards will be distributed to each of the LP providers in that pool, proportionally to their share of the pool. So if your pool is getting 5 PROTO per block, and you have a 20% share in that pool, you will be earning 1 PROTO/block.
Introducing Gauge Votes
Now that you understand the mechanisms behind yield farming, let’s look at gauge votes, what they are, and the benefits they bring to LP providers.
Earlier we explored how rewards are decided for each pool based on its Multiplier. Now imagine that Multiplier, instead of it being an arbitrary number decided by the protocol’s team, could be decided by LP providers directly.
That is exactly what gauge votes are. They are a mechanism of allowing LP providers to directly vote on and decide which pools should receive a larger share of the emissions.
The way this works is by accumulating voting power. Voting power is usually obtained by locking the reward token for an extensive period of time — usually up to 4 years — and receiving a new, locked token, which is a representation of a user’s voting power. In our case, they would be locking PROTO or ELCT, and getting the locked token — veELCT — representing their voting power. Throughout the locking period, the veELCT would not be able to be sold.
The user can then use that voting power in every voting round — which is usually every 2 weeks — to vote for the farming pool where they have the largest share, in order to drive as much rewards to that pool, and maximize their farming gains. At the end of the locking period, they can unlock their veELCT back into PROTO/ELCT.
Let’s take a simple example for this as well. Let’s say we have a base emission of 10 PROTO per block. We have 2 pools, A and B, which are currently being voted on to determine their weights/Multipliers.
Before the vote, both pools receive an equal share of emissions. Farmer Bob has a 20% share of pool A, and currently receiving 1 PROTO per block as farming rewards.
Now, Farmer Bob takes his accumulated PROTO rewards, and locks them, receiving 40 veELCT. He then puts all of his 40 veELCT votes on pool A. Meanwhile, all other users use their veELCT to vote for pool B. However, everyone else only locked a small amount of their rewards, and managed to accumulate 10 veELCT in total.
The final votes are in. Pool A received 40 veELCT votes, while pool B received 10 veELCT votes. This means that pool A will now receive 40/(40+10) = 4/5 of PROTO emissions, while pool B will receive 1/5 of PROTO emissions.
Due to Farmer Bob locking most of his existing rewards for veELCT, he is now earning 1.6 PROTO per block instead of 1 — a 60% increase. Nice!
Gauge votes introduce a number of benefits to the LP providers and protocol:
- LP providers can use their voting power to further drive additional rewards to their pools, in order to increase their farming yields.
- A significant amount of selling pressure is relieved from the farming token. Being inflationary, farming tokens usually tend to constantly go down in price if there is not enough utility to them, driving down the net yields farmers earn. With gauge votes, the more the farming token is locked for voting power, the less selling pressure there is on it, which is a great benefit for farmers.
- This system allows other protocols with deep pockets to join the yield farming protocol, and accumulate valuable voting power. This provides deep liquidity for the yield farming protocol, and gives further value for the partnering protocol holding voting power, which is value-added for the partner’s users. This is exactly the type of relationship formed by partnerships such as Convex-Curve, Solidex-Solidly, etc.
Bribes? Yes Please!
The fun isn’t over though! Now that we have explained gauge votes, it’s time for bribes to come into play.
Now, instead of just voting for their own pool, what if users could be incentivized to vote for other pools? Say a new protocol comes along, and they wish to build up high liquidity on ProtoFi for their native token, to enable high trading volumes. What if they could incentivize veELCT holders with large voting power to vote for their pool instead, by giving them additional rewards for doing so?
That is how bribes work in a nutshell. Anyone can add extra rewards to any pool they wish to incentivize veELCT voters to vote on. For example, Protocol X could come along and provide 1,000 FTM as bribes on their X-FTM pool, incentivizing veELCT voters to vote on their pool. Voters that vote on that pool would all share the 1,000 FTM, proportional to their share of the votes on that pool.
This introduced yet another benefit to veELCT holders — even more rewards as bribes. It also puts even higher value on veELCT voting power, incentivizing even more LP farming, and locking of the reward token instead of it being constantly sold off. Finally, the partnering protocol offering bribes is able to achieve the high liquidity they were after, providing value for its users.
As you see, gauge votes and bribes are a win-win-win self-reinforcing system, that creates a healthy ecosystem for the yield farming protocol, its users and its partners.
ProtoFi Gauge Votes & Bribe System
Now that we have fully explained the backgound on gauge votes, bribes, how they work, and all the benefits they bring to a yield farming protocol, let’s see how ProtoFi’s system will work exactly.
Here is a sneak-peak preview of how the ProtoFi Gauge Votes & Bribe System will work:
DISCLAIMER: All details are subject to change while the system design is being finalized.
- You will be able to obtain voting power by locking both PROTO and/or ELCT
- The locking period will range from 1 month to 4 years — exact locking options will be announced soon
- Locking either PROTO or ELCT will result in veELCT
- Locking ELCT will result in more veELCT voting power than locking PROTO (assuming equal locking period) — exact numbers will be announced soon
- Aside from veELCT, locking ELCT will also result in lockedELCT, at a 1:1 ratio, regardless of the locking period, which will be used for staking in Fission — same as ELCT
- Similar to Curve/Solidly, a bribing system will be implemented so that bribes can be used to incentivize votes towards certain pools
Some variables, such as voting frequency, locking options, and ratios of veELCT issued by locking PROTO/ELCT are still under internal discussion, and will be discussed in a later article. Furthermore, the system may be deployed in stages, with gauge votes coming out first, then bribes at a later point.
Our new system will be a major boost for existing PROTO & ELCT holders, giving further value and utility to both tokens! Those with veELCT voting power will not only be able to drive emissions towards their favourite pools, but also be rewarded handsomely by future protocols and partners deploying bribes to incentivize votes going towards their pools.
Moving forward, once the system is live, our next step will be focusing on establishing quality partnerships, with the main goal being, as always, of benefiting our community, boosting our Treasury, and providing maximum value for PROTO & ELCT holders.
We have all seen the synergistic effects partnerships like Curve-Convex can have, and we will focus our efforts on replicating their successes, and turning ProtoFi into the next hot thing in town on Fantom!
Finally, we would like to thank our investors, ELCT holders and our entire community for sticking with us through the current market downturn, which must be hard on a lot of us. Your continued support and show of faith in our team is humbling and inspiring, and only serves to strengthen our resolve to carry out our vision for ProtoFi which we all share.
Stay tuned for further updates!
