Vesper Finance
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Vesper Finance

Empowering the Future

A review of our first year, an assessment of the opportunities and challenges ahead, and a summary of the upcoming Vesper Improvement Proposals (VIPs).

TL;DR:

  • Vesper is maturing; so too are the tokenomics
  • Vesper has an industry-leading suite of offerings for protocols and DAOs
  • The new fee structure proposes a single fee, replacing an outdated withdrawal and interest fee
  • The locked VSP program offers new incentives for locking up and holding VSP
  • The bonding mechanism enables users to exchange crypto assets for locked VSP

Vesper’s First Year

Vesper and the VSP token launched one year ago and it had a monumental start. The project’s locked value rose from the $25 million coming out of beta to $750 million the following month, reaching $1 billion just two weeks later.

Throughout the year, we’ve seen high points, as well as challenges. We devoted Vesper’s first season to building more high-quality products and improving on existing products. This allowed us to start shipping products at a rapid clip with the launch of Season 2.

We launched with a clearly defined tokenomics mission, set the token supply low, and distributed tokens to active users of the platform. Currently, Vesper has a fixed 10M token supply locked for the first 12 months. Sixty-five percent of tokens are allocated for the community.

We’ve awarded the majority of the community tokens as incentives for participating in Vesper products or staking liquidity.

As a community, we need to address four key issues that impact Vesper’s continued growth.

  • Fee Structure and Revenue Model — the fee structure is outdated and not user-friendly. Funds need a prolonged period in the pool to avoid incurring a penalty upon withdrawal. For protocol-level integrations, this makes Vesper incompatible. Ultimately it leads to low and unpredictable revenue for the ecosystem.
  • Token Supply and Liquidity — the highly incentivized pool and liquidity pool staking rewards were a speedy growth hack, leading to long-term treasury management and liquidity concerns.
  • Long-term VSP Incentives — there are few incentives for holding VSP long-term, leading depositors to sell their earned VSP as soon as it is accrued.
  • Sustainability — Vesper Brewing Co Ltd is currently supporting Vesper’s development with expenses totaling on average $419K monthly. Long-term, the Vesper DAO should be sustainable and be supporting the continued growth and development of Vesper.

Vesper Today

From four original launch pools, Vesper now spans over 30 pools across several tiers and product lines (Grow, Earn, Orbit).

With a large Vesper Brewing engineering team and a modular, flexible strategy architecture, Vesper can scale the strategic opportunities of these pools with increasingly nuanced and complex yield harvesting strategies.

Vesper strategies span a dozen destination protocols. Each of these we use as Lego bricks in increasingly complex operations. Vesper already offers the best yield in the game across yield aggregators. Vesper is:

  • Versatile: Vesper Earn and the “programmatic yield” offerings reflect a variety of opportunities for other protocols: DAOs can now earn operating income from their existing treasuries with one simple transaction.
  • Compelling: Vesper is winning stickier TVL through governance campaigns and synergistic integrations: FRAX depositors in Vesper earn FRAX + VSP + FXS; mStable pool works similarly.
  • Innovative: Under the hood, Vesper Synth is an ambitious practice in synthetic asset mintage. It aspires to be the most composable architecture in the space with a multi-collateral, multi-synthetic mechanism.
  • Pioneering: Our cross-chain, non-custodial buildout for yield farming, where users can manage positions on low gas networks and earn yield from DeFi heavy networks is tentatively scheduled to go live in Q2 of this year.

Moving Forward

After a year in production, we’re committed to evolving to build a better Vesper and VSP. This is how we’ll do it.

  1. Revenue Model eliminate the Withdrawal and Interest Fees and introduce a Universal Fee. The Universal Fee will charge a 2% annual fee on the assets deposited (principal) at the time of rebalance. If this fee is greater than 50% of the interest earned, then the fee will only equate to 50% of the interest earned.
  2. VSP Lockups — replace vVSP with a new VSP lockup program, introducing long-term incentives for holding and locking up VSP.
  3. Token Supply introduce Bonding with Guardrails by establishing rules for when minting will be enabled and VSP will be exchanged for LP tokens or stablecoins.
  4. Liquidity — end VSP incentives for liquidity suppliers, and replace with Vesper DAO-owned liquidity that will be enabled through bonding.

VSP Tokenomics Proposals

Fee Structure

Vesper has a combination of a withdrawal fee and interest fee across Vesper pools. Though this combination proved popular at launch, it quickly lost favor as platforms identified its limitations.

The withdrawal fee creates a disincentive for users to deposit, particularly in the case of the Conservative Grow pools.

This has also created composability limitations with other protocols, since this withdrawal fee is unattractive for the same reasons.

Less dramatically, there is the additional complication of factoring in the interest fee when making long-term decisions.

Proposed Solution

This proposal simplifies the fee structure by reducing the fees to a SINGLE fee.

This eliminates both the withdrawal and interest fees, replacing it with a single Universal Fee.

The Universal Fee will charge a 2% annual fee on the assets deposited (principal) at the time of rebalance. If this fee is greater than the interest earned, the fee will only equate to 50% of the interest earned.

Users will always earn positive yield, from initial deposit, regardless of the performance of the pool. Protocols can easily and predictably route funds through Vesper to generate additional yield to participants. For partners, this single fee gives us the opportunity to build out the most powerful partner revenue share program in the space.

DeFi aims to disrupt existing TradFi offerings. The goal is to do better. Replicating old-style fee models is something we’re moving away from. Low-performance pools will still be positive-yielding for users, and high-performance pools will be underpinned by a modest fee share across all yield aggregators.

Here’s how the model looks in practice:

VSP Time Capsule

Our existing vVSP model lacks commitment from users to earn revenue share. veNomics has demonstrated that the market favors revenue models that incentivize long-term-minded users. However, the votelock model, popularized by Curve, is far from perfect. The illiquidity of locked CRV is seen as a turn-off, and Convex’s success as a platform to abstract away that illiquidity is proof of it.

Proposed Solution

The optimal token model for revenue sharing and platform incentives should combine the mechanics of both: Curve’s emphasis on lockups and prioritizing long-term users plus Convex’s minimization of opportunity cost for participation. The VSP lockup model will accomplish this out of the box:

  • Users will choose a scaling lockup and number of locked VSP that matures over the duration of that lockup.
  • Each lockup is represented as an NFT backed by the total amount of VSP locked up.
  • Revenue share is delivered as VSP, streams to the user, and can be claimed at any time.
  • Users can exit the lockup early for a decaying fee, fee is paid from underlying VSP and attributed to the treasury.
  • As NFTs, the lockups are liquid and transferable. Users can leverage them in trade or as collateral. Each NFT has a minimum and maximum price (VSP value — current fee to withdraw, VSP value) that behaves predictably.

At launch, with very low (or zero) participation, the revenue share rate is expected to be high (or infinite). Users will lock their VSP, driving the expected revenue share down closer to a fair market rate. Additionally, this activity will reduce the open market VSP float, enabling a more predictable VSP and improving confidence in users to participate in the lockup.

Initially, VSP lockups will grant users the ability to earn in the established revenue share model. Additionally, those users will earn governance weight in all voting, plus the ability to direct emissions via governance to the pools they support.

VSP Bonding

Vesper has distributed most of the community-owned VSP via platform and liquidity pool incentives. This has led to long-term sustainability problems for the platform and the overall ecosystem as these rewards dry up. As to DEX liquidity incentives, the current situation is stable, but not particularly healthy.

As noted in recent articles, platform rewards have proven to be a short-term hack to gain temporary TVL. While Vesper has fallen victim to over-incentivizing in the past, it’s something we’re aware of and working to overcome. As a result, we’ve changed the direction of travel and have already made several vital, but necessary changes. The problem won’t go away, unless we start owning our own liquidity as proven successful by projects, such as Olympus.

Proposed Solution

This proposal introduces Bonding with Guardrails. With this new structure, there’ll be a set of goals, or rules, for when bonding is enabled. Some of these goals will relate to the amount of liquidity available in the liquidity pairs, while others will be more closely tied to the health of the treasury to continue to fund further development of the Vesper platform and ecosystem. If the conditions are met then bonding is enabled, if not then bonding will be disabled.

When bonding is enabled, users will be able to exchange crypto assets or LP tokens for VSP locked in a time capsule. This VSP will be minted when users decide to bond. Users will benefit from having the time capsule boost, as well as being able to acquire VSP without incurring slippage on their trade.

Bonding can only begin once a “ruleset” has been passed on top of this proposal. This ruleset will include a whitelist of supported tokens, discount rates at various lockup times. This will build out a diversified treasury plus protocol-owned liquidity according to the tokens encompassed by the whitelist.

Join the Conversation!

These updates will help to ensure that Vesper is positioned for a sustainable, successful path forward.

Like to discuss what you’ve read? Join the discussion on Vesper’s governance board or on Discord.

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