KLAP Rewards & Ve
Introduction
As of writing, "Ve" has been successfully used by several DeFi protocols in order to incentivize long term holding tokens. There have been several derivations of Ve, and we have chosen to put together several innovations into one model that incentivizes long-term holding/locking of KLAP.
The model below will naturally weed out mercenary farm & dumpers by:
Giving short-term mercenary capital a penalty on their total rewards.
Funneling those penalties to further incentivize lockers.
Giving yield boosters to long-term users and lockers. It will quickly become less economically viable for mercenary capital to stay on the protocol (unless they change their strategy), because each dollar spent on farming will have less and less efficiency without Ve over time.
VeStaking/Locking
All KLAP rewards received from lending/borrowing are vested for 6 weeks (1.5 months) by default. Similar to Geist / Ellipsis Finance, they can be claimed immediately by paying a 50% penalty.
The penalty goes back to the KLAP token treasury (separate from the treasury which holds protocol fees). VeNFT holders can govern the usage of this treasury. The KLAP in this treasury will likely be used to give more rewards to stakers/lockers. Therefore, those that claim early to sell are basically paying their rewards to the long-term holders and lockers.
The minimum lockup for veNFTs is 3 months, and the maximum lockup is 24 months. The longer the lockup duration, the more ve "points" that the user will receive. The amount of ve determines voting power and boost multipliers on amounts of capital being lent/borrowed/deposited into Pool 2.
Something that KLAP added is that by staking into Ve, users can get their 50% penalty waived. For example, if they have 100 in KLAP rewards (not fully vested), they can stake all 100 KLAP into Ve immediately.
Ve stakers also get a bonus KLAP reward paid out at the end of the lock period. The formula for the reward amount can be found here.
The longer the lockup duration and larger the lock amount, the more KLAP bonus rewards they will get. In summary, by staking into Ve instead of claiming all, the user receives the following benefits:
No penalty
Yield boosters from Ve
Governance rights through Ve
Bonus KLAP rewards for VeStakers (additional APR)
At least 100% to 300% more KLAP received based on lock duration
VeLP
We also developed a mechanism to lock LP tokens into Ve.
It is difficult to maintain liquidity in Pool 2 long term without strong incentives. We will be adding to Pool 2 incentives by giving LP token lockers Ve NFTs as well.
We have implemented Alpha Homora's Fair Value Algorithm for Uniswap V2 LP tokens in order to value the LP tokens at time of lock. This allows the protocol to attribute Ve points accordingly for LP lockers.
LP lockers receive almost the same benefits as normal Ve staking.
They immediately get boosted Pool 2 rewards thanks to Ve while their tokens are locked in Ve. On top of this, they get an additional boost in Ve points compared to single-sided staking (e.g. if you locked 100 dollars worth of LP tokens into Ve for 3 months, you would be attributed more points than if you just locked 100 dollars worth of KLAP into Ve for 3 months).
This should offset the risk of IL for Pool 2 LPs by giving them additional long-term upside in the protocol.
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