Understanding PowerPool’s CVP Token Model
DISCLAIMER: This document is aimed at giving readers a brief introduction to CVP’s token model. It is a working draft that is subject to change following community discussion and peer-review. A full paper will be released at a later date.
PowerPool is a protocol offering a convenient solution for pooling governance tokens. It allows token holders to lend, pool, borrow governance tokens, earn income, and accumulate governance power in protocols based on the Ethereum network.. PowerPool’s mission is to expand the utility of governance tokens to all end-users, and in doing so — provide a stronger and more robust decision-making system for the DeFi ecosystem.
The protocol for meta-governance
Recently we published our long-term vision for PowerPool’s governance model. In our opinion, the future of protocol governance is a meta-governance approach rather than a protocol-level governance model. It is an experimental approach that could be the solution to voter apathy and the problem of whale-voting dominance. It also can help to increase the security of voting and facilitate the coordination of decision-making by protocol stakeholders.
According to our recently published visionary paper, there are three essential components which must be implemented in order for any meta-governance protocol to be successful:
- A tech solution for pooling governance tokens together that is scalable (low gas fees) and secure.
- A clear set of incentives which motivates different groups of governance token holders to participate in the protocol (pool, borrow, lend GTs), and which results in the accumulation of the voting power.
- A socio-economic model (or “game of incentives”) in which all parties involved in governance can decide how to use accumulated voting power.
The design of incentives and their implementation plays a crucial role in attracting people and capital to the protocol, as well as protocol operation. The second and third points of PowerPool’s vision for essential components of the meta-governance protocol are exactly about that. It all comes down to these two questions: “How can we bootstrap this “meta-governance machine” and make it deliver results?”, and “How can we make its operation sustainable for the long-term?”
When analyzing possible incentives we distinguish a set of economic incentives and also social incentives based on intangible assets such as trust, reputation, and future personal influence on decision-making. Social incentives refer to the third point and the role of the Protocol Politician which was described in our previous paper. In this paper, we will focus on economic incentives and the role of the CVP token in the design and operation of the protocol.
The CVP token (which stands for Concentrated Voting Power) is a core element of PowerPool’s incentive design. It was created with the aim of ensuring the stable operation of our meta-governance model, to bootstrap user adoption of the protocol, attract liquidity, and grow the number of governed protocols.
CVP: Concentrated Voting Power
CVP is central to the future growth and success of PowerPool. There are three basic requirements for a successful protocol token based on the aforementioned strategic goals:
- To attract deep liquidity for GTs from as many target groups as possible;
- To be used in PowerPool’s governance mechanism when deciding how pooled GTs will vote, and in doing so align incentives for the previously mentioned stakeholders (Protocol Politicians, Minority Token Holders (the Minority), Majority Token Holders (the Majority));
- To govern PowerPool itself properly by way of adding new pools, collateral types, upgrade incentives and much more in accordance with the vision and requirements of all PowerPool stakeholders;
The main functions of CVP according to the above strategic goals and tasks are:
- Bootstrap liquidity. The solution for the first task.
The CVP token can be received only via liquidity mining (in testnet rounds and in the near future on mainnet). There is no pre-mine or a token sale. Our belief is that the most effective approach to bootstrapping the Protocol with liquidity is to allocate it to people who provide the real value — testers and liquidity providers. It’s important to note that testers not only test the Protocol as a technical solution, but also provide valuable input and feedback that helps improve Protocol overall.
It is a clear incentive for them to be early adopters and contribute a lot, based on their expectations of future utility and value. By running the second testing round we attracted a lot of value in people and prove (at least to ourselves) that such an approach gives more than just sale tokens for VC money.
When our Protocol will go live on mainnet, CVP will work as a long-term incentive to provide liquidity in addition to receiving interest and other basic economic incentives.
- The meta-governance function. The solution for the second task.
The aim of PowerPool is to bring together three governance groups of actors (Protocol Politicians, Minority, Majority) and coordinate their interactions and decision-making. The majority share of the Majority and Minority holders will mine CVP during the mainnet Liquidity Mining program, while selected community members and Protocol Politicians (who also often have significant holdings) will get minor shares by participating in the testing rounds. As each of the groups will have their own CVP share they can collectively decide how pooled GTs will vote using the CVP Meta-Governance Function.
For example, let’s assume 100,000 COMP tokens were pooled into the COMP Power Pool and a Compound Protocol vote is scheduled to take place. Protocol Politicians would issue public proposals regarding the best way to vote. They are competing with each other (we assume that there will be at least several proposals from different Protocol Politicians) trying to attract votes of the Majority and Minority (Note: GTs are already pooled into the COMP Power Pool). Protocol Politicians are competing for CVP token holders’ votes. The same people (CVP holders) can participate in governance of various protocols, thereby establishing meta-governance in DeFi.
- The governance of PowerPool. The solution for the third task.
As we mentioned before, PowerPool is governed by its users. The main governance functions of $CVP are listed below:
- Listing of new liquidity pools and defining the allocation of liquidity mining (LM) rewards to them
- Adding/removing collateral token types;
- Upgrading and maintaining the source code of the smart contracts and key protocol variables;
- Using the holdings of the Community Pool for various LM incentives on DEXes or other activities;
As tokens will be distributed to protocol users and contributors, they will become responsible for governing PowerPool. Speaking about voting schemes, we are exploring several options including voteLock one. We will clarify the details in an upcoming article.
CVP value capture mechanism
CVP is a token which aggregates the governance power at the meta-protocol level. Because CVP token holders decide how pooled tokens will vote, its value is in essence a share of the value of all governance tokens pooled in PowerPool.
The more Power Pools with GTs are in the system, the more value is captured by CVP. We should clarify that here we are talking about its fundamental economic value and not its speculative value or token price. CVP value can be represented using the following equation:
We consider that the total value of CVP tokens can be presented as a linear sum of the value of GTs (for example, COMP, BAL, CRV, SNX, MKR, AKRO). Nevertheless, it is just an approximation that will be updated in the future, especially as we take into account possible upcoming changes in the governance mechanics of DeFi protocols. Also, we want to point out that governance tokens in general are rather complex objects to be valued given that most of them don’t have functions and features that can act as a basic input for traditional analysis methods (for example, the DCF approach).
CVP token metrics
We believe that the most sustainable and safe way to launch a new DeFi protocol is the so-called staged testnet approach. It is connected with the aim of making protocol usage safe and low-risk, while also allowing for intensive testing/bug fixing/other input into the protocol by community members.
As mentioned above, we decided that the zero pre-mine/zero team allocation is the best approach for protocol bootstrapping, as this respects LPs and enhances their motivation to participate in the Protocol. As such, all CVP tokens will be mined in three testnet rounds (15% of TTS) and Mainnet (85% of TTS). Per the table below, the Community Pool allocation is also an allocation for liquidity mining on DEXes such as Balancer, Uniswap, and others. This allocation serves the express purpose of incentivizing liquidity mining. We will make a proposal during further stages with regard to this part of the programme.
Note this is only our current vision. Once community governance has been established, there is the possibility for various proposals from the community that could result in changes to the LM model.
The CVP token contract was deployed recently. The address of the contract can be found on Etherscan:
During the early stages of the Protocol going live, tokens will be controlled by core team members using a ⅗ multisig which will be used to approve token transfers for the testnet rounds. Our goal is to remove ownership as soon as possible. As soon as mainnet goes live, tokens will be transferred to the contract and we will set an automatic distribution schedule according to the contract’s logic and the Protocol’s governance proposals, including the Community Pool. The DAO will be in control of the tokens.