The following proposal is divided in two parts, the first part is a suggested tokenomics, the second part is a suggested step by step action plan written in chronological order in order to achieve such tokenomics, with the rationale of each step explained in detail. It will be a long proposal, but please bare with the length of it and read the proposal step by step as one step leads to another in order to achieve such tokenomics.
Aim of Proposal
The proposal aims to bring a new life to the current set of tokens, with mechanics retaining XVS as our most valuable assets. The proposal will also Revolt VIP-29 with a new bad debt solution Our first priority is to launch an investment product called Venus Development Fund on Binance.(See under Section “Venus Development Fund”)
Venus Development Fund, it is an investment product that will be launched on Binance as first priority to provide massive liquidity and profit. It also eliminates VIP-29 which stops the additional emission of 3.3 million XVS.
XVS, raising it’s importance in the system and have XVS as the most important token and massively increasing demand and incentive to hold and stake the token for long term (years) by linking the profit and performance of Venus Protocol. XVS will become a fixed supply governance token with a lot of additional benefits including profit sharing.
VRT will supplement XVS to reduce emission, it also has an incentive for holders to stake and lock their VRT into our protocol. The value of VRT will be remain a soft peg with Venus Protocol Total Value Locked (TVL).
VAI will remain as a stablecoin with dynamic interest rates curve, which interest rates increases in a curve if VAI falls below $1 to encourage returning of VAI, and decreases in a curve if VAI raises above $1 to incentivize borrowing of VAI. The interest rate curve is expected to create arbitrage opportunities to have balances the demand and supply for VAI and maintain a peg at $1. Vai will generate revenue of 7 or 8 digits per year under conservative estimates.
NFT will function as a borrowing cap key, in order to provide an extra layer of security against borrowing with bad intentions. At the same time it will be a revolutionary item as it will be the first ever NFT to incorporate with finance. It will also generate revenue for Venus Protocol through it’s function and more importantly, it’s aesthetics and collectibility. The current design brings in estimated revenue of 6.7 million USD within the first 9 months.
TOKENOMICS CAN ONLY BE ACHIEVED WHEN STAKING REWARDS ARE DISTRIBUTED IN 90:10 FASHION, WHERE USERS RECEIVE 90% OF THEIR STAKING REWARDS IN NATIVE ASSET (STAKE BTC, EARN BTC, STAKE BNB EARN BNB), AND 10% IN VRT
XVS will remain as our most valuable token by offering governance and protocol profit sharing. It will also have a fixed supply to ensure no inflation and store of value.
Supply & Emission XVS will eventually become a fixed-supply-token with 10 million of total circulating supply and 1.6 million supply held in Venus reserve for protocol operation. All staking rewards of XVS will be distributed in VRT. XVS will longer have any emission.
Governance: XVS will retain it’s governance function where 1XVS = 1 Voting Power, while community members that stakes XVS for over 30 consecutive days will receive additional 10% Voting Power.
Dividend, Buyback & Burn: Venus Protcol will initiate a monthly dividend rewards system in 2 stages:
a. Initiate monthly buy back & burn using 60% of Venus Protocol Profit until supply reaches exactly 10 million
b. After reaching 10 million supply, Venus Protocol will initiate Stage 2, where the 60% profit is now used to purchase XVS tokens from the market and distribute to community members who have staked XVS within the protocol for 30 consecutive days or more through an airdrop. The amount of airdrop is proportional to the percentage of a community member’s staked XVS in the whole staked XVS pool.
Auction of Reserve Token: Venus Protocol will initiate token auction for either bad debt or surplus, maximum XVS auctioned is capped at 1 million.
Bad Debt Auction: When our protocol has bad debt (after the settlement of the current debt caused by May 19, 2021 drop), reserve XVS token will be put out for auction, where buyers will auction the XVS with VAI, the winner (the bidder offering highest amount of VAI) of the auction will be exchanging their VAI for Venus.
Surplus Auction: A reserve level will be set to trigger surplus auction, when the Venus Protocol reserve reaches the the trigger level. If we set the reserve trigger level at 180 million dollars, and when the Venus Protocol Reserve Vault reaches 180 million, a surplus auction of 30 million will be initiated. VAI will be swapped by using reserve crypto assets and will be put up for auction. The winner (the bidder offering the highest amount of XVS) will be exchanging their XVS for VAI. The XVS will be put back into the Venus Vault, which is a separate vault from the reserve. The auction-triggering reserve level will be voted and changed in the long run when Venus Protocol flourishes and brings in more profit.
VAI minting discount: As mentioned above, VAI will have a dynamic interest rate curve to maintain the the peg. As XVS holder and community member of our Protocol, XVS holders can mint VAI by using only XVS as collateral with 10% interest rate discount from the interest rate curve. (Interest rate at 10% per year, XVS collateral minting will incur an interesting rate of 9% per year)
APY: XVS staking will remain a stable 18% APY, distributed in VRT to reward staking the token in the protocol.
Developer’s and Community’s GovernanceVote: the current 600K governance vote will be split into 4 portions, 2 for the development team and 2 for community representatives, community representatives will vote along side with the community, when the VIP does not threat the existence or the operation of our Protocol
XVS is expected to remain as the crown jewel of our Protocol, by having a fixed supply and a dividend system to encourage long term holding. The value will be resilient to market conditions and with the dividend buy back system, should increase exponentially over time through buybacks (please refer to the stock of Berkshire Hathaway)
VRT, as it’s name Venus Rewards Token suggest, will be solely programmed to for staking rewards related uses. It will be distributed as staking rewards and has the function of increasing the rewards of staked assets. It also carries the function of interest payment.
Venus Protocol will distribute 60% of it’s lending revenue to users staking assets without VRT bonus and 78% to holders with VRT bonus.
APY: VRT will have a 3.5% APY to ensure the emission of VRT is low, hence assuring the value (price) of VRT being stable.
Rewards Structure: Users gain 30% staking APY rewards on Venus Protocol while providing 20% or more VRT in their whole portfolio supplied to Venus Protocol.
Mathematic Illustration :
Ben supplied $1,000 BUSD without VRT at 8% APY, expected return in 1 year will be $1,000 x 8% = $80
*While supplying VRT, Ben swapped 20% ($200) of his BUSD into VRT, which leaves him with $800 BUSD and $200 VRT, and staked both assets in Venus Protocol, expected return in 1 year will be $800 x (8 x (1+30%))% + $200 x 3.5% = $83.2 + $7 = $90.2, assuming VRT price stays constant.
Liquidator’s VRT: When liquidation of asset occurs, Venus Protocol will automatically swap 20% of seized asset into VRT at market value before rewarding the liquidator. This encourages the liquidator to stake the seized asset into Venus Protocol at a premium rate.
Leveraged Trading, Borrowing: VRT should not be leverage traded on any exchange, borrowing cap of VRT should be set to 0, and can be used as collateral only at a collateral ratio of 40%.
By implementing the mentioned VRT tokenomics, we can expect VRT to be soft pegged to the TVL of Venus Protocol. In Ideal scenario, 20% of the TVL of Venus Protocol will be swapped for VRT for optimal rewards. However, ideal scenario is never realistic, in reality we can expect only 75% of the VRT will be utilized within the protocol. Because of that, TVL of Venus Protocol excluding VRT should remain around a 100:15 relationship with the Market Cap of VRT, hence creating stability for our Protocol in the long run.
VAI has always been under-performing as a stablecoin for Venus Protocol as the value of the coin has not been maintained to $1, hence cannot function as a stablecoin for BSC. The underlying problem of VAI failing to maintain the peg lies in the lacking of “stability fee” structure. (Please refer to MakerDAO and DAI for stability fee)
Implementing an Dynamic Interest Rate Curve on VAI Minting
Implementing a steep dynamic interest rate curve on VAI minting, with equilibrium point (when VAI is at $1.0000) at 5%. The curve interesting rate of minting VAI should go down to 0% when VAI reaches $1.08, and should go up to 15% when VAI drops to $0.9. The above mentioned interest rate curve encourages minters to mint VAI with low interest rate to sell to the market to increase supply of VAI to lower the price. The high interest rate when VAI is below $1 penalizes users for holding VAI to encourage buying back of VAI on the market and returning to the Protocol.
VAI will be pegged to $1 as a result of market demand and supply by controlling the interest rate curve for minting VAI
Collateral Factor: The collateral factor to mint VAI is 65%, users can mint $65 of VAI for every $100. Liquidation rules apply normally to the minting of VAI.
APY: VAI will have a dynamic staking APY of 60% of interest rate curve without VRT, 78% with VRT. Minting VAI is encouraged to leave the Venus Protocol system for decentralized network usage as a real stablecoin, instead of being used as a staked asset.
By implementing VAI minting interest rates, Venus Protocol is expected to receive millions of dollars of interest revenue in VAI minting services
XVS Minting Benefits: By using only XVS as collateral to mint VAI, interests rate will be lowered by 10% (interest rate will be 4.5% instead 5% minting using other collaterals)
NFT Market: VAI will be used as the only currency of the Venus NFT Market after being successfully pegged to $1
By pegging VAI to $1 and implementing an interest rate curve, Venus Protocol will be expected to generate millions in revenue through VAI minting, which the fruit will be shared among the valued community members through the Dividend of XVS staking
NFT is used for a personal borrowing cap by setting up an NFT profile within Venus Protocol. Each user can only borrow assets as much as their NFT profile allows. Think of the NFT as a personal credit card for borrowing from Venus Protocol. Current borrowed assets that exceeds the NFT borrowing cap will not be liquidated but further borrowing will not be allowed until an NFT profile with higher borrowing cap is being set up.
Total Supply: 785,477
NFT Functions: The NFT will carry a key that unlocks a personal borrowing cap for all assets. There will be a tiering system that has 12 tiers ranging from $5,000 to $1,000,000,000 (1 billion). There will be an extra tier to unlock borrowing of over 1 billion only by request and approval from the Venus council. Such minting will have incur an 8-digit one-time fee and an annual retainer fee.
Aesthetics & Variations: The main inspiration of the VENUSNFT will be from the Roman Goddess, Venus (but with clothing). There will be 10 variations in aesthetics in each tier, at a total of 120 aesthetic variations at initial launch.
Combining System: For users holding 5 copies of the NFT in the same tier, they can take the NFTs to a portal within Venus Protocol to do a “Burn and Remint” procedure for a higher tier NFT with a random aesthetic. The highest tier for mintable for such combining system will carrying a personal borrowing cap of $500,000.
Royalties and Fees: Trading of NFT will incur a 10% royalties, being split by Venus Protocol and artists. There will be a one-time fee to set or replace an NFT profile ($10, paid in XVS / VRT / VAI) and a small fee for minting through the combining system ($5, paid in XVS / VRT / VAI).
Post Launch Limited Edition: After 3 months of the full launch of the NFT token, a new set of aesthetics will be dropped. The new aesthetics editions can only be obtained by chance through the combining system mentioned above. The supply of such editions are very limited and should retain a high valuation.
Extra Security for Venus Protocol through NFT: This is the most important function of the NFT. Although the aesthetics is definitely one up side of the NFT as the community will all hold pieces of great arts. The security of such NFT borrowing cap will make attacking Venus Protocol extremely hard and expensive. In order to activate a loan attack that can cause significant damage to Venus Protocol, the attacker has to acquire an NFT that carries a borrowing cap of 1 Billion. The difficulty of such action is very high, the NFT with such high borrowing cap is worth millions of dollars on it’s own. Secondly, the NFT is at an owner that needs the NFT for borrowing, which makes attackers impossible to obtain such NFT without paying an astronomical price. This disincentivize all attempts to damage Venus Protocol through loans.
VENUSNFT provides an additional revenue stream to Venus Protocol, that will be shared with all XVS community members that participate in staking within our Protocol. It also provide an very hard-to-breach wall as security against further loan attacks
AFTER DISCUSSING THE TOKENOMICS OF ALL TOKENS, HERE IS AN ACTION PLAN, ALL ITEMS ON THE PLAN IS IN CHRONOLOGICAL ORDER
The action plan is non-exclusive, all other items mentioned in the Venus V3 Roadmap should also be implemented along with the following items.
Venus Development Fund
A Stablecoin fixed term investment will be launched on Binance in the name of Venus Development Fund, and stop the implementation of VIP-29 The fund has no maximum, with a target funding received of at least 1 billion USD. 70% of the Venus Development Fund will be deployed to acquire a basket of crypto assets (BTC, ETH, ADA, BNB, XVS, VRT). 30% will be kept in various centralized stablecoins (USDT, USDC, BUSD) as a risk anchor. The current market sentiment is perfect to launch such a fund as a stablecoin investment product. The demand for such product will be high.
All assets will be then deposited to a separate vault in Venus Protocol that will be deployed as assets in daily operation to lend out. The vault will set aside an linear amount of stablecoins monthly to prepare for the repayment of Venus Development Fund. 60% of remainder is retained in the vault and 40% of profit will be distributed in XVS dividend system.
Venus Development Fund Variable APY: The Venus Development Fend will be similar to a “Market Linked GIC” product that banks offer. The APY of the Venus Development fund will have a base APY and a variable APY that relates to the performance of XVS token.
The interest rate will be a 4% base plus a profit factor of XVS price growth over 1 year.
Mathematical Illustration *(using 5% for profit factor as an example)
If XVS price rises 100% in a year, the interest payout (in stablecoins) will be 4% + 100 x 5% = 4% + 5% = 9%.
If XVS price rises 800% in a year, the interest payout (in stablecoins) will be 4% + 800 x 5% = 4% + 40% = 44%.
The better the performance of XVS is, the more earnings Venus Protocol can capture from the Venus Development Funds.
Taking the previous example as mathematic example, assuming all crypto assets rises for a similar percentage in 1 year.
If XVS price rises 100% in a year, the interest payout (in stablecoins) will be 4% + 100 x 5% = 4% + 5% = 9%, the profit from the fund is 100% appreciation of 70% assets is 70% increase in total value. After paying out 9% interest the total profit captured is 61%
If XVS price rises 800% in a year, the interest payout (in stablecoins) will be 4% + 800 x 5% = 4% + 40% = 44%, the profit from the fund is 800% appreciation of 70% assets is 560% increase in total value. After paying out 44% interest the total profit captured is 516%
However, the expected growth of XVS is likely to be higher than the general market, the Venus Development Fund product has to be adjusted after consulting our DeFi in the Venus Team.
From past historical records, the crypto market is expected to have an annual return of 180%. Therefore Venus Protocol will be able to capture over 100% of the funds invested into the Venus Development Funds as profit after a year. All profits will be shared with holders through XVS Dividend system. At the end of the one-year term of the Venus Development Funds, 60% assets will be liquidated for profit distribution through Venus Dividend System and the remaining assets will be transferred to Venus Reserve.
With the implementation of Venus Development Fund, Venus Protocol is no longer selling 3.3 million of XVS token over the following 9 months. This gives potential investor higher incentive to speculate on the growth of the token. It also will generate a massive amount of profit for Venus Protocol that will be shared with our community. The 77 million bad debt caused by the manipulation on May 19, 2021 is fully covered. VIP-29 will not be implemented.
Changing Reward Distribution System And Deploying VRT
After settling the bad debt and receiving the new-found liquidity injection through the Venus Development Fund, the next step is the change to staking rewards structure for our community. The emission of XVS token as rewards will be completely stopped. VRT will be programmed to function as above (See Tokenomic (VRT) Section).
Then after, instead of emitting XVS to pay out staking rewards, 60% of lending revenue will be distributed to suppliers in a 90:10 ratio between native assets and VRT. For example, if you stake $100 of BUSD with 10% APY, you will get $9 BUSD and $1 worth of VRT. VRT holders that is qualified for bonus rewards (staking 20% of supplied portfolio to Venus in VRT), receives 78% of revenue. Both VIP should be implemented within a short time frame to help VRT find it’s reasonable market value and suitable functions in the Venus Protocol. The community has been waiting for a VRT implementation and XVS improvement only makes sense after implementing the Venus Development Fund, VRT deployment, and Reward Distribution Changes.
VAI pegging should be next item on the list. Pegging VAI increases the status of Venus Protocol within Binance Smart Chain. VAI minting also generates revenue for our Protocol.
Improving XVS token
Because of the extra revenue that is generated with VAI minting, XVS Dividend system can be put into work. First by buying and burning, then start dividend distribution after circulating supply reaches 10 million. Delaying XVS token improvement to after VRT deployment might work against the interest of some of our community members. However, I think it totally makes sense for the Protocol to generate serious profit before implementing any profit sharing system. The value of the new XVS token will be exponentially higher than our legacy XVS token that we are holding now.
After all the steps mentioned above and adjusting vital aspects for Venus Protocol that are written in the V3 Roadmap, the NFT market can be launches in stages. The first stage will be a blind lottery and the second stage will be the official buying and selling, combining mechanism of the NFT, the last stage will be the launch of bidding system and all the additional aesthetic variations. The 3 stages might take 6 months, or even 9 months. However, the whole system to ensure the Venus Protocol is more secure and protected. And we as the community can enjoy pieces of great art produced by our commissioned artists.
By this point we should be in 2022, and all new tokenomics and mechanics of Venus Protocol will be built and new streams of revenue will come to benefit our XVS community
That’s the end of my proposal, please comment what you think about the new tokenomics and implementation. This is not a team or a collective community proposal. It comes from me, Marcus, a guy from the community. I take responsibility of what I put down and hope the community agrees with all of it, at least a lot of it.
The proposal aims to make XVS our king, as the most valuable asset of the Venus Family, that also carries the weight of running our Protocol. VRT will be supplemental and rewards driven. VAI and NFT will be deployed to increase profit and status of Venus and BSC. The better profit we can generate, the better XVS will be. VRT will stay stably pegged with Venus TVL. The most important part of the proposal, Venus Development Fund (our first priority) will eliminate our bad debt and provide new liquidity and high profitability for our protocol to compete and win against our competition in the Ethereum Network
Thank you for reading my proposal. Let’s make Venus great again, this time, together, as a community.