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.
- 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.
- 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.
- 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.
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.
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.
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.
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.
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.
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
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.
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.
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.