vePLN: Boosted Rewards, Pro Rata Rights, and Governance

Authored by Doug Crescenzi, Jaime Fernando Delgado Saa, and Michalis Christofi

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Pollen provides a fully decentralized asset management protocol ushering in the next evolution of DeFi. Pollen introduces two new assets to the Avalanche ecosystem and soon the Ethereum ecosystem: the PLN utility governance token and the voter escrow governance token (vePLN). PLN token holders can create, manage, or delegate to virtual portfolios in order to earn rewards as well as play a role in governing the Pollen DAO.

Concerning the focus of this article, PLN token holders have the option to lock their PLN tokens in return for vePLN tokens. Users that lock their PLN tokens receive boosted rewards as well as pro rata rights in order to prevent dilution.

Let’s take a closer look.

How Does It Work

You’re probably asking yourself, “Why should I consider locking up my PLN in return for vePLN tokens?” Users that opt to lock their PLN tokens in return for vePLN tokens receive three main benefits:

1. They receive boosted rewards based on the performances of their virtual portfolios
2. They are guaranteed pro rata rights so they are not diluted as new PLN tokens are minted; pro rata rights are adjusted as a percentage of the circulating supply
3. They are entitled to governance rights in which vePLN token holders can issue and vote on Pollen Improvement Proposals (PIPs) in order to improve the protocol

The rate of boosted rewards and voting power are increased the longer users lock up. At the same time, the rate of boosted rewards and voting power decays over the term of the lock. This incentivizes users to extend their lock-up periods so they can maintain higher rates of boosted rewards and voting power. The Pollen protocol gives users the option to add more PLN to their lock-up whenever they’d like in order to again increase their boosted rewards and voting rights and thus offset the decay. In this way users express long-term confidence and support in the protocol and are rewarded for doing so.

Boosted Rewards

When PLN token holders create, manage, or delegate to virtual portfolios, they earn rewards if their virtual portfolios perform well relative to our market benchmark. For the market benchmark we are tentatively using the AVAX/WBTC token pair which retains a correlation to the CCi30. We sought to limit the number of tokens in the benchmark so as to not let gas fees confound the data.

Concerning the CCi30, it “is a rules-based index designed to objectively measure the overall growth, daily and long-term movement of the blockchain sector. It does so by tracking the 30 largest cryptocurrencies by market capitalization, excluding stablecoins. It serves as a tool for passive investors to participate in this asset class, and as an industry benchmark for investment managers.”

The boosted rewards that Pollenators receive for locking up their PLN in return for vePLN is a percentage of the increase to the rewards they’ve earned. The boost or extra rewards are received when rewards are claimed. That is, when Pollenators rebalance or close their virtual portfolios.

The protocol gives more rewards to users who lock their PLN for longer periods of time compared to those who lock for shorter periods. Therefore, if a user stakes the PLN for 4 years the boost in the first year will be higher than the boost in the fourth year.

The rewards are symmetric for users whose virtual portfolios perform well and those whose virtual portfolios perform poorly. Users with virtual portfolios that perform poorly will see less of their PLN burned and those with well-performing portfolios will see an increase in the rewards that are distributed to them. With that said, as more PLN tokens are locked and more vePLN is minted, the rate of PLN rewards that will be issued decreases so we don’t exceed the protocol’s supply curve described in the Pollen lite paper. Further, the rate of the boosted rewards decays inline with the decay associated with voting rights over the term of the lock-up.

If we assume the reward for a user’s performance enables them for Ri,t reward at time t then the proposed increase would be given by the following where t l is the time left for the PLN to be unlocked and t max is the maximum allowed locked period (4 years in our case), vePLN is the amount of PLN that the user has locked and supplyS(vePLN) is the total supply of vePLN at the point where the reward/penalty is issued:

Similarly for reduced penalties we will follow the following formula where t l is the time left for the PLN to be unlocked and t max is the maximum allowed locked period (again, 4 years), vePLN is the amount of PLN that the user has locked and supply is the total supply at the point where the reward/penalty is issued:

Pro Rata Rights

In addition to the boosted rewards, vePLN token holders receive pro rata rights. That is, as new PLN is minted, vePLN token holders are not diluted relative to the current state of their lock.

The formula we use is inversely proportional to the time left for the PLN to be unlocked. This is informed by Curve’s approach articulated in their whitepaper. This coincides with the voting power a user gets with vePLN. The closer the vePLN is to the unlock date, the less voting power a vePLN token holder will have.

Again, as soon as PLN is locked in the protocol, the amount of PLN that can be minted for rewards has to be capped by the percentage of the PLN that is locked. This is to accommodate the pro rata rights vePLN token holders are granted. Meaning if 0% of the token supply is locked then the yearly emissions upper bound can stay as is. But if 50% of the token supply is locked then the upper bound has to decrease to account for the supply.

For example, assume total supply is 100M and 50% of the PLN tokens are locked. Also assume that the estimated inflation for the year is 5% (i.e., 5M new tokens minted). Assume also that the cap on tokens is 3M. Of the total of 103M tokens, vePLN should account for 5% which means 150K Tokens should go back to vePLN holders and the remaining will be used to reward users for the performance of their virtual portfolios.

If the upper bound is never hit then the way we reward for vePLN is the following:

The protocol is obligated to first accommodate the pro rata rights of vePLN holders that have locked up their PLN to ensure they are not diluted. It then processes rewards for the remaining PLN holders with well-performing virtual portfolios.

Voting Rights

Now let’s take a look at how vePLN tokens empower Pollenators with voting rights.

Rather than using the amount of tokens locked as voting power, the Pollen DAO assigns the voting power in relation to the amount of time that the user will be committed to the platform after voting for a proposal. That is, a user should be willing to confront the outcomes of the proposals for which they are voting.

Voting power is designed to be a combination of the amount of PLN tokens locked and the remaining time in the lock-up for those tokens. This represents and directly models the level of commitment that users with voting rights have when it comes to governing the protocol. This idea stems from the Aragon Minime Token, later modified by the Curve team for their protocol:

The curve shows the voting power (w) decreasing linearly with time such that the less time remaining on a user’s vePLN lock-up, the less voting power they preserve. Users have the option to lock-up more PLN at any time and ultimately maintain their voting power.

Issuance Curve

The issuance curve is defined as a piecewise linear function with three segments. The first segment has a higher slope to incentivize early adopters. Each segment is a linear function where ai is the designated slope for the year i:

The current implementation allows selecting the parameters (a and b) for the first 1400 days in periods of 365 days by the admin or through governance with the sole restriction that there should not be more than 200M tokens before 1400 days.

Given a particular rate of boost on rewards, this implies a vertical shift in the actual supply. This is only for visualization as different users will likely have different boost rates depending on the amount of time that they lock-up their PLN tokens.

Contract Architecture

Let’s take a closer look at how the vePLN token works at the contract level. It may be helpful to review how the Pollen architecture works before doing so.

• PLN Token: The PLN token has a collection of use cases. First, it is used to govern the Pollen DAO. Next, it allows users to create and actively manage virtual portfolios on the platform. If users outperform the AVAX/WBTC market benchmark then they earn PLN rewards. If their virtual portfolios perform poorly, a percentage of the PLN they’ve staked will be burned. Alternatively, users can delegate their PLN tokens to the best performing portfolio managers and share in the PLN tokens rewards. You can learn more about the PLN token here.
• vePLN: Pollenators can lock their PLN tokens in the vePLN token contract (i.e., LockedPollen.sol) by calling the lock function which accepts the amount of PLN users want to lock as well as the length of their lock-ups. The vePLN token contract then mints vePLN for the users with their corresponding LockInfo and holds their PLN tokens in escrow. vePLN tokens are non-transferable ERC-20s and represent the Pollenator’s voting rights. As mentioned previously, voting rights and the boosted rewards decay over the period of the lock-up. That is, users must continue to extend their lock-ups in order to maintain higher-levels of boosted rewards and increased voting power. Here’s the vePLN token’s interface:

ILockedPollen.sol

• Portfolio / Boosted Rewards: Pollenators use the Portfolio module to create, close, and rebalance their virtual portfolios. If they are staking their virtual portfolios with vePLN then they receive boosted rewards based on the performances of their virtual portfolios. Further, they are guaranteed pro rata rights so they are not diluted as new PLN tokens are minted.
• Supply Control: The Minter module handles supply control and calculates the rate of boosted rewards to mint when a user wishes to withdraw their vePLN. To calculate the rate of boosted rewards, the Minter module interfaces with the vePLN token contract (i.e., LockedPollen.sol) contract and calls its getBoostingRate function.

This architecture is lightweight, modular, and provides a great deal of flexibility. It will enable the Pollen community to further enhance and decentralize the protocol over time.

Conclusion

The Pollen DeFi protocol addresses the $4.3 trillion market in the traditional finance world with a decentralized solution that unleashes the next generation of DeFi.

The Pollen protocol and its vePLN token model rewards users for locking up their PLN tokens for extended periods of time. Users that opt to lock their PLN tokens in return for vePLN tokens receive three main benefits:

1. They receive boosted rewards based on the performances of their virtual portfolios
2. They are guaranteed pro rata rights so they are not diluted as new PLN tokens are minted; pro rata rights are adjusted as a percentage of the circulating supply
3. They are entitled to governance rights in which vePLN token holders can issue and vote on Pollen Improvement Proposals (PIPs) in order to improve the protocol

Token holders that lock-up their PLN tokens express their confidence in and commitment to the protocol.This in turn fosters a healthy ecosystem in which incentives are aligned and the protocol is well-positioned to succeed over the long-term.

About Pollen DeFi

Pollen DeFi, is a first of its kind decentralized asset index where the community holds all the power. Decentralized finance is designed to be by the people, for the people, and Pollen DeFi is acknowledging this by building the first, truly decentralized platform for managing tokenized asset pools. The merit-based DAO provides a reputation-based governance protocol with incentives that leverage the community’s collective wisdom to curate asset pools. In this system, all users of the platform stand to benefit from the contribution of the best-performing participants.

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