Gateway Fund I: Pivoting from Pylon Swaps to Treasury Swaps

After reflecting on the number of instantiations of Pylon Swaps and Pylon Pools on Gateway over the past couple of months, I’ve consolidated a couple of thoughts and pooled them here into an actionable proposal. It is important to lay out a growth plan for Pylon Gateway that is both readily scalable and sustainable in line with the protocol’s vision as a whole.

In short, this proposal is to pivot from Pylon Swaps to Treasury Swaps via “Gateway Fund I,” a Pylon Gateway community fund that accrues depositor yields and bears a liquid derivative token, remaining true to the catchphrase of “Deposit to Invest.” The UST deposit is preserved in full, with yields buying up project tokens at fixed pre-sale prices.

Gateway Fund I aims to be an attractive method for users to hold their stablecoins on Terra while earning with their yields a set of emerging project tokens at the lowest fixed price points. Building on Pylon Pools, this yield-based fund aims to achieve the ideal of capital preservation while also capturing as much upside from the latest project tokens to launch on Terra.

Core Problems with Pylon Swaps

One of the key issues with Pylon Swap is the issue of scalability. Given the abundance of new projects clamoring onto Pylon Gateway for community-based fundraising, as the protocol continues to grow, the demand for new project tokens has and will only expand exponentially.

One method that many launchpads in the past have tried to meet this demand is to churn out a mound of low-quality projects and shitcoins to increase the supply of available allocations, or to reduce allocation sizes per wallet or conducting lotteries to even out user demand.

The former method may allow users to make a quick buck but in the long-run impedes healthy ecosystem growth, whereas the latter option results in most users getting extremely small and unpalatable allocations, or none at all (on lottery).

No matter how much user demand there is, given a limited allocation on the project side, there will always be a tug-of-war that happens between two parties pulling for their best interests.

Beyond this, first-come first-serve sniping has been rampant with former Pylon Swaps, leaving the masses to play a zero-sum game with other community members to receive an IDO allocation, all the while, setting up significant MINE staking barriers to entry may preclude smaller investors and wider members of the Terra community from getting involved.

There is no long-term value-add of Pylon Swap for the underlying protocol either, given that Pylon’s fundamental aim is to provide a suite of features building on yield redirection and long-term incentive alignment, as opposed to the short-lived nature of direct swaps of principal.

An Outline for Treasury Swaps on Pylon Gateway

In lieu of the existing model for Pylon Swaps, I propose the following: the establishment of a community fund for Pylon Gateway that is backed by community yields and accrues value for both stakers and depositors over time.

Enter “Gateway Fund I.”

Pylon Treasury vs Gateway Fund I (“Treasury Swaps”)

There may be terminological confusion between the “Pylon Treasury” that was initially proposed by @ed.pylon, with the latest follow-up governance poll setting up an initial distribution for accumulated UST yields: (1) 25% in weekly MINE buybacks, (2) 25% for providing additional liquidity to the MINE-UST pair, (3) 50% stored as aUST for future grants in UST.

The “Pylon Treasury,” also known as the “Pylon Community Fund,” is designed to provide grants for community initiatives, hackathons, ecosystem partnerships, exchange listings, and other strategic plays for the underlying yield redirection protocol, including token buybacks and protocol-owned liquidity provision.

Different from the Pylon Treasury, the “Gateway Fund I” aims to attract its own set of funders and backers to meet needs that are specific to IDO participants specific to Pylon Gateway, the launchpad platform, via treasury swaps and airdrops.

It is important to distinguish the vision of the protocol (“Pylon Protocol” with “Pylon Treasury”) from the needs of the platform (“Pylon Gateway” with “Gateway Fund I”).

That said, both may intersect at times; MINE stakers may vote to delegate a portion of UST from the Pylon Treasury into Gateway Fund I, with rewards being redistributed to stakers.

Concept of Treasury Swaps on Pylon Gateway

Expanding on the concept of Pylon Pools, this proposal aims to establish one collective community pool for Treasury Swaps on Pylon Gateway. In this pool, provisionally termed “Gateway Fund I,” users can deposit UST in return for project tokens at low prices.

The underlying UST deposit is preserved in full, while yields generated from the underlying principal are pooled into the fund to buy project tokens in the future, distributed retrospectively.

The central difference between Pylon Pools and Gateway Fund I is that the project tokens are bought at a fixed pre-sale price, as opposed to the existing Pylon Pool system in which APRs evolve to track current market prices of tokens. Moreover, Gateway Fund I is not bound to a single project, allowing the collective pool to invest in heaps of projects at once.

Depositors make “lossless” deposits in UST that come with a tradable DP token (refer to the “Liquid Pylon Pool” mechanism) that allows them to exit their positions at any time, while projects are able to distribute tokens to key community members of the Terra launchpad ecosystem and bootstrap their projects with a fixed source of revenue over time.

For users, project tokens will be distributed either linearly per block or periodically airdropped in lump-sum, pro-rata to the amount and duration of UST deposited, resembling the current airdrop distribution mechanism on the Pylon Webapp. These tokens will be distributed from the time that the Gateway Fund I pool opens, incentivizing early depositors and long-term holders. As the yields continue to accumulate and buy up new project tokens, retrospective airdrop calculations will be implemented, also similar to the rollout of retrospective airdrops on the Pylon WebApp.

For projects, crowdfunded UST yields will be distributed over time, subject to community review and votes of non-confidence on Pylon Governance. Projects will have to submit a proposal on the Pylon Forum regarding their targeted raise, with follow up discussions and negotiations driven by members of the Pylon Council and the larger Pylon community. By offering tokens at a fixed pre-sale IDO prices or at significant discounts to the current market price for post-IDOs, projects will be able to receive periodic UST stipends.

The more the deposits accrue on Pylon Gateway with active participants, the more yields denominated in UST accumulate for Gateway Fund I, leading to more upfront capital to be deployed for project investments and more tokens to be distributed to participants.

This results in a structure that is more scalable than the current Pylon Swaps and Pylon Pools.

“Gateway Fund I” as a Community VC Fund

One simple parallel is to think about the relationship between MINE stakers and user depositors in the Gateway Fund I as GPs and LPs in a traditional VC setup.

As “general partners,” MINE stakers will actively engage in community due diligence and governance over which projects and proposals to upvote and feature for the Treasury Swaps, while receiving a portion of “carry” in project token airdrops and UST yields being redirected to the core Pylon Treasury (i.e. for buybacks, POL, and community initiatives).

As “limited partners,” UST user depositors will provide funding in UST for Gateway Fund I, receiving most of the upside from the project token distribution, while having their UST deposit preserved for withdrawal at any given point in time.

The Tricky Balance of Incentive Alignment

Given that there are multiple self-interested agents acting in tandem, in order to align long-term incentives, here is a rough outline of measures that could be implemented (open to feedback).

Not only do these methods aim to provide enhancements to the MINE token but also provide strong incentive alignment for stakers to actively engage in governance over Gateway Fund I.

  1. Entrance fee — MINE burn

Compared to other Pylon Pools which do not feature as stringent of a gating requirement in order to allow each project to raise as much UST as possible, the Gateway Fund I (by virtue of being a universal pool for incubating many projects at once) should aim to have a stricter entry standard.

The proposal is to enforce an entry fee with a MINE burn: In order for a user to deposit 10 UST into Gateway Fund I, they must burn 1 MINE. In return, they receive a DP token that is tradable on the <DP token - MINE token> pair, with initial liquidity for the pair seeded by the protocol. The UST deposit is locked for 24 months, although the DP token is tradable for MINE tokens at any time. For more information on DP tokens read up on “Liquid Pylon Pools.”

As opposed to setting up arbitrary per-project thresholds or staking tiers as in the previous model for Pylon Swaps, this entrance fee method allows individuals to contribute as much as they wish, with the fees scaling proportionally to the amount of UST that each user seeks to deposit.

This fee requirement would also prevent users from gaming the system (i.e. in previous Pylon Swaps, users could buy/stake in advance of each promising IDO and sell/unstake afterwards, leading to net neutral value for stakers). The constant buy and burn pressure on the MINE token guard against high token emissions while accruing value for long-term governance stakers.

  1. Airdrops for MINE stakers

All projects that launch via Pylon Treasury Swaps and/or Pylon Pools are strongly encouraged to airdrop a portion of their token allocation to MINE stakers. These airdrops vest linearly over time over a period of one year from the beginning of the token launch date on Pylon Gateway.

  1. Yield Redirection — 20% carry

Similar to the existing yield redirection setup for ongoing Pylon Pools, 20% of all the yields generated in the Gateway Fund I will accumulate to the Pylon Treasury. As is currently, 4% of Pylon Gateway’s total value locked will be split between treasury building efforts, liquidity provision, and MINE token buybacks.

As the projects in the Gateway Fund I pipeline become more prominent and attract more long-term UST depositors, the aforementioned provisions allow the MINE token to scale alongside the growth of Pylon Gateway and other Pylon-integrated platforms.

Iterations of “Funds” on Pylon Gateway

Later iterations of “Gateway Fund I” may include set-ups for various other types of lossless pools on Pylon Gateway, including but not limited to the following listed below. The fund names are tentative placeholders and are subject to renaming.

  1. Gateway Fund II: To accumulate a warchest of assets that are deemed integral to the Terra native ecosystem, including LUNA, via dollar cost averaging (i.e. the concept behind Pylon Harbor) or ETFs on Nebula Protocol. Late-stage projects can also launch growth rounds by offering additional community fund or team tokens at a discount from market prices.

  2. NFT Fund: To collectively bid on the rarest NFTs and other unique digital asset primitives on Terra. These NFTs can later be fractionalized as tokens for holders to own, or be listed for auction with proceeds being redistributed to depositors.

  3. Lottery Fund: To pool and distribute yields to a random wallet or a smaller set of wallets every week/month. Parameters can be adjusted around the number of selected wallets and the cadences of distribution. A percentage of stacked yields can be donated to Angel Protocol or other charitable organizations building on top of the Terra ecosystem.

  4. BUIDLers House: To dedicate funds for advancing Terra’s developer ecosystem, funding developers to create tooling, documentation, educational tutorials, and more. Developers may propose customized rewards and benefits to community fund depositors, including early access to testnet, social media shoutouts, exclusive demos and Q&As, or even future token airdrops if the project involves tokens. Depositors into this pool may set bounties and engage in governance over which projects to fund or next features to build.

  5. Creators House: Same as above (i.e. developers fund) but for content creators. Creatives may offer NFT airdrops or social tokens for depositors, in addition to Patreon-like tiers of benefits.

  6. Other Special Purpose Funds: Drawing inspiration from “Constitution DAO” and “PleasrDAO,” users can set up new funds around lossless crowdfunding with any shared collective purpose, whether that leads up to a particular event or upholds an ongoing vision. Possible ideas on the agenda may include pooling funds together to buy rare artifacts, NFT collections, memecoins, or engaging with other collectives, lobbyists, and influencers.

Each “lossless” fund will have their own DP tokens that represent each user’s stake in each liquid pool. The underlying value of 1 DP token can be calculated by 1 UST + the additive value of the fund/DAO (i.e. governance, investments and future token airdrops, access and/or ownership of exclusive content, and so forth) that will scale with the success of the collective. Each collective DAO/fund can also extend token utility via DP token buybacks, resulting in more buy/mint pressure.

This underlying set-up for capital-preservative pools via a DP token can be scaled into other crowdfunding initiatives. Eventually, this will look something like membership DAOs with stakeholders crafting their own unique culture and engaging in governance over yield distribution parameters.

Upon the proposals passing, Gateway Fund I (and later Gateway Fund II) will be governed through the Pylon Forum and Pylon Governance, with proposals and parameters voted on by MINE stakers. Other community funds can fork the Pylon Governance framework to set up their own governance structures.

Streams for Further Innovation

  1. Upon the launch and integration of Prism and Stader with Pylon Gateway, users will also be able to deposit (derivatives of) LUNA and other yield-bearing tokens in the place of UST for select funds and Pylon Pools.

  2. Upon the full release of the Pylon Pool SDK and documentation, Pylon Protocol is planning to host a community-wide hackathon to encourage newer funds, DAOs, and projects to build on the concept of capital preservation and yield redirection.

  3. At the frontier of TeFi, the sky’s no limit. Suggestions are always welcome.

Next Steps Forward

Based on community reception and feedback, I will make the relevant amendments and put up this proposal for voting on Pylon Governance in time for the Pylon Pool 3 UST unlock.

Looking forward to your responses on this, and I will be around to answer any questions.

24 Likes

Very exciting looks like a great path for the continued evolution of the Pylon platform!

4 Likes

this looks hella solid - good for longterm stakers with the MINE burn idea)

overall really good moves for the prorotcol to step up to the next level

6 Likes

Solid proposal, and love the direction the project is taking, it acknownledges the past and lays what seems to be a great plan for the future and a big improvement overall.

Something I’d love to discuss is the MINE burn, I know everyone gets excited over a burn mechanic but what if, instead of a burn we introduced locked staking, those participating in Gateway Fund I would need to lock the equivalent MINE in governance for the same period as the UST would be locked, should they choose to make their investment liquid then we could use the burn as a way to make that available to trade earlier. This would accomplish two things, those investing would also have governance power to vote and those already in governance would not need to lose voting power or buy more MINE in order to invest in the fund, the burn could be seen as a “get out early” fee.

It would work as follows, the investment would be locked but with an unlock mechanic, to purchase the wallet would need to provide the equivalent MINE, the resulting DP token and MINE would be locked in a staking contract for the same period, should the wallet decide they wanted out earlier than the lock period, they would burn the staked MINE and received the DP token. Should they wait until the lock was done, then the contract would release the MINE and deposited UST leaving the user to choose to lock once again.

Let me know what you think.

7 Likes

You’re 100% right about the issue with Swap & typical IDO platforms but one of the major benefits those have is capital efficiency – deposit $100 of UST, receive $100 of IDO token instantly (or vested). The lack of “yield dependency” is what made Swap special from Pylon’s other projects. Your current proposal swings back to inefficiency – I now need to deposit $100 to get $20 of IDO token over the course of 12 months.

As the end user, I’m losing significant capital efficiency & flexibility. Unless Gateway Fund tokens can readily be converted into the underlying, they’ll perpetually trade at a large discount (effectively making your investment illiquid).

Why wouldn’t you just create the same design but using the $ in the Pylon Treasury so that MINE token holders benefit from the fund directly + all the other features. Each new launch seems like yet another way to suck up capital that just sits in Anchor Earn (which is about to become dated with White Whale’s UST vault launch).

5 Likes

I have two questions:
1、How long will it take to achieve these?
2、Will it affect subsequent new project launch?

1 Like

This is an interesting proposal, but as ActiveInvestor mentioned above, there is a loss of capital efficiency with Pools only. I love the concept of locking UST in the pools with slow release over time (I did participate in nearly every pool), but this is only for the part of my portfolio which I want to keep in “lossless” investments.

You could argue the slow release of funds is more efficient on the project side as the release is slower, lowering ‘wasted capital’, but there is still circa 80% for the investor that is not efficient (it is overall efficient with the borrower n Anchor - but I’d argue 20% could potentially not be sustainable with the crypto universe growing - but that’s digressing a bit).

For the investor, the Pylon Pools cannot be a replacement for more traditional IDOs which is why I liked the ‘hybrid’ model with both opportunities, although I agree there is clearly currently a bottleneck and the dilemma of increasing the allocations (which could mean less vetting, project with higher valuations) versus smaller allocations.

I personally like the Avalaunch model to this effect, which, although provides small allocations, it creates a good utility for their token while making the IDO itself as fair as can be (non-linear allocation as well, encouraging smaller allocations, but this has the downside of requiring KYC).

I am not sure pooling the funds together into a Gateway fund would solve any of this as the investments and the bottleneck is still there, and the allocations will still be proportionately. It does make the investment process more ‘efficient’ from the devs perspective I suppose, but it makes the process more centralised by having one fund (even though there is a vote). Essentially, aside from my MINE vote, I will no longer be able to decide with my UST if I want to invest in a particular new project, I’ll only have exposure to that ‘VC fund’.

To summarise, I would still participate to the new Gateway Fund, even though I do prefer the current Pylon Pool system, but I really do not think this should replace the Pylon Swaps.

2 Likes

This approach would require KYC.
I agree with you: it should be considered too.

This approach is no less capital efficient than nearly all other launchpad approaches. Launchpads typically require a significant amount of their native token to be locked up to participate in their IDOs. You normally get 1-5% USD allocation relative to your locked amount (this is the same issue with Avalaunch @JohnnyKtou).

Gateway Fund I tokens will utilise the Liquid Pool mechanism used for the Nexus Liquid Pylon Pool, so Gateway Fund I investors will be able to readily exit Gateway Fund I back to their underlying $UST. Moreover, they could do this whenever they want as there is no locking required like most launchpads.

The $UST in the treasury faces another challenge. I initially thought the same as you. However, it has the same scaling issue as other launchpads… As more people stake Mine, you get less % of the allocation for projects.

However, I do think it’s reasonable to assess the value added to the native token. For other launchpads, entry to them typically requires buying and locking their native token, whereas Gateway Fund I requires burning Mine. I am still trying to think of ways we could change the dynamics of Gateway Fund I to better suit Mine stakers without compromising the scalability of Gateway Fund I.

1 Like

It’s debatable whether this is less capital efficient than a traditional IDO sale. Like Woody said, many platforms require a sizable amount of native tokens locked up for IDO allocations.

I think this is more about managing investors’ expectations

@Woody @perfectlegato
I don’t deny the inefficiency of the tokens locked up, but that’s all that is being locked up (e.g. MINE or XAVA for Avalaunch). The ‘split’ the person owns will most likely lower, but hodling & staking should help keep up with inflation for a relatively steady allocation over time.

I can see your point if there is no MINE staking requirement to access the pool, I’ll give you that, but does this mean the MINE token is now really losing some utility?

  • 20% carry means around 4% of the UST is used, but only a part of that for buyback, so negligible for MINE holders
  • Airdrops for MINE holders could be a winner, but those have got to be really decent

The 3 suggestions for MINE utility don’t seem to actually help the launchpad itself, it only offers some incentives to hold the token? (contrary for Pylon Swaps where staking MINE was a requirement)

I don’t have a problem with the lossless pool as an option (I’m happy with the UST “inefficiency” for the cash I want to hold), I just prefer those to be on a project basis, not all combined in a ‘VC fund’, and I do think we need a better utility for MINE alongside with the availability of straight Swaps. I don’t like that the proposal removes that option and becomes a VC fund rather than a platform.

As you said about 4% will go to pylon community. it is true that only part of it will go to buybacks but rest willl go to POL and Treasury which is actually very benefitial for the MINE holders.

The airdrops is an incentive it wont be 2X on your money but looking now on the airdrop already distributing im pretty happy with it as an investor, but it really depends on the project. glow is doing a relativly big airdrop for example.

And imo the biggest benefit from this proposal for MINE stakers\holders is the burn mechanisem. it’s directly benefiting MINE via the change of supply.

What i meant to say in all of this is that buybacks isnt the only benefit of MINE stakers\holders and POL\treasury\burn mechanic

1 Like

From both subjective and objective perspectives, Avalaunch (and other launchpads) doesn’t keep up with inflation as you described. Avalaunch’s 5.75% APR does not keep up with the increase in new stakers (over 3x in 3 months). The only way to keep up with an increase in new stakers is for Avalaunch to acquire an increasing allocation size for their launchpad.

I think your question about the Mine token potentially losing utility is fair. I guess that is the reason for the proposal to burn Mine to join GFI. But you also make a good point re: Mine buybacks. Do you think the spending of the treasury funds elsewhere will compensate for the reduction? Alternatively, we could always use some of the Mine (I think over 750M) in the treasury to continue with the current APR instead of reducing it to a fraction of its previous %.

1 Like

Hey,

Pretty interesting idea.

On a technical note, I believe the person would have access to their liquid GFI token from the moment they joined GFI, however, that could be locked in their wallet and only released if they burn Mine or the 24-months finishes.

Maybe the “get out early” fee could linearly decrease over the 24 months, eventually ending at either 0 or 1%.

My concern is that a 1:1 ratio is too large. It feels like too big of a barrier and that it would significantly impact peoples decision to join GFI. However, if the Mine staking requirement was 5-35%, then I feel that would be a good balance for Mine staking utility and also not create too big of a barrier. And if it was too big of a barrier, then there would always be the regular Pylon Pools for people to join.

One suggestion for the MINE fee: why not make it quadratic so that the fee is low for smaller UST deposits but rises quickly as the amount increases?

1 Like

Great proposal Woojin! Another suggestion for the mine fee: please make it a % of ust deposits (1% for example). This makes the fee another way of providing a price floor on mine, since if price is very low more mine is burned for depositing. If you keep it at 10 mine/100 ust this might become a very high (mine price went up) or very low (mine price went down) fee!

4 Likes

The smart contract could be designed in a way that it would pre-stake the tokens, only allowing you to unstake via the burn mechanism. I agree that perhaps the fee could decrease over time, would make sense, maybe with a cliff period initially and then linear decrease.

The ratio is up for discussion of course, only wanted to put the idea up for discussion as I believe forcing a burn initially harms current stakers, in a way that may force them to lose voting power, and promotes having new depositers without any voting rights in something that affects their investment.

Very interesting suggestion. While I would support this in theory, practically speaking the people who deposit into the gateway fund 1 would be least bothered about voting on proposals, complicating this process. Or atleast that’s my opinion. Considering how the burn would help in scarcity of tokens ie the price indirectly, I find that solution to be better for the protocol and it’s users. I could be wrong. Would love to see voting metrics on pylon proposals.

I really like this proposal. My suggestion would be to make it 10ust:1ust worth pylon ratio. This way mine price is not a road block in the future when price is on the higher side. Other than that, love this well thought out proposal

1 Like

You make a very good point.

My only way around it was to keep the ratio of mine locked per UST low, say 5%. That way if GFI had $100m UST in it, it would only increase the amount of mine staked by 15%. Though if GFI had a significantly greater amount of UST locked then this would be an issue.

But your broader issue still remains. Is it worth compromising/risking our ability to govern for the sake of increasing utility for stakers.

1 Like