REVANOMICS: Optimized Tokenomics for Revault Network
TL;DR:
Revault Network, a recent acquisition by Layered Cake, aims to optimize its tokenomics and address financial challenges. The current tokenomics lack sufficient profits for ongoing operations. Proposed changes include adjusting emission allocations, implementing fees, and reintroducing a transactional tax. The reallocation of emissions encourages core product usage and enhances yields. Users investing in TVL vaults receive higher REVA token bonuses. The fee and tax structure supports the protocol’s sustainability and introduces a deflationary aspect. Detailed examples illustrate the impact on user profits. These proposals aim to strengthen the treasury, incentivize platform usage, and provide sustainable operations for Revault Network.
In this article, we will present the updated and optimised tokenomics that will revitalise Revault Network, a recent acquisition by Quantum Economics’ Layered Cake, as part of their service offering in turnaround strategy and tokenomic optimization. This case study is intended both to put Revault on a sustainable path to growth and to demonstrate the powerful capabilities of the Layered Cake solution.
The current challenge facing Revault is that its existing tokenomics do not secure a sufficient percentage of platform profits to sustain ongoing operations, despite having sufficient volumes on the network. This has resulted in the foundation running out of funds to support the development and maintenance of the platform. In addition, current emissions are too high, causing supply to outweigh demand, and ultimately a depreciation in price. Using our methodology and implementing a few minor changes, we can increase value and profitability for all stakeholders. The changes will then be monitored and adjusted as needed on a periodic basis.
Currently, the protocol converts 30% of LP or Single Asset profits generated from various vaults, as well as 100% of Vault Native Tokens (VNT) (Bonus tokens native to the vault provider, used to boost yields and incentivise usage of the platform) into REVA tokens. This creates buying pressure for the token price. Of the converted profits, 1% is allocated to the REVA staking pools, and the remainder is distributed back to the user. Note: VNT varies greatly between Vaults and Vault providers and is difficult to model. We have used 15% for the purposes of modelling the Tax effect.
Initially, there was a 1% tax on buying and selling REVA, which would have been applied to the 30% + VNT conversion. However, this tax has since been removed. The 1% tax was previously split evenly between the Treasury, Burn, LP, and Staking pool wallets.
It is important to note that Revault does not compete with the Vault providers but rather aggregates them into a user-friendly interface. This interface allows users to easily access and compare the best vault options. Users can then deposit funds into the highest-yielding vault with just a click. The protocol also incentivizes platform usage through emissions. These emissions are received as a bonus yield, making it more attractive for users to invest through Revault Network rather than directly through the vault provider.
While this model may have worked if there were sufficient profits being generated to sustain platform operations and provide users with higher yields than direct investments, it falls short of the former. With these core elements in mind, we have designed the following fee structure to address these challenges and achieve the desired outcomes.
Initially, the Revault DAO that manages the protocol, voted to reduce emissions from 25% to 16.7% and allocate the remainder to the treasury. The intention was to strengthen the treasury reserves. However, due to the declining Revault price, selling these reserves would not yield significant value.
Furthermore, the reduction in emissions to the Total Value Locked (TVL) vault rewards resulted in a diminished incentive for users to utilize the core product of the protocol and the risk started to outweigh the rewards. Consequently, TVL was removed from the vaults.
It is proposed to reallocate the emissions to address these issues and restore user motivation. Specifically, the proposal suggests switching the current allocation of 41.7% of emissions to the LP (Liquidity Provider) pool to 41.7% to the TVL rewards instead. This reallocation incentivises users to engage with the protocol’s core product.
Moreover, the proposal recommends reinstating the 25% rewards, but this time in the LP pool. By doing so, the protocol can continue to incentivise liquidity provision. This change can enhance the overall ecosystem and strengthen the platform’s financial dynamics.
Fee and Tax Structure Proposal:
To ensure the sustainability of the protocol and meet ongoing operational requirements, a fee structure and transactional tax are proposed. The following outlines the suggested changes:
1. Platform Fee: A base 0.75% annual fee will be charged on the Total Value Locked (TVL) within the protocol. This fee will be calculated daily and collected once profits are taken.
2. Success Fee: 4% success fee will be charged on Profits made on the platform. This fee will be calculated and collected once profits are taken.
3. Transactional Tax: A transactional tax of 5% will be reimplemented. The 5% tax will be split among the Treasury, Burn, LP, Staking pool, and Foundation wallets, with each receiving a 20% allocation.
The Result:
1. Staking Pool Yield: The Staking pool will receive a slightly higher yield as there will be an additional allocation from the transactional tax. This increase in yield can incentivize staking and participation within the pool.
2. Token Deflation: The implementation of the transactional tax on REVA transactions, in which a percentage is burned, will slow its inflationary nature and ultimately make the token deflationary. This can have a positive impact on the token’s scarcity and potential value.
3. LP Pool Yield: The yield in the LP pool will decrease due to the change in the allocation of emissions but will be topped up with the additional tax proceeds. While unlikely, this change may disincentivize liquidity provision although the yield will still be comparatively high for industry standards. However, the foundation plans to utilize a percentage of the BNB earned, bond it with REVA from reserves, and bolster the LP pool. This aims to maintain liquidity and provide an additional revenue stream for the Foundation.
Based on our comprehensive analysis, it is crucial that we bring forward the emission halving date by 2 months. Our modelling indicates that the current emissions of REVA tokens, relative to the platform’s current usage, will likely be a significant contributing factor in preventing price appreciation as supply pressures from emissions outweigh demand from new entrants.
By halving the emissions, we take aggressive action to accelerate the disinflationary model, which helps stabilise the token price by reducing the volume of additional tokens being minted. This intervention is aimed at extending the lifespan of the emissions and creating a foundation for future price appreciation.
However, it’s important to note that this intervention alone may not necessarily lead to immediate price appreciation. It should be viewed in conjunction with additional measures to enhance token utility, which will be discussed in the next article.
Furthermore, as Revault Network operates on both Binance Smart Chain (BSC) and Fantom (FTM), the emission allocation is currently divided equally between the two chains. However, considering the substantial difference in TVL between the chains (14 times more on BSC), it is proposed to adjust the weighting to 80% for BSC and 20% for FTM as an interim measure until ORBS can be implemented to evenly distribute emissions across Networks. This adjustment will significantly increase the bonus percentage on BSC while still providing a larger incentive for investment in FTM Vaults.
User Example: Excel Model Link
As a result of these proposed changes, users investing funds in the TVL vaults will receive a higher bonus percentage in REVA due to the additional emissions being directed towards the TVL rewards. The exact impact on user rewards can vary based on individual investments and the specific emission allocation ratios.
Current Scenario: User deposits $10,000 into a Vault with a 7% APY and a 1.23% REVA bonus.
After 1 year, the user earns $700 in profits. Out of this, $315 is converted to REVA (30% +15% Average Native Vault token), with $7 allocated for staking pool rewards and an additional $123 received as a REVA bonus.
Therefore, the user receives $481.25 in LP tokens and $334.75 in REVA, resulting in a total profit of $816. This is 16% higher than investing directly with the Vault provider.
Proposed Scenario: Due to a combination of the interventions detailed above, the average REVA bonus would increase to 2.76% based on the current TVL and REVA price.
After 1 year, the user earns $700 in profits. Out of this, $315 is converted to REVA (30% +15% Average Native Vault token), with $7 allocated for staking pool rewards. Additionally, the user earns $276 in REVA bonus. $28 is collected as a success fee on profits as well as the $75 platform fee.
The 45% profit conversion is subject to a 5% tax, which amounts to $15.31.
Therefore, the user receives $378.25 in LP Tokens, and $472.44 in REVA, resulting in a total profit of $775.69. This is 7.6% higher than investing directly with the Vault provider. The User can then Stake these REVA into the staking pool, earn up to 19% APR at the current TVL, and participate in the Revault DAO.
If the user decides to sell the REVA, an additional 5% tax is applied to the $472.44 (total REVA conversion amount), resulting in $23.62 in Tax. This leaves the user with $752.07, which is 5.2% higher than investing directly with the Vault provider.
These proposed changes, therefore, provide users with higher profit compared to investing directly with the Vault provider, while also generating funds through fees and taxes to support the operational requirements of the protocol.
Important Considerations:
It’s crucial to note that the value of the REVA bonus can be influenced by the growth of the TVL and the price of the REVA token. If the REVA token price rises while the TVL remains unchanged, the value of the REVA bonus would increase. Conversely, if the TVL increases without a corresponding growth in the REVA token price, the value of the REVA bonus may decrease since the emissions would be spread thinner.
Market equilibrium in terms of price is expected to be reached with higher demand and increased platform utilization. It’s essential to monitor and evaluate the outcomes of these proposed tokenomics changes and make necessary adjustments accordingly. Flexibility and adaptability will be key in ensuring the long-term success and sustainability of the Revault Network.
In conclusion, by assessing the market dynamics and user behaviours, the protocol can fine-tune the tokenomics to maintain a fair and balanced system that benefits all stakeholders involved. The active participation of our community is key to unlocking the full potential of Revault Network. Together, we can build a stronger, more sustainable future for decentralized finance.
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