CLIP-03: Boosting CLever CVX Growth with Emission Reduction and Revenue Adjustment

Over the 15 or so months that Clever has been in operation it has shown continuous growth in all conditions (currently > 2.5M CVX locked, and 2nd place on the daocvx leaderboard!). Even still, the team regularly reviews the state of the system, looking for ways to improve and adjustments we might make to help supercharge CLever.

As CLever CVX is still in an early stage, the most important thing is to grow deposits. In general the growth rate of deposits in CLever CVX is limited by the rate at which CVX flows into the clevCVX/CVX LP. This CVX inflow can be considered the supply to be matched with the borrowers’ demand. CVX flow rate into the LP is determined by the combination of the furnace burn rate and the rewards yields in the LP and the abcCVX vault. Since furnace burn rate is determined outside of CLever (by the Convex yields), the simplest and most powerful way to support CLever CVX growth is to increase yields in the LP and the abcCVX farming vault.

The team has put together a proposal to do just that by cutting CLEV emissions in half, and by doing so dramatically reduce the ongoing sell pressure on the CLEV token. Effective yield rates for both the clevCVX/CVX LP as well as the abcCVX farming vault increase as the price responds. A nice side effect of this plan is that better price support also helps to bring more attention to CLever, contributing all around to growth.

The team proposes the following:

  1. Aladdin will allocate some of its available treasury to CVX which will be used to vote for clevCVX/CVX LP emissions
  2. Using savings from (1), CLEV emissions each bribe epoch will be reduced by 500
  3. veCLEV revenue sharing should be reduced from 75% of total revenue to 50% of total revenue
  4. By allocating all of CLever’s non-shared revenue (50% of total) to bribing in the clevCVX/CVX LP, we can reduce CLEV emissions by a further 840 per bribe epoch

Steps 1+2 are quite straightforward and are simply Aladdin using its resources to support growth of CLever. Steps 3+4 represent more of a structural change, but by harnessing more of CLever’s revenue to drive its growth, veCLEV holders have a better chance to earn more in the long run. CLEV price support also helps compensate for near term reductions in revenue sharing, as the CLEV boost earned by veCLEV farmers becomes more valuable.

Ultimately we believe the price of CLEV and the long-term revenue entitlement for veCLEV will be driven much more strongly by the overall growth potential of the platform than the particulars of the tokenomics, so that is where the team’s focus is. We’re very keen to hear what the community has to say here. Please let us know by voting on the poll and leaving a comment if you have more to say! Assuming the response to the poll and the post is approximately positive we will put this to a vote by veCLEV and xALD tokenholders in the next week or two.

  • For: I support the CLEV emission cut and revenue changes
  • Against: I do not support this. See my comment below

0 voters

2 Likes

I appreciate the steps being taken to reduce CLEV emissions to boost CVX growth.

For Step 1, do we have a plan on how much CVX we intend to purchase and vote for clevCVX/CVX LP and for how long? Are there any guiding principles from Aladdin on supporting the growth of different sub protocols(Clever, Concentrator, F(x))?

In the long run, after reducing the stake reward for ALD from 10% to 5%, use the saved 5% ALD to open up bonding for CLEV and CVX. the bonding CLEV will be used to farm as CLEV/ETH LP, while CVX will be used to vote for clevCVX/CVX LP. This plan can be termed as a token buyback plan when token prices are lower than their value.

Additionally, if possible, we should avoid reducing veCLEV revenue sharing since veCLEV holders trust the protocol the most and have no flexibility to change their investment plans. Instead, using Aladdin Treasure to repurchase and vote may be more effective in encouraging users to lock CLEV and borrow more clevCVX."

Just my personal suggestion and open to discuss further.

2 Likes

Incredibly in favor.

Accumulate as much cvx/liq as possible. Curve wars 2.0 my body is ready :wink:

2 Likes

Hi Tao,

Just to clarify, initially, the DAO will utilize free treasury assets to purchase over 100,000 CVX. After that, the changes in the fee structure for veCLEV will allow for the continuing ongoing purchases of CVX or CRV or other “bribe assets” that will suit the protocols. As I said in my twitter thread below, the fee changes will now bring veCLEV on par with other ve- tokens in terms of fee revenue. We veCLEV holders have been very fortunate to get 75% up to now.

Personally, I do not care too much what percentage of revenue my veCLEV earns, so long as the amount of CVX and Frax (and other future tokens) continues to steadily increase over time. This will happen so long as deposits are incentivized to CLever, and these changes to the structure of veCLEV will ensure that it can happen for many years. I am ok with taking a short term “loss” to have a long term gain. :slight_smile:

https://twitter.com/kmets_/status/1676693757435977731?s=46&t=COS8bNZCnWycBHIZv02m_w

1 Like

Hey Kmets,

Thanks for the detail explanation. I totally agree and support to utilize free treasure assets(Aladdin treasure and Clever treasure) to purchase CVX.

Regarding the fee change, it is reasonable to have 50% on veCLEV to par with other ve-tokens in terms of fee revenue.

Actually, I do have a different proposal which might have same goal with different approach. I will create one to explain it in detail. In short summary,

  • Start bonding CVX/CRV or other bribe asset in ALD treasure using ALD
  • Use the ALD treasure to bribe LPs(clevCVX/CVX) for the growth of CLEV
  • Reduce/Stop the CLEV/ETH bribe and Liquidity and start bonding CLEV using ALD.
  • Reinvest the CLEV bribe money back to clevCVX/CVX LP
  • Keep the above average ve-tokens fee revenue structure(75%) to keep veClev holder happy.

Hey fellow flywheelooors!

I’d been having a discussion about this stuff with Sharlyn for a while now and I am a huge fan of changing some of the parameters of the system. I know this has already gone to vote & passed as of now, but I still wanted to weigh in with the conclusions I’d found myself at after some pretty deep thinking about this whole system.

To start, CLever is all about one thing: convert future CVX yields into CVX.
How does this happen? This is the absolute core piece of the system! - The Furnace

Of course there are other ways that one can convert, primarily by pulling out the clevCVX & dumping it on the Curve pool. People are so in love with this system & yearning for future yields now that they’re willing to take up to around a 20% discount to do so (curve pool usually doesn’t stay lower than -20% for clevCVX). But, the most important thing is that this dumped clevCVX is still sitting out there, bogging down the system. The abcCVX concentrator system brought a wave of relief, but only temporarily.

The issue is the burn rate of the furnace is too slow! That is why people are selling the clevCVX at a discount instead of buying discounted & staking to the furnace.
At the present moment, there are ~674k clevCVX in the furnace with a daily rate of 1676 converted. The daily burn rate is 0.26% which means it will take 385 days (1.05 years) to convert all of the currently staked clevCVX to CVX. For the furnace, the LP pool discount IS the yield - the discount is 20.13% making the return on buying clevCVX 19.17% annualized, denominated in CVX.

Right now, you can obtain a better yield on your CVX doing almost anything other than buying clevCVX with it and staking that to the furnace.

What would drive up the pool parity? Increase the yield you can get on you clevCVX!
Look at it like this: How do you generate yield with clevCVX?
A few options:

  • create a borrowing market and be able to lend/borrow against it
  • create a single sided staking pool to suck up liquidity from the curve pool
  • increase the burn rate

Creating a single sided staking pool needs to have a reason to stake into it, which if that is to be paid in CLEV, would be a constant drag on CLEV price & eventually become useless - you can always mint more clevCVX & you’d have to be paid >19.17% APY to stake into there. This route would hurt the protocol by creating artificial demand (temporarily) for clevCVX & also burn through the treasury of CLEV while also destroying the value of it through yield farming.

Increase Furnace Burn Rate
This is the most important thing to do for the protocol. In the current state with it taking 384 days and the yield on that being 19.17%, it isn’t a very attractive use of one’s CVX.

If the burn rate were doubled to 0.52% per day and therefore the time to clear the furnace deposits halved to 192 days, that would effectively double the yield someone would be able to achieve by simply buying clevCVX & staking it to the furnace. Then you’re buying future CVX for -20%, and with a 6 month burn time, you can do that arbitrage twice per year (not counting ongoing harvesting & repurchasing). Getting ~40% annually on you CVX would rocket this opportunity from the worst yield on CVX to the best yield on CVX. So, people would end up buying cheap clevCVX & bringing the pool balance back closer toward even.

clevCVX will never (consistently) be at parity in the pool - nor should it be. The opprtunities to arbitrage profits are too numerous for such a close peg. In fact, the discount on the pool will likely become greater if the yield on CVX increases, since it will become lucrative to sell at that deeper discount & collect leveraged yields.

Instead, if the furnace burn rate goes up & the line clears faster, it will draw in additional CVX deposits so people can take advantage of leverage & also be supported by the rapid conversion. I suspect that the amount of CVX on the platform will be directly correlated to the burn rate of clevCVX → CVX, therefore, increasing the rate of conversion will dramatically increase TVL & cause significant increases in fee generation for veCLEV lockers.

In fact, the price deviation on clevCVX is actually a positive. It demonstrates the high demand for the product & it also creates multiple various arbitrage opportunities (abcCVX, furnace, locking, looping, leverage, staking, etcetc).

Where can we get the extra CVX to feed the burn?!

  • The most important thing to worry about is creating a successful protocol where users have a high barrier to exit. As a veCLEV holder, I want to maximize my revenue and see this protocol win bigly. BUT, just as in the early days of being an equity holder in a company, we should be the lowest priority for receiving excess cashflow. The easiest source to take away yields from is veCLEV - it doesn’t hurt the protocol at all, it just hurts our cashflow. BUT with the increased burn rate, we would see a massive increase in TVL, which would likely end up being a greater amount of yield generated for veCLEV.
  • Reduce the efforts/capital that have been focused on yield generation for curve pools - those are way less relevant unless they’re getting captured by the protocol and instead focus all possible revenue on increasing the furnace burn rate.
  • During this time of reduced fees for veCLEV, the treasury should be accumulating assets that can generate yields in excess of just being a passthrough of revenue streams. It could then start contributing those yields to wherever is needed to bolster growth.
  • I would hesitate to take a larger fee from the CVX depositors as that is the core user for the entire system.
  • Utilization of various fee components to be utilized as Convex bribes is a positive - but only doing this when the return on $1 is better than directly paying out to users. If $1 in bribes generates >$1 in yield, bribe with it, otherwise, distribute it. This will actually positively influence the entire flywheel by increasing the revenue & yield on CVX. This reallocation of yields to bribes & such was something I’d dug into a bunch & there are definitely places where taking the farmed tokens & utilizing it elsewhere actually increases the yields for everyone in the protocol! Though, I’d hesitate to recommend utilizing them for aspects that are designed to increase the yield on the clevCVX pool - unless those yields are then re-captured and used to increase the Furnace’s daily CVX conversion.
  • I’m not sure if there’s any way to do this now, but I strongly advocate following Balancer’s lead on the ve-token: use the LP token as a the deposit to the voting escrow. Then, no need to incentivize clev-eth pool & all those yields generated would be protocol owned yields that could be utilized to support various components of the ecosystem during initial growth and stabilization phases.
  • Continue to utilize CLEV incentives as a yield for farming, but retain all the other yields & use those to generate extra yields for supporting the furnace - don’t just directly pass them from the farming to the furnace as that isn’t sustainable. Then, as the yields that are being generated by protocol controlled assets are no longer needed directly for supporting activity/growth, those become additional payouts to the lockers of the governance token. Either paying out the yields directly or redistributing the protocol controlled assets to lockers over time to massively increase the yield veCLEV earns.
  • Stop (or at least significantly reduce) spending CLEV on yield farmers who can dump it on the pool

Request For Information
Do we have any graphs or data that shows how much revenue is generated by the protocol & from what sources (in which tokens those yields are generated)? Also, where all that revenue eventually flows to? It’d be super helpful to be able to trace through those yield feeds and see exactly which could be optimized to improve the overall functioning of the protocol! Or at least a flow chart of roughly what is harvested from where & where it then ends up… I know it’d be tough to display all these things on a Dune dashboard, so even just seeing the overall numbers without the exact pathways would be powerful in refining efficiencies!

2 Likes

Hey Z! I remembered this week that I had liked this post but totally forgot to respond to it, so here I am now…better late than never I suppose. First, this is an EXCELLENT thought process and I certainly do appreciate your input and the well laid out arguments for what is in this post. And based on the results of the passed proposal and the ensuing acquisition of bribe assets and emissions reductions, the team clearly agrees too…the furnace burn rate must go up!

So here is one point in your proposal that I would like to discuss a little more about:

clevCVX will never (consistently) be at parity in the pool - nor should it be. The opprtunities to arbitrage profits are too numerous for such a close peg. In fact, the discount on the pool will likely become greater if the yield on CVX increases, since it will become lucrative to sell at that deeper discount & collect leveraged yields.

So interestingly, as we look at any asset that has a time and value component, (like a bond) on a normal, healthy yield curve, we can see that as the maturity time decreases, the discount to present value of the underlying asset also decreases. So for instance, if we were to double the furnace burn rate, the demand for clevCVX would not decrease, but increase. This is because the sooner someone can claim the underlying asset, the more they are willing to pay for the bonded version of that asset. And as yields are inversely related to price, this means that as clevCVX price goes up, yields go down. If I could deposit clevCVX and get full CVX a week from now, shouldn’t that be worth more than a clevCVX I have to wait a year to convert…and thus the discount for it should be less too? But you are 100% correct that a discount will always be present for clevCVX->CVX.

Couple other points in your proposal I would ask you to continue thinking about:

  • Do Aladdin assets need 80/20 ve-locked pools if Aladdin is now on a mission to accumulate a massive war chest of liquidity bribing assets for Curve? If the DAO itself had the equivalent of 1MM vlCVX, why would the DAO need 80/20 pools on Balancer? Would be curious to hear your thoughts.
  • Can you clarify your explanation between these two bullet points:
    • Continue to utilize CLEV incentives as a yield for farming, but retain all the other yields & use those to generate extra yields for supporting the furnace - don’t just directly pass them from the farming to the furnace as that isn’t sustainable. Then, as the yields that are being generated by protocol controlled assets are no longer needed directly for supporting activity/growth, those become additional payouts to the lockers of the governance token. Either paying out the yields directly or redistributing the protocol controlled assets to lockers over time to massively increase the yield veCLEV earns.
    • Stop (or at least significantly reduce) spending CLEV on yield farmers who can dump it on the pool

Ultimately, we are quite aligned, and your ideas are in sync with what the DAO and core team are doing right now with CLever. Your input is greatly valued, and I’m really glad you spent the time to give such a fantastic amount of time and thought towards this post. Looking forward to your next one already…hopefully I’ll be able to remember to reply more promptly! :slight_smile: