Breaking Down Vesper’s Revenue Model
Each project that makes up the DeFi industry shares a core goal: build a decentralized protocol that is self-perpetuating.
At the core of this goal is the notion of a synergistic relationship between users and protocol. Each provides value to one another. On the side of the protocol, that value is conserved and compounded in a way to ensure users can continue to keep earning value into the future.
Ideally, this balance creates a “flywheel effect”: the bigger the protocol grows, the more value it can provide and the more users it can capture. Vesper is built with this balance in mind. So, let’s discuss the revenue model behind it, and how we intend to keep it sustainable and optimized for growth.
How Vesper’s Revenue Stream Works
Previously, Vesper relied on a model that charged withdrawal and platform fees which varied based on certain conditions. However, as of April 2022, this has been phased out in favor of a universal flat fee across all yield pools.
On any asset you deposit on Vesper, there is a flat 2% fee assessed from the principal that is only applied when the yield is earned. However, if this fee exceeds 50% of the total yield earned, the fee will only be up to 50% of that yield.
Let’s break down even more simply with an actual example. You have $1,000. As per the universal fee, you would have to pay 2% annually ($20) or $0.38 per week ($20 divided by 52 weeks). Assume you earn $0.50 over the past week. Since $0.38 is more than 50% of $0.50, you will only be charged $0.25 from the yield earned.
If, instead, you earned $5 over the past week, the fees would be capped at $0.38. You would keep $4.62.
While the fee is calculated according to your principal, the fee is only taken out of yield earned. This means that Vesper fees will not eat into your deposit, just the yield..
With this fee structure understood, the growth prospects of Vesper are straightforward: the more TVL, the better. All TVL earns 2% back to the protocol uniformly.
Where Does the Revenue Go?
The universal fee eliminates confusion by streamlining the entire protocol around a single revenue model. But what is the revenue used for?
First and foremost, it refuels the gas so the Vesper smart contracts can run. Once topped up, the revenue is broken down as follows:
- 55% go toward buying back VSP tokens on the open market (e.g., Uniswap). Users staking VSP tokens and thus holding locked VSP positions will earn VSP via the buyback.
- 40% goes toward the Vesper DAO Treasury. All funds are visible on-chain and are to be used on the protocol’s long-term development. VSP governance token holders control the treasury and disperse these funds through a vote.
- 5% go toward the developers of Vesper strategies.
Understanding Buybacks and Locked VSP
Earlier this year, DAO governance passed a proposal outlining a new revenue share model through a VSP lockup system. Initially, users who deposit VSP into the vVSP pool share VSP attributed to buybacks pro-rata, and can enter and exit at any time.
This model incentivized short term players who entered and exit when revenue flared up to capture an outsized portion of buybacks. Under this new locked VSP model, users bundle an input number of VSP and length of lockup into individualized “Locked VSP” positions. VSP buybacks are then distributed to Locked VSP holders according to size and length of lockup, with the longest lockers receiving the highest rewards.
Unlike the Curve-style “veToken” lockup, Vesper’s Locked VSP will have two distinctions:
- User positions are represented as an NFT, so they can trade it OTC or use it as collateral in another DeFi application.
- There is a decaying early unlock fee if a user wants to forfeit their position back to the treasury.
This model achieves all of the following:
- VSP bought back through revenue generated on the open market is distributed in favor of long-term holders.
- Users must lock VSP and take it out of circulation to receive a revenue share.
- Lockers still have exits if they do decide they’d like to exit the position.
The Bottom Line
The revenue model of Vesper means that the TVL of the protocol is directly proportional to how much it earns in fees and then distributes to VSP holders via buybacks. Therefore, the value of the protocol’s governance power is directly linked to its growth. Since Vesper is based on a flat 2% rate across the board, you can extrapolate how much revenue can be made as it grows.
With the integration of Vesper with Metronome’s synthetic assets, the protocol will become an attractive place to assemble and experiment with an entirely new set of lego bricks. Vesper’s revenue model means that the long-term growth and the owners of its protocol, the VSP holders, are given priority. It’s a win-win for decentralization and toward building a trustless, future-proof infrastructure.
