SIPS-054 [KPI Incentives] - Real Yield USD KPI Proposal

The purpose of this forum post is to discuss the upcoming KPI proposal for Real Yield USD which will go to vote on Monday, May 22, 2023. The proposal text is below.

Status: Under discussion; To be put to vote Wednesday, June 21, 2023 (Earliest)

Author: Seven Seas

Strategy: Real Yield USD

Posted: Friday, June 16, 2023


Strategy details: RYUSD has been a groundbreaking example of how a decentralized vault can effectively implement a competitive and sophisticated strategy, thanks to the innovative execution infrastructure provided by Sommelier. The strategy maximizes USDC, USDT, and DAI yield by lending on Aave and Compound, and LPing on Uniswap V3. The primary source of yield comes from the vault being a top LP in the highly competitive USDC/USDT 1bps pool on Uniswap V3 while utilizing Aave and Compound as passive reserve positions. To the best of our knowledge, RYUSD is the only vault democratizing access to this particular Uniswap pool.

Performance: RYUSD has thus far seen an organic APY of 5.5% and is sitting at 11.78M TVL making it the 11th largest vault on Ethereum Mainnet at the time of writing. Over the last 90 days, TVL has stabilized between 11.5M and 12M TVL while incentives have decreased from a monthly 1M to 150k SOMM. This indicates that RYUSD has found organic product-market-fit. APY has stabilized north of 5% which remains state-of-the-art for blue chip stablecoin yields on Ethereum Mainnet.

Over the course of the 90-day period, RYUSD showcased impressive performance amidst the USDC depeg event, serving as yet another testament to the resilience of the Sommelier architecture. More details on RYUSD’s performance during the depeg event can be found here: Real Yield USD — USDC Depeg Retrospective | by Seven Seas Capital | Medium.

It is expected that as RYUSD continues to perform consistently through a variety of market conditions and builds a track record of longevity, it will attract further liquidity.

Rationale for KPIs: Since the launch of RYUSD, Sommelier has seen incredible progress including increased liquidity, valuable partnerships with other protocols, and a surge in interest from strategists within the ecosystem. These network effects were made possible by RYUSD’s powerful demonstration that the Sommelier protocol enables state-of-the-art vault strategies.
In addition, the smart contract developments required to bring RYUSD to market included building adaptors for Aave, Compound, and Uniswap V3. These adaptors serve as a robust foundation supporting large variety of future strategies. In fact, these same adaptors have already been used to launch Real Yield ETH, Sommelier’s second most popular vault, and there are several more promising strategies being developed that make use these adaptors.

This KPI proposal aims to internalize the ecosystem-level benefits brought about by the development and success of RYUSD.

Linear incentives: RYUSD initially began with substantial liquidity mining programs to bootstrap the launch. Since then, as the vault has matured, the incentives have been significantly reduced. In any case, we are waiving the linear incentives portion of the proposal.

Discrete incentives (Each entry is in SOMM tokens):

Distribution period: every 3 months

Total length of incentive program: 6 months

APY/TVL $5M $7.5M $10M $15M $20M Total
1% 75,000 50,000 25,000 25,000 25,000 200,000
2% 50,000 25,000 25,000 25,000 25,000 150,000
3% 25,000 25,000 25,000 25,000 25,000 125,000
4% 25,000 25,000 25,000 25,000 25,000 125,000
5% 25,000 25,000 25,000 25,000 25,000 125,000
6% 25,000 25,000 25,000 25,000 25,000 125,000
Total 225,000 175,000 150,000 150,000 150,000 850,000

Maximum incentive per quarter: 850,000 SOMM tokens, corresponding to a performance of 6% APY on a TVL of $20M.

Additionally, if the KPIs are met, as determined by the KPI council, the tokens will be sent to a vesting contract to be locked for 2 years.

To implement the 2 year vest, we have deployed a timelocked contract to receive the funds (if the council determines that the KPIs have been met) at address: 0xaa71f75fb6948a6c814a28675241fc5e3bcac355

Once the funds are received by the timelocked contract, a transaction will be sent to the contract to initiate the transfer to a Seven Seas multisig. The transaction to distribute the funds to the Seven Seas multisig will be executed 2 years after it is initiated (via the timelock mechanism).