AIP #6: Addendum to Ledger Live Referral Program [poll edited]

[adrien]

AIP #6: Addendum to Ledger Live Referral Program

Author(s): @adrien part of the Ledger team)

Summary

An addendum to AIP #4: Ledger Live Referral Program to reward Ledger based on user deposits through Ledger Live.

Abstract [What?]

Expand the Ledger Live Referral Program to reward Ledger with Alkemi Network DAO Tokens (ALK) commensurate with user deposits (in addition to borrows) originating from the Ledger Live DApp.

Motivation & Goals [Why?]

The scope AIP #4: Ledger Live Referral Program (Snapshot) included rewarding Ledger based on user borrows via Ledger Live. The goal of this addendum is to create an additional rewarding mechanism to reward Ledger for user deposits as well as borrows. Given Ledger’s market share and user base, Ledger Live integration could facilitate a significant amount of deposits to Alkemi Earn. Even in the case that there is little/no borrow demand on Alkemi Earn from Ledger Live users, Ledger would have still added considerable value by facilitating supply. Therefore, a rewarding mechanism that is based on deposits is proposed to further incentivize Ledger to accelerate Alkemi Earn integration.

Specification & Implementation [How?]

With this program addendum, Ledger would be rewarded in 5 rate tiers based on the amount deposited and duration, with a minimum duration requirement of 30 days. Rewards based on user deposits will be made in Alkemi Network DAO Tokens (ALK) with the following key terms:

• Payments will be made monthly in ALK on the prior month’s VWAP

• CoinGecko Data Export will be utilized to calculate the VWAP

• Same payout methodology will be used for referral payments as for an internal team and contractor ALK payments

The referral mechanism for borrows originating through Ledger Live will also be implemented as described in AIP #4: Ledger Live Referral Program.

If this addendum is accepted, it will be implemented together with AIP #4: Ledger Live Referral Program in two phases, starting from integration and deployment in the ‘Open’ pool, followed by the ‘Verified’ pool implementation in Phase 2.

Vote

Sentiment check [DEADLINE: 22/04/2022]:

• Yes - Approve the proposal

• No - Do not approve the proposal

[warbuxx]

Voting No. These terms give Ledger more incentive than the foundation itself. Rent Seeking Middleman. Strongly opposed.

[McWaterCap]

Buxx,
Curious to better understand your take here. I’m earning tokens at a rate higher (both as a depositor and borrower) on the platform, than this AIP proposes we pay Ledger for volume. At volume, I’ve also purchased wholesale deposits and paid for loans in my former life. Flow from ledger looks to be virtually free from where I’m standing.

That you’re not supportive of this proposal makes me pause and think I’m missing something. On the surface this seems like a great partnership with a company that allows defi to thrive. Further, the unit economics look outstanding.

Interested in understanding your perspective. Is there an underlying point that is not evident in the above?

[warbuxx]

@McWaterCap

Curious to better understand your take here. I’m earning tokens at a rate higher (both as a depositor and borrower) on the platform, than this AIP proposes we pay Ledger for volume. At volume, I’ve also purchased wholesale deposits and paid for loans in my former life. Flow from ledger looks to be virtually free from where I’m standing.

@McWaterCap

1. Origination Fee share + Token rewards for deposits is double dipping. Deposit volume is not a metric that ultimately helps the foundation, as the foundation only collects fees from Borrowers. In this amended proposal they are now asking for both.

2. The resources internally on the engineering team, aside from already developing our app to work with their Open Source plugin hosted on github (despite there being no mention of satisfying a revenue share to actually get listed in their app store), now assumes we have to develop 2 tracking and payment systems to pay out Ledger.

3. Moving forward with this proposal effectively creates 2x additional engineering resources 1/2s the fees collected by the foundation which is already struggling to pay it’s initial costs and further increases the circulation of tokens above and beyond the 35% of the supply already being given to depositors and borrowers. In my opinion, this deal is no longer collaborative with the foundation and runs a higher risk of wasting company and foundation resources in order to satisfy a rent seeking middle man.

[coinberg]

This makes no sense from a macro perspective. The goal of the project should be ensure all functions of the network users, partners and the dao are properly circulating liquidity. As a dao signer I don’t see how providing additional tokens to ledger beyond the current allocation provided via origination fee helps to stimulate the ecosystem. If ledger was a committer of capital and added to TVL that would be another story but they are not.

Them wanting to be paid more in fees is ridiculous. The ledger live program is a program by ledger to enhance the use-cases of the user base of ledger. Adding services like alkemi earn already are a great way for ledger to support and grow its own user base. Taking 50% of the fees on generation is already amazing for ledger as it’s directly tied to there ability to onboard.

This proposal would have them earn the origination fee and then hurts the daos ability to accumulate fees. This is basically taking more fees then the communities own dao - long term this is not a good way for the ecosystem to self maintain and grow.

[MichaelNash]

@coinberg

If I am not mistaken, the allocation to Ledger on the origination fees is only 20%.

I agree that it is certainly not ideal Ledger to be double dipping. Would an acceptable alternative be to simply increase the origination fee?

Yearn protocol, for example pays 50% of their fees for referrals/affiliates.

We would have to run the numbers, yet this may not even mean moving from 20% to as high as 50%. And since this is a 90 day trial period this give us the opportunity to tweak the numbers further depending on the results.

Based on the above model - 10,000 new users from Ledger under tier 1 would bring ~$50m in total deposits. (current TVL is $15m)

Such that this new proposed fee to Ledger on a potential 50m in TVL would be under $1000. So, pending a breakdown of the model, might it be able to be covered by an increase in origination fee percentage?

[Jammy]

What are your alternative growth suggestions

[warbuxx]

For starters.

We have to accept that paying out tokens to get people to use our product or for partners to integrate is a “kick the can” strategy that is repeatedly failing. This is not unique to us but is happening to many other projects in the space as well.

The tokens in the ecosystem fund need to be used to reward users/partners who are promoting the health and sustainability of the protocol. Mainly the way to do that now is to incentivize real borrowing, rather than borrowing and re-lending to get more token rewards.

The origination fee’s should likely be raised to a higher fee rate like 25 or 30bps which is par for flash loan fees on other DeFi protocols. This will help better cover the core foundation operational costs, Cayman and BVI entity plus directors and annual filings etc…

The 35% allocation for the token supply over 4 years should perhaps be slowed down and/or reallocated for other purposes to slow down token circulation.

Core product market fit has still not been reached in that as far as I or the team are aware, we do not have borrowers that are using Earn Verified pools that cannot also use Compound, Aave or other alternative permissionless pools. And even though we have a handful of onboarded users that do meet this criteria, we have not seen any significant uptick in usage from them.

To really grow I believe we need to address the reality of the elephant in the room. And by that I mean we need to slightly pivot our main focus from compliant institutional DeFi to solve a problem worth solving now: lower cost of capital collateral, automated liquidations, flash swaps, cross chain synthetic market assets and a staking component that would allow users who earn ALK to increase their borrowing limits as ALK Rewards are accumulated, are a couple areas we’ve been exploring recently as a few examples.

Work on version 1.5 of the Earn protocol has been completed as of today, and now it will allow for additional features as we’ve managed to create some additional contract space for a V2 release.

[McWaterCap]

@warbuxx,

in relation to your points above, respectively:

Regarding borrowing and re-lending, I want to confirm that you’re acknowledging the difference between (i) straight yield farming borrowing and re-lending of the same asset vs. (ii) fodling positions to gain leveraged exposure to a specific asset (for hedging, speculators, etc.) One is clearly a better use case for the protocol than the other - however both do result in essentially ‘selling’ (reward) tokens in return for interest charged and origination fees, which are real revenue to the foundation. I would view this activity as a core use case to a borrowing and lending protocol and an activity that we’d want to see more of. Curious on your take here. So long as there remains sufficient liquidity, revenue is revenue irrespective of borrower risk position.

The protocol definitely warrants higher origination fees. I’d be surprised if the team and community think differently.

Shortly I’ll post a new proposal for the purposes of re-visiting the 35% bucket. I look forward to healthy discourse on this point.

Alkemi Verified is still early to market. I’m attracted to defi due to my tradfi background and defi’s potential to disintermediate very broken incumbents. But i cannot envision a future where defi promotes economic freedoms and underpins meaningful commerce, without complying with the most basic regs imposed upon financial institutions – AML and KYC procedures-- regs which limit the financial activity that brings physical harm to so much of the world. I hope to see a future were Alkemi and defi continue to sacrifice what they don’t really need in order to get what they really want – and by doing this avoid over-regulation in the process. All this to say - Alkemi has distinguished itself through compliant institutional DeFi, it’s difficult to time market acceptance, consistency will be rewarded here.

Looking forward to the future functionality you mention and debates!

[adrien]

Hello everyone, given the large amount of “No”, we want to further consider this AIP before progressing with it in the process. This will not prevent going live with the already approved AIP #5. Thank you very much for the constructive discussion, looking forward to work with you!
Adrien

[blockchainbri]

Thanks for the feedback/ support here @McWaterCap ! Good to have you in the community.

[warbuxx]

@adrien Thank you and the Ledger team for being flexible. Looking forward to working with you as well!