8RC-4: Remove MPH payback during withdrawal

Proposals Request for comments
#1

Author: Zefram Lou (zefram@88mph.app)

Specification

Currently, depositors need to pay back a portion of the MPH reward they received, which is 30% for most pools. This paid back MPH is sent to the governance treasury to fund community initiatives such as liquidity mining.

We propose that the payback proportion should be set to 0%. We also propose that the governance treasury be funded in the same way as the dev fund, which is minting 10% extra MPH when minting depositor rewards.

Argument for

Simplifies UX

The existence of MPH payback makes the user experience unnecessarily complex.

  • Having “temporary APY” and “permanent APY” is confusing to new users.
  • When withdrawing a deposit, the user needs to first redeem their vested MPH, and then use the MPH to withdraw the deposit.

Easier integration

Protocols that use 88mph to earn fixed-rate interest need to maintain a reserve of MPH to cover the cost of withdrawing the deposits, which makes integration more complicated. Removing the requirement to pay back MPH during withdrawal will make integration easier, which will lead to more TVL.

More available cash for the governance treasury

Using MPH payback to fund the governance treasury means that the treasury only receives funding when a user withdraws their deposit, which means there could be a few months or a year of delay between the deposit’s creation and the treasury receiving funding.

This is not ideal for the growth of the protocol. For instance, if the TVL of 88mph suddenly grows by 10x, the protocol would naturally see a lot more activity, and the number of users would increase as well. However, because the governance treasury won’t receive any benefit from this growth until much later, it is difficult for the protocol to quickly launch initiatives to capitalize on the growth.

Funding the governance treasury at the time of deposit allows 88mph to be more adaptive to growth.

Lowers risk of floating-rate bonds

Requiring users to pay back MPH to withdraw their deposit means that under certain conditions, a depositor may not be incentivized to withdraw their deposit at all. For instance, if they had sold their MPH reward immediately after making the deposit, the cost of the MPH payback might exceed the deposited amount if the price of MPH has gone up.

In some of the older 88mph pools, a floating-rate bond holder only receives interest payment from the deposits whose debt they funded when one of those deposits is withdrawn. The possibility that some depositors may not be incentivized to withdraw makes buying floating-rate bonds riskier.

Argument against

Decreases buy pressure

Removing the MPH payback requirement decreases the buy pressure for MPH and makes it an easier decision to simply dump all of the MPH reward you receive as a depositor.

Unfairly distributes protocol income

Part of the rationale for introducing the MPH payback mechanic in the first place was to ensure that existing 88mph users will have a boosted proportion of MPH compared to past users and speculators. If the payback mechanic is removed, most MPH tokens in circulation will be generated by past deposits rather than current deposits, and thus most of the protocol income will go to past users rather than current users. This is unfair to the current users.

Required actions

  • Update MPHIssuanceModel contract to mint 10% extra MPH to the governance treasury when minting depositor rewards. Should be bundled with 8IP-2’s smart contract upgrade if both 8IPs pass.
  • Call MPHIssuanceModel::setPoolDepositorRewardTakeBackMultiplier() to set the takeback multiplier of each pool to 0.
  • Update the website to remove mentions of “temporary” and “permanent” MPH rewards.
2 Likes
#2

Will this proposal affect existing deposits?

#3

It will affect existing deposits, meaning they won’t need to pay back the MPH reward if they withdraw after maturation. Deposits that are withdrawn early will still require paying back 100% of the MPH reward of course.

#4

I think this makes sense, especially to simplify third party integrations. It will result in some possible negative price pressure due to “temporary” MPH rewards distributed no longer being required to be paid back, but that impact will only worsen over time so we should just get it over with.

#5

Fully agree with gnarlygoat- better to bit the bullet now than have more deposits to have to pay back in future. More growth will occur through integrations over time and anything we can do to expedite is worth it.

#6

Simplification is key. It removes a lot of friction from the user experience having to determine what is temporary APY vs permanent, and managing their MPH for payback.

I think providing and improving on opportunities to gain additional APY (staking, lending, LP) is a strong enough incentive to hold rather than dump the rewards (in addition to FOMO on future appreciation of the token itself).

I like the 10% minting rather than 30% payback. It reduces inflation of circulating supply and funds the treasury much quicker. The 30% were newly minted anyway, but it would be 2/3 less being minted. It also would be going directly to the noncirculating supply in the treasury, rather than being released into the market for up to a year first.

5 Likes
#7

So this paired with the new rules for vesting over the length of the deposit. Or whatever the final iteration of MPH vesting is implemented, seems like a fair compromise. Funding the governance treasury upfront has merits because the faster those grants/projects can be stood up, the better.

If early adopters are being rewarded too much it is possible to offset that with another mechanism. Like how currently there are some awesome NFTs for certain pools. We could introduce a boosted MPH reward for certain pools with criteria/scope constraints. “Next 10 people in the Uni Pool get 5x MPH rewards.” Since I just came up with this idea I can only see the benefits…lol

If a mix and match of NFT and boosted MPH rewards was implemented to bootstrap TVL
Pros:

  • NFTs would become more scarce and with lessened frequency more collectible.
  • NFTs both future and previously issued would have the perception of value comparable to MPH Boost
  • Both current and future users would have a opportunity to level the playing field a bit by depositing a standard reward in a fraction of the time.

Cons:

  • Needs a max boost lol, so no one could exploit the reward beyond reason.
  • Boosted rewards could be worth more than the principal deposit.

Might keep editing this if the idea gains any traction with any additional thoughts/feedback. I like the name Horsepower Boost or HP Boost if adopted.

Edit: The multiplier on the boost could even be as low as 1.25x even that, I feel, would be huge for some people.

#8

This is complicated, but I incline to agree. Simplicity is the key for sure. Implementing this correctly with other proposals is key as well. We are basically talking about completely rebuilding MPH protocol, is was the thing of it’s own before and if all implemented will be more like others and it’s hard to say now will it be good or bad.
One thing is clear - MPH has low TVL for some reason but some crappy “just print moar tokens” projects have much higher TVL only because users don’t understand inflation mechanics and go wherever APR numbers are higher. Hard to fight psychology with math:) But if MPH to follow initial target of becoming “base layer” small user psychology importance decreases and right Parthenerships become first priority. Imagine MPH become base layer for some AAVE deposit pools providing even fixed APY instead of everchanging, this will be a success!

2 Likes
#9

ya, lets do this.

i purchased ZCB, staked on sushi, and am LM on 88mph now. I still don’t totally understand exactly what the MPH deposit/withdrawal requirement was all about. way too confusing…