AELIP-14: Updated Tokenomics

Author
StatusImplemented
ImplementorTBD
ReleaseTBD
Created2022-04-07

Simple Summary

This AELIP proposes to update Aelin Protocol tokenomics. Protocol fees on each deal will be collected directly in the underlying deal token, which will be placed in a 6 month escrow contract. Every quarter the Aelin Council may sell the deal tokens that have completed escrow in the prior quarter for AELIN tokens or continue to escrow them for another 3 months.

The received AELIN tokens will be placed into a separate contract owned by the Aelin Council; each quarter, 25% of the AELIN tokens in this contract will be distributed across stakers (25%), liquidity providers (45%) and to the treasury (30%).

Abstract

Moving forward, the 2% protocol fee on each deal will be collected in the underlying deal token (unwrapped), which will be placed in a 6-month escrow contract. Every quarter the Aelin Council may sell the deal tokens that have completed escrow in the prior quarter or escrow them an additional 3 months.

Deal tokens will be sold by the Council directly on an AMM or via an aggregator for AELIN tokens. If the sale of deal tokens causes more than a 1% price movement in the deal token, the sale amount will be spread out in smaller chunks over a longer time interval managed by the Aelin Council. In this case, the Council will either use a TWAMM (sell x tokens per day over y days) or manage the process manually over time.

If AELIN tokens are not available via an aggregator or AMM where the deal token has liquidity, the Council will first buy the native chain tokens (ETH, AVAX, FTM...) and then complete a second transaction to purchase the AELIN tokens.

The resulting AELIN tokens will be distributed to the Aelin Treasury (30%) along with single-sided stakers (25%) and LPs (45%) who will claim them from staking rewards contracts on the network where the deal is occuring. The rewards will be emitted over the following quarter for stakers.

Motivation

In the current state of the protocol, deal fees are collected and held by the Council which will then distribute the whole amount to AELIN stakers. This process is supposed to be updated soon, to be fully automated and avoid Council custody.

However, this means that there will be a lot of different deal tokens for stakers to claim, causing issues with gas and transaction fees and potentially making it nonviable to stake in small amounts. There is no point claiming dust from various tokens, multiple times a month.

This AELIP will address this issue by allowing stakers to claim AELIN, a single token. AELIN tokens will be bought at spot price by the protocol itself. This will remove the necessity for stakers to claim multiple tokens, multiple times. In this model, they only claim AELIN tokens, one time per epoch or once per multiple epochs as desired. It also adds buying pressure to AELIN, which the current tokenomics do not offer.

Specification

Overview

Since this AELIP will update AELIN tokenomics and the way staking works, a decent amount of changes and improvements are expected. These changes can be divided into the following sections:

  • Protocol fees: Underlying deal tokens will be collected directly instead of wrapped deal tokens when accepting a deal in the AelinPool.sol contract. In the current model, wrapped deal tokens are minted and sent to the investor, the sponsor and the Aelin treasury. Then the investment tokens are sent to the holder. This AELIP will update this part specifically so no wrapped deal tokens are sent to the treasury, only the underlying deal tokens directly. However, these underlying deal tokens will be subject to a 6 month escrow before they can be sold by the protocol to buyback AELIN tokens. Additionally, the Council may continually escrow the tokens for 3 months as a time if they are not yet ready to be sold. The amount of time deal tokens are escrowed for will be updatable by a smart contract function only the Aelin Council may call.

  • Staking rewards: The staking experience will not alter for users from what they experience today. However, the amount of AELIN given to stakers will no longer come from treasury funds. Instead, the AELIN given to stakers (70%) will come from a buyback program once a quarter and the rewards from the buyback will be emitted over a quarter (13 weeks) split between pool 1 (25%) and pool 2 (45%).

Rationale

Most of the questions, doubts and suggestions were around the buyback idea and how Aelin should manage it versus the original deal fee structure. Which tokens does the protocol need to collect for fees, how do we sell these tokens and finally what do we do with the AELIN tokens we just bought?

As discussed earlier, the current state of the protocol collects fees from the wrapped deal tokens. This AELIP proposes to change this and take underlying deal tokens on a 6 month escrow instead with optional 3 month extensions by the Council.

Another potential solution would have been to keep collecting wrapped deal tokens and auction them off immediately at the end of every deal. The main motivation for this was the possibility of selling these “remaining” deal tokens at premium, especially for hyped pools which got their cap filled rapidly. This means more fees collected and more AELIN to be distributed to stakers at the end.

The problem is, at the time of writing this AELIP, there is no guarantee that most of the pools will have the same level of hype. This could lead to selling deal tokens at discount instead of premium for pools which didn’t fill their cap or just didn’t get enough interest. Under our current plan every protocol doing deals with Aelin will have at least 6 months to continue developing their projects and improve their token price in the process.

Another idea around these new tokenomics was to burn the freshly-bought AELIN instead of redistributing them. The main idea behind this was to drive the price up when buying and then to reduce the supply by burning them. There are only 5,000 AELIN tokens and making the supply a deflationary one was a very interesting thought. But unfortunately, this solution would make the staking of AELIN tokens completely useless. No incentives to stake and earn a passive income could be a turnoff for a lot of investors, which could turn the token into a very speculative asset, driving people to buy it only before the end of a deal, pre-buyback, and selling it just after.

Finally, it is crucial for these new tokenomics to be protected against people willing to game the staking and rewards claiming mechanism. This is why only a portion of the rewards coming from the cumulative buyback tokens (25% of the AELIN) will be distributed quarterly, instead of the full amount. This will encourage stakers to hold their position for the long term in order to claim the entire share of rewards.

Note that there is continued research being done around adding time-weighted staking to the system described above, where you increase your rewards the longer you commit to staking. This will work alongside our current system but the implementation is still under research. A new AELIP will be presented in the future outlining how this will work if it is added to the system.

Technical Specification

N/A

Test Cases

N/A

Copyright and related rights waived via CC0.