A Proposal for a Vesper Treasury & Revenue Model by Economics Design
Guest author Lisa Tan lays out her case for this proposal, coming to a vote Nov. 15.
[Ed. Note: Lisa Tan is the founder of Economics Design, a research and consulting firm for DeFi. She is also the author of the book Economics & Math of Token Engineering and DeFi. Vesper Brewing Co. consulted Tan’s firm as part of the ongoing discussions about improvements to the revenue model. The following outlines the resulting VIP. The vote on this proposal will take place starting Nov. 15 and there will be an AMA on Nov. 11, time TBD. Discuss at gov.vesper.finance.)
Economics Design examined historical data on Vesper’s fees and devised recommendations for a new revenue structure, revenue allocation, and treasury management. Our team also conducted financial analysis of the projected impact to balance a short-term revenue drop with a goal of improving long-term growth.
In our proposal, we believe we have outlined the best way forward for the long-term health of Vesper’s treasury. The case for our VIP is below.
Currently, withdrawal fees make up 93% of protocol revenue, but also act as a disincentive for users to move to higher APY pools. Raising the yield fees and lowering the cost to transfer incentivizes growth in total returns for Vesper pool users.
In terms of revenue structure, we propose:
- Yield fee: increase from 15% to 20%
- Withdrawal fee:
- If transferring directly to another Vesper pool, decrease fee from 0.6% to 0.3%.
- If withdrawing without transferring to another pool, keep fee at 0.6%.
As to how to allocate the revenue resulting from the above, we propose:
- Operations and Marketing: 25%
- Developer: 5%
- Partner Program: 5%
- Replenishing VSP Reserves: Start at 10% and increase to 25% over ten months.
- Rewards: Start at 55% and decrease to 40% over ten months
This treasury allocation is intended to support new initiatives:
- Operations and Marketing: This allocation is set to cover a projected $4 million budget that will allow for expanded operations and marketing initiatives to accelerate Vesper’s growth.
- Partner Program: These funds will go towards incentives for pools created for partner protocols, which bring in deposits from their treasury and community, intended to drive an increase in revenue for Vesper.
- Replenishing VSP Reserves: These funds will go towards buying VSP to extend the VSP pool incentives past their current expected expiration in August/September 2022. This allocation will be gradually increased over the course of a year in order to make the decrease in vVSP rewards more gradual.
In its current state, the Vesper treasury exclusively holds VSP, which we believe courts potential risk through a lack of diversification. We propose implementing an algo-trading strategy for allocating new additions to the treasury. The strategy will determine if assets should be allocated to stablecoins or a specific allocation of other tokens (ETH, UNI, LINK, and VSP) to minimize the drawdown of treasury funds. This strategy will only impact the allocation of new funds and will not touch existing VSP holdings to avoid excessive sell pressure.
We will be announcing an AMA to take place on the Vesper Discord soon. In the meantime, here is a presentation to review and the formal VIP as delivered on GitHub. To discuss this proposal, head over to gov.vesper.finance.