PowerPool: a solution for accumulating governance power in Ethereum based protocols

Lincoln: a house divided against itself cannot stand

Abstract

Governance tokens have a massive impact on the Ethereum ecosystem playing a vital role in the operation of protocols in the billion-dollar Defi industry. Now the minority token holders can extract minimal utility from such tokens for two reasons (1) they cannot influence the votes (2) the significant share of such tokens don’t provide any income. As a result, the fundamental value of such tokens for the minority holder is close to zero, and protocols face voters’ apathy problem. The PowerPool is a protocol, offering a convenient solution for pooling governance tokens. It allows the token holders to lend, pool, borrow governance tokens, get income from that, and accumulate governance power in protocols based on Ethereum. The PowerPool’s mission is to expand the utility of governance tokens to the end-users and provide a new level of coordination of decision making in the Defi ecosystem.

Introduction

The decision-making is playing a central role in everyone’s life. No matter how serious decisions you make, you are personally affected by many choices of other entities like governments, corporations, financial institutions, and many others. Despite the democratic nature of developed societies, all of them de-facto are governed by influencers of different types — corporations, syndicates, and people with political influence and colossal capital.

The crypto industry and, in particular, the DeFi space is considered to be even more democratic and decentralized in decision-making and value distribution. On-chain governance mechanisms are regarded as a holy grail to make our industry sustainable and resilient. Recently it became evident that Defi in 2020 de-facto develops under the slogan “everyone gets a governance token” (from now “governance token” = GT). No doubts, a lot of crypto users are involved in dozens of “governance experiments” now with varying degrees of quality. Even third-tier and almost dead scammy ICOs try to become a “Defi startup” and introduce a governance token.

The main difference of nowadays hype from the previous ones (like ICO’s bubble) is that some platforms have dozens of thousands of users and billions of dollars of cumulative locked capital. So, governance questions become especially important when we are talking about vast amounts of money. These tokens are not useless (as they were in the ICO epoch) and play a vital role in the ecosystem. The total capitalization of governance tokens can be assumed as ~3–4 bln USD, and it snowballs. It is possible to make a bold prediction about the $25 bln valuations at the end of 2020.

The main question that arises here is the real monetary value of such tokens for different groups of stakeholders. If there is a significant economic activity on the protocol, the possibility of governing is valuable.

The issues related to governance tokens

Digging deeper into the design and practical implementations results of governance tokens, some issues are evident:

1. The minority stakeholder (token holder) cannot influence the vote as often whales de-facto run it[1]
2. The majority of the governance tokens don’t have any cashflows, arriving at a token holder

As a result of both mentioned issues, seems that industry as a whole face severe consequences:

1. The fundamental monetary value of such a token for the minority shareholder is close to zero (of course, it is a point for discussion)
2. Almost 100% of protocols governed by token holders face Voters Apathy (a well-known on-chain governance problem)[2]

An accumulation of governance power and Influence Farming

We developed an experimental protocol that probably can help to solve mentioned issues providing specials services for the holders of GTs:

• An accumulation of governance power (by many minority token holders)
• Influence Farming

According to our vision, it will empower minority token holders, provide an additional utility for GTs, and as a result, contribute to the robustness and maturity of the Defi ecosystem.

We named it the PowerPool. It allows holders of GTs to:

• pool GTs — to accumulate governance power (pool the Power!) in one place
• lend GTs — to earn additional GTs by lending GTs. The interest rate is paid in the base asset (the governance token itself), so we introduce a new term - Influence Farming
• borrow GTs — to get additional leverage in votings
• coordinate the use of GTs — to use PowerPool as a platform for collecting GTs and voting in coordinated regime

In the next sections, we will describe the vision, implementation, and bootstrapping process of the PowerPool.

PowerPool protocol in a nutshell

The PowerPool is a lending protocol for the governance tokens, such as COMP, BAL, LEND, YFI, BZRX, AKRO, and many others. It is important to note that currently, PowerPool is targeted on the Defi market as the hottest one, but generally is not limited to it and can serve for pooling any other governance tokens in the Ethereum ecosystem.

The PowerPool is based on a simple lending model, close to Compound’s one from the first sight. Every holder of GTs can supply liquidity into a contract and get the interest rate if there is a demand. Any person on the market can borrow GTs placing allowed digital assets as collateral. Currently, we plan to add ETH, wBTC, and DAI as collaterals for borrowing governance tokens. On the other hand, it has certain upgrades, and the particular set of oracles developed to form price feeds of highly-volatile assets such as GTs.

Talking about the economic nature of GTs, they are unique assets in the context of lending/borrowing mechanics. The utility of GTs is not constant in time (comparing, for example, with payment tokens such as stablecoins). Talking strictly, it appears only during voting. Our vision is to introduce a novel type of lending logic, which is not available by default in Compound or any other lending protocols but can be very suitable for GTs. We plan to cover it in the next articles.

Features & Advantages

The PowerPool offers the following advantages to the end-users and Defi protocols:

1. Influence farming. Users can earn additional GTs from their holdings. As a result, the stake of the user continually grows as the interest rate is paid in the same governance token.
2. Solution for the Voters Apathy. With the yield and LM as incentives, passive token holders will be motivated to pool their GTs in the PowerPool. With demand, these tokens will participate in voting, increasing the overall vote capitalization. With the lack of demand, tokens can participate in the vote even if nobody borrowed them according to PowerPool token holders’ decision.
3. Accumulation of voting power. The voting power, distributed across the thousands of minority token holders is useless. Now it can be concentrated in one place via the PowerPool and become a real force in the governance of protocols.

The protocol token specification

We introduce a native token of PowerPool protocol — the CVP (Concentrated Voting Power). It will allow the protocol governance (including code upgrades) to be transmitted to the active community and liquidity providers. It is a governance token, which has one brand new function, that is not presented in any Defi protocol, governed by token holders yet.

The token functions (voting on proposals regarding protocol operation):

1. Listing of new liquidity pools in the PowerPool protocol and allocation of liquidity mining rewards to them
2. Adding and removing collateral types in the protocol
3. Adding new lending logic to the protocol (now we consider fixed-term agreements and some other ones)
4. Upgrade and maintain the source code of the smart contracts

Additionally, CPV has one unique function that wasn’t present in other lending protocols before. It comes down to direct voting using remaining (unclaimed by borrowers) GTs in the PowerPool lending contracts. So, CVP captures value from the possibility to govern the PowerPool protocol itself and from the possibility to decide how pooled GTs will vote.

The CVP holders decide how unclaimed pooled governance tokens will vote at the every vote occuring in listed Defi protocols

The CVP token doesn’t have a pre-mine and has pure liquidity

The token metrics, as well as details of special token functions will be fully featured in the special article coming next days. All you need to know — you cannot buy this token now, there is no sale. If you found something listed at any DEX until the protocol is live in the Mainnet — it is a SCAM. The only option to receive tokens is participation in liquidity mining.

Roadmap and how to participate?

/updated on Aug 16

Due to the enormous amount of applications (we got more than 2000 requests in one week), we decided run three main stages to test specific functions in each round and allow more people to participate:

The Alpha round.

In the Alpha round, our testers will work with the protocol deployed at Matic mainnet. For safety reasons, it will be conducted with the test tokens — COMP, YFI, and LEND. During this phase, we will test the protocol’s operation in the Matic mainnet environment, correct work of all basic operations, and UI/UX. Matic tokens will be airdropped to all participating wallets using the grant, provided by Matic.

Alpha round is two days of intensive work, testing, and bug reporting. We will distribute 5% TTS in equal amounts to each person participating. We kindly ask all our testers to join in the protocol development during the testing round and right after it actively.

The main goal of token distribution during the Alpha round is to reward the most valuable community members and allow them to create pools on DEXes with deep liquidity ready to meet the community demand.

The Beta round.

During the Beta round, we will test the protocol using the real (not test) governance tokens. The main goal of the round is to precisely test oracles, liquidation procedures, and other tech features in Matic. The liquidity will be capped by several tens of thousands of dollars. The reward cap for this round is also 5% TTS with vesting.

The Gamma round.

The Gamma round is our last pre-launch round, which will be conducted in the Ethereum mainnet. During the Gamma round, our testers will test all protocol features, tested before but in Ethereum mainnet. The liquidity cap and reward allocation will be defined based on the results of the previous rounds. If they pass right, our current vision is to make a really high liquidity cap and distribute several percent of TTS (vesting applied) to approved liquidity providers.

The uncapped mainnet will be launched right after the Gamma round.

Subscribe to our channels: Discord, Twitter and Medium to stay tuned!

Links

[1] https://cryptoslate.com/makerdao-whale-with-94-voting-power-reduces-dai-stability-fee-by-4
[2] https://www.evanvanness.com/post/184616403861/aragon-vote-shows-the-perils-of-onchain-governance

Risk warnings

It is an experimental software built by Defi enthusiasts on a non-commercial basis. It is highly risky to put your money in the protocol until the security audit is successfully passed. The protocol is decentralized, free to use by everyone, and governed directly by its users. The developers, users, or any other entity are not responsible for possible effects of its usage, for example affecting the governance and operation of any other decentralized protocols. The CVP is a governance token distributed to the end-users of the protocol via liquidity mining and is not associated with any legal entity and doesn’t grant any rights or income. As there was no token sale, the token doesn’t have any initially defined price, and any deals with it are the responsibility of its holders.