Introducing the APY Token
Details on the APY governance token and liquidity mining rewards
Summary
In our first article, we outlined the APY.Finance vision. Our mission is to democratize yield farming by making cutting-edge strategies just one click away. The APY.Finance protocol pools liquidity together and routes funds in a single transaction, thereby reducing gas fees for all. We envision such a protocol to be community-owned and parameterized via the APY.Finance governance token, APY.
Today, we share our roadmap on how we plan to make this vision a reality. To start, we break down our decentralization roadmap into three distinct phases. Each phase will grant APY token holders more and more control over the platform and thus the power to deploy the underlying liquidity into DeFi protocols. From fee capture to initial risk scoring to full-on strategy proposal implementation, the design of strategies and management of capital will be 100% community owned.
Finally, after listening to our community’s concerns on Telegram/Discord about having a fair distribution, we are announcing today our Liquidity Mining Rewards program. Our goal is to bootstrap a large and diverse user base, and we aim to get the APY token into the hands of early supporters who will participate in protocol governance. Jump to the end of the article to read more about these rewards.
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APY Distribution
- Valuation: $13.5mm
- Total Tokens: 100mm
- Circulating Tokens: 8mm
- Team & Advisors (vested): 20.0%
- Seed Round (vested): 20.0%
- Reserved for Strategic Investors (vested): 16.5%
- Public Liquidity Mining Rewards: 31.2%
- Community Initiatives: 12.3%
We have made it a core mission to ensure that the APY token holder base is large and decentralized. With that in mind, we are allocating a total of 43.5% of token supply for public rewards and initiatives. The Public Liquidity Mining rewards announced today will be a crucial first step towards achieving that goal.
Our team is also committed to the long-term success of the APY.finance protocol.For transparency’s sake, the team has adopted a 4 year vest (1-year cliff, 3-year linearly vested). All seed and strategic investors are also aligned on a 1-year vesting schedule with 9c and 13.5c cost basis, respectively.
APY Token Functions
We divide our roadmap and APY token functionalities into three distinct phases of decentralization. The APY token has the power to direct millions of dollars in its underlying liquidity pools to any DeFi protocol. In light of that, we must carefully roll out functionality in a way that empowers our community but still maintains incentive alignment.
Stage 1: Updating system-wide parameters
Upon alpha launch with its initial set of strategies, APY token holders will be able to vote and change system parameters such as fees, risk score, rebalance thresholds.
Fees: while the initial iteration of the APY.finance protocol will have 0% yield capture for token holders, the community will be able to propose what percentage of yield generated will go to APY token holders for maintaining the protocol. One interesting proposal from a community member suggests not a fee on yield return but on gas saved. As the protocol’s economies of scale grow, so will the gas fee savings on a per-user basis. Even a transaction cost divided by everyone plus a small flat fee paid to token holders would be less costly than executing the same transaction on your own.
Risk Score: every strategy proposed and implemented will have an associated risk score. APY token holders decentralize risk assessment by proposing and pushing risk score updates as the landscape changes. Such changes could be motivated by new developments or even just a change in community risk perceptions due to the Lindy effect. These risk scores will then inform portfolio rebalancing, and system deposits can diversify across multiple strategies and thus perceived risk. Ultimately, the community will not only be able to keep the system up-to-date but can also tailor the APY.finance platform to their collective risk tolerances.
Initially, the team will seed these scores using an assessment framework that accounts for smart contract risk, financial risk and centralization risk. We look at the Aave and Consensys frameworks as ideal starting points.
Rebalance Thresholds: how big of a yield gain is necessary for our community to decide to switch strategies? Every yield farmer calculates when to reallocate capital and the costs and benefits of doing so. Usually, this is done by calculating the expected net yield of a new strategy against some internal threshold. For instance, to assess the attractiveness of farming the Curve sBTC pool, one might calculate the slippage and renBTC/sBTC fees and measure that against an expected yield threshold (and hence an implicit CRV price assumption). We let the community decide how aggressive or conservative this threshold should be for any given strategy.
Stage 2: Updating changes to existing strategies
As the system progresses and liquidity grows, the next phase will allow APY token holders to govern existing strategies with a UI reminiscent of furucombo. Users can add and remove steps in any yield farming strategy seamlessly without involving a Solidity engineer. When the proposal passes, the strategy will automatically be updated through the generalized architecture.
To share a more concrete example, take the case of Compound’s Proposal 11 where the optimal farming strategy switched from farming BAT to farming DAI. Because this involves a core strategy change rather than just a Stage 1 parameter change, the protocol will need to reroute liquidity. Any community member can propose an update to the existing strategy, which could be voted, passed and executed seamlessly by the APY.finance smart contracts. Similarly, a Balancer weighted ratio formula change or SNX rewards change (e.g. sETH reward pools wind down and you need to switch from Uniswap to Curve) can also be reflected just as quickly.
Stage 3: Proposing entirely new strategies
A core mission of APY.finance has always revolved around community-owned yield farming strategies. Once the system is sufficiently decentralized and stable, APY token holders will be able to propose new strategies entirely and influence the deployment of billions of dollars into various DeFi protocols. Not only do incentives like performance fees for new strategies need to be carefully considered but also, we must model the game-ability aspect of routing liquidity in such a versatile manner. Ultimately, though, this is truly the final vision that we are most excited about: an entirely decentralized all-in-one DAO for the new era of permissionless yield, forever operating on the Ethereum blockchain.
Public Liquidity Mining Rewards
Today, we are also announcing our public liquidity mining rewards program. After listening to our community’s concerns over DEX bots and fair launch distribution, we believe that starting the mining program now will give everyone a chance to accrue APY before the IDO.
Early supporters will earn APY tokens when they deposit into the APY liquidity contract. The team will snapshot and distribute tokens on/after TGE. In its current, most simple form, users will only be able to deposit stablecoin into the contract for APT tokens, which represent an IOU for their share of the pool (a la Curve.fi and Balancer).
While strategies are in active development, the APY liquidity contract is currently just a staging ground. When yield strategies are enabled during our restricted alpha launch, an increasing amount of deposited stablecoin will then be automatically unlocked to begin farming.
Stay tuned for more details in an upcoming article.
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