Vote Escrow Orca (Driving intrinsic and monetary value for the ORCA token)

The ideas presented here can be considered incremental and complementary to each other.
Initially, this proposal looks to frame previous proposals from just a locked Orca (xOrca) to vote token (vOrca), while providing a new outcome as a fusion of previously proven and successful vote dynamics veOrca.

xOrca:

The more simple form to provide more value to the Orca token is by reducing the liquidity of the token in the market, generating appreciation for the token. This can be achieved in the form of “staking”. The locked Orca (xORCA), would reduce the amount of Orca liquidity in the market, and will provide a natural appreciation. Users that locked Orca in form of xOrca within the protocol would accumulate system fees over time in the form of additional Orca.

Considerations: Because of the Orca volume, the APR could face low values that may not incentivize users to lock within the protocol as expected. Additionally to this, the current low utility of Orca could also generate larger sell pressure instead of driving users to lock it. Finally, driving incentives to locked tokens instead of liquidity pools and Whirlpools would discourage the participation of a broader audience.

vOrca:

A vOrca token (vote Orca) would drive a higher value to the orca token by generating intrinsic value on itself. vOrca grants token holders governance power over the Orca protocol. Locking it within the protocol safeguards voting power for the user and the protocol. At the same time, the stakes/lockers could receive on top of the governance power the same system fees that the xOrca token mentions before.

Considerations: The main considerations on top of the previously mentioned ones for xOrca, would be the strategy to drive intrinsic value by governance. If the protocol does not have a higher participation rate on governance or the governance benefit is not enticing enough for the community, the token will depreciate equally.

The best alternative to both mentioned dynamics would be to adopt the dynamics of a xOrca token as a “liquid” alternative to staked Orca tokens, where a vxOrca token would become a locked Orca token that provides yield and higher voting power. And opens the opportunity of increasing the value of the Orca token even more of its constantly increasing intrinsic value. This is explained next as veOrca:

A veOrca token (vote-escrowed Orca) would drive a higher intrinsic value for Orca tokens, by incentivizing Orca holders for the long term.

Vote-Escrowed Orca (veOrca):

Introduce vote-escrowed locking of Orca as a replacement for staked Orca, where a longer locked duration grants a greater share of voting power and boosted ORCA emissions. Orca would be locked up for up to 4 years in a contract to mint veOrca.

Voting:

veORCA will replace ORCA in governance voting. Aiming to introduce gauges that dictate ORCA emissions directed towards each Orca pool as an ongoing governance topic.

Orca incentivizes certain liquidity pools (LPs) with Orca tokens to those who provide liquidity on those pools. If Orca enables a voting token, an additional layer on top that could allow anyone (even other protocols) to vote for those emissions on specific pools. This would provide more intrinsic value to Orca, and would increase demand for it. These votes, as other protocols that have implemented similar dynamics, could haven for a two-week period. This can also create other dynamics like vOrca/veORca holders receiving “bribes” every two weeks from the protocols that want to incentivize their own LPs.

A borrowed case study:

Beethoven, a DEX in the Fantom ecosystem,announced that they’d be implementing their gauged voting + bribing system in late December 2021 ($BEETS = $0.15). It was fully implemented in February 2022. Since then, the token increased to a high of $1.30. The price increase was despite FTM token going down in value by about 50% from mid-January to present.

One of the beets.fi community members keeps a spreadsheet showing how the past voting rounds & bribes have played out.

(See Beetoven Bribes). On the last round of votes ( “Vote 2” tab) these were the main results:

One protocol offered $6,350 in $USDC stablecoins for every 1% of the vote that went to their LP. This protocol ended up capturing 4.66% of the vote, meaning that they paid out $34,735.

Additionally, most of the protocols that participate in “bribe wars” see an increase in their own tokens price since by acquiring a lot of votes, then their LP ends up having a higher APR (due to more dex’s emissions), which encourages people to buy that protocol’s token in order to farm those high APRs.

Considerations:

  • The bribing system can be owned by Orca or other new protocols.
  • The number of emissions would need to be revised as also the number of pools that can participate in those votes.

Dynamic

Vote-Escrowed Orca:

  • Introduce vote-escrowed locking of Orca(veOrca) as a method for Orca staking, where a longer locked duration grants a more significant share of the voting power. Orca could be locked up for up to 4 years in a contract to mint veOrca.

Pool-Voting:

  • veOrca will replace Orca in emissions voting. Introduce gauges that dictate Orca emissions directed towards each Orca pool participating.
  • Voting period: Each voting period lasts for 2 weeks. Users can vote for multiple pools with different weights for each pool.
  • At the end of each voting period, votes are tallied and the weights for the upcoming two weeks are assigned to each pool in proportion to the votes cast in favor of such pool during that voting period.
  • Once a user votes on a certain weighting for a certain period, that vote will remain ‘active’ from that point onwards. This means a user who wishes to keep voting the same way doesn’t need to repeat the process every 2 weeks (and, conversely, that a user who wishes to vote a different way, or abstain from voting, must proactively change their vote from the current default).

Benefits

  • Incentivize Long Term Supporters: veOrca holders will support the protocol over a longer-term horizon rather than speculate on price fluctuations in the short term. Those with strong conviction are rewarded the most over time.
  • Ecosystem Growth: veOrca creates a flywheel effect where emissions drive higher TVL, in turn generates more fees, and leads to greater value accrual to the Orca token. This better aligns incentives between Orca holders and the core stakeholders for the Hubble protocol.
  • Increase incentives for 3rd parties to accumulate Orca: Protocols will be incentivized to lock up Orca to vote and support the base borrow rate for their preferred pool. Directing Orca emissions can often be a more efficient use of funds for 3rd parties than native incentive programs.
  • Locking Orca Supply: Longer lockups of Orca contribute to a lower Orca supply (less is available on the open market to sell). Orca will maintain a more stable price as a result of the new design.
  • Improved Security: If governance is enabled Orca would be susceptible to attacks via borrowing Orca, and voting with Orca to make adverse changes to the protocol.

Risks

  • Lacking Incentives: Orca may not generate enough fees or governance value may not be enough to motivate Orca holders to lock into veOrca.

Next Steps

Any feedback is welcome, and this aims for the community to discuss. Ideas will be incorporated as needed before a poll is introduced.

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What does the Hubble protocol have to do with this? “Ecosystem Growth: veOrca creates a flywheel effect where emissions drive higher TVL, in turn generates more fees, and leads to greater value accrual to the Orca token. This better aligns incentives between Orca holders and the core stakeholders for the Hubble protocol.”

Nothing at all @Cortina. This is a typo. I used the same sentence from a previous proposal I made for Hubble protocol. It should be “Orca protocol”.
It seems I cannot edit my proposal at the moment.

Hi _whycf, thanks for the thoughtful proposal.

When I think about governance and the utility of the token, I generally believe that token holders shouldn’t be involved in granular decisions related to the protocol. I believe that governance will be more effective if a subset of the community (e.g. delegates or council members) are responsible for formulating a strategy and that this subset are ultimately held accountable by token holders.

Interestingly, there have been a few folks that have written similar thoughts:

My main concern with ve-tokenomics is that it hands over the levers that control emissions rates to the highest bidder. From what we’ve seen from protocols with ve-tokenomics implementations in the wild is that the highest bidder usually have their own agenda that is unrelated to what’s best for the protocol. I think it may be unwise to explicitly allow governance to be swayed by the highest bidder without any form of accountability.

Let me know what you think!

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@yutaro
These two articles are great. I was getting familiar with Optimism when you replied to my proposal.
I believe that the approach from the Lightspeed Democracy article makes a lot of sense and it seems to be a good approach, I may call it in the current state of the economy Utopic. This type of governance model makes more full sense for an L2/L1 network (as it has originated itself from there). I wonder if there is a good way to try this in some way within the protocol. While I was reading it some concerns and questions arise in my mind.

If Orca sets delegates/representatives, those will hold power as the rest of the token holders allocate (stake) tokens to each of them. This encourages people to become representatives since they will receive an incentive correlated to their good representation of those who have ‘voted’ for them. At this point, I’m assuming that token holders that provided a vote for a representative also get a tangible benefit from their representative vote. (i.e. a staking apr, or correlated benefits on their Protocol investments as LPs rewards, etc)
Nevertheless, this doesn’t get rid of briberies. Bribes would go to those representatives. Bribes systems may even attract token holders so they can vote for the right representative. Tokens, enable this while stocks don’t.
To reduce the risk of briberies, a larger number of representatives should be set. How many representatives is the right balance? ( I don’t know how Optimism will handle this).

At the current state of Web3, Solana, and Orca, I am not confident that people will get informed enough to participate wisely. Additional to that, I may be missing what will be the direct intrinsic value for the generic token holder. At this point, most users hold tokens for the possibility of appreciation. When governance is active and has good proposals that impact users, the token appreciates. What I’m trying to say is that representatives will have to make a larger effort to inform the generic token holders about the benefits that they will have in order for them to vote accordingly and not get rid of the token. This takes the earnings beyond APR/APY and makes it “complex”, which I don’t know yet if Orca users are willing to jump in. Not for the sake of being Orca, but rather because governance in the Solana ecosystem hasn’t evolved enough to get its users familiar with it. Yet this could be where it starts on gov-v2, and not on v1 (convex models).
How to incentivize users to learn more and vote, when benefits are more into the longer term and less related to APR and immediate monetary benefits?

The performance of the representatives will be difficult to measure especially for those whose main goal is not tangible for the token holders, like taking care of the treasury (if the position exists). It may be difficult to back up some representatives when their goals are not APRs improving or projects being built. Moreover, a transparent criterion to evaluate representatives seems to be the most difficult part of this dynamic. This could make participant token holders change their allocated tokens too often to see or measure results vs benefits.

Overall it is a good approach, but in my very personal opinion, the implementation of a governance model like the ones mentioned needs a very well-drawn roadmap that enables iteration and training of the participants, representatives, and protocol into the new model, without disrupting the trust of the stakeholders and providing quantifiable benefits for the users.

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