Funding the Future: a look into the new Polis Reward Distribution
The Polis Foundation along with all of its community members wants to increase the value of our project, and guarantee its long-term sustainability and profitability.
The movement to the Binance Smart Chain represents an opportunity to properly fund these endeavors through the optimization of the reward structure, as Masternodes will cease to exist and will be replaced by Liquidity Providers.
The DAO, being handed the responsibility of guiding the project by the community, has decided to perform analysis into the current cash flow available for funding the project’s development, and propose an initial solution for funding that will be effective as once the governance smart contract is deployed in the Binance Smart Chain. The distribution allocates funds for the DAO Operational Expenses (25%), Community Treasury for Proposal Funding (10%), Liquidity Providers (40%), and Stakers (25%).
The community, through the new governance, will always be able to change the distribution should there be a need to.
The community has been vocal on the desire for better exchange listings and the investment into areas that will help drive demand for our project, bringing new investors and expanding the reach of the Polis vision. The Polis Foundation agrees that these expenses are key to large-scale success for the project. Up to this point, this has been impossible to achieve given the current cash flow available to the DAO to spend on operational expenses.
This comes as a result of both market conditions, and a block reward system that was not designed (at its inception in 2017) to cover operational expenses for The Polis Foundation (created in late 2020). With the new plan to migrate the Polis Blockchain ecosystem to the Binance Smart Chain, the opportunity to amend this design flaw arises, with the challenge of creating a reward system that allows for more aggressive spending in project areas that will drive demand for our token and create value to our current and future stakeholders. To this end, we need to analyze the Return on Investment (ROI) of where The Polis Foundation is currently spending its income in order to determine where we can optimize spending, and adapt the reward system to account for this optimization.
ROI of Staking/Voters/Governance Term
Taken from the perspective of The Polis Foundation, stakers on the Binance Smart Chain will not be providing any service to the network; unlike the current chain where stakers are compensated for providing the network security by verifying the blocks to be added to the chain. This means that the only value that rewarding stakers is to incentivize buying and holding Polis in order to earn rewards.
This isn’t a scalable system nor does it add value to the existing coins. This also puts us into the category of a discount provider and once one is in that category it is challenging to break out of that perception into the category of premium provider.
ROI of Liquidity Providers
As we know, most of the Polis coins are locked either in masternodes or staking nodes, this has created a situation where the currency pairs on our current exchanges have small volumes as the percentage of coins available for purchase is limited, which arguably makes our markets unattractive to new investors.
Liquidity providers on the Binance Smart Chain will be providing a valuable service to the ecosystem. They will guarantee market conditions and liquidity to a degree that will make the Polis markets attractive to new investors, of course, this type of activity carries some inherent risks as described by Binance.
The possible losses may be caused by:
Fluctuations in token prices or fiat exchange rates affect the value of shares. To further understand the risk situation, please refer to Impermanent Loss Explained.
When a large amount of a single token is added or redeemed, the value of the share will be affected and lost due to excessive slippage.
Frequently adding or redeeming tokens.
In exchange for this risk, they earn a yield from the commissions of the trading that takes place in the pool. However, given the increased risk it seems reasonable to compensate them with a percentage out of new coin emissions.
ROI of Everything Else
It should be clear at this point that the ROI of all other operational expenses such as exchange listings, wages, and advertising far outweighs the return of paying stakers and liquidity providers as these expenses, as they generate greater value to the whole community.
Exchange listings and investments into marketing and advertising generate sort of a snowball effect where after a few initial and costly investments, hype, demand, and new opportunities start presenting to the project almost every day, allowing for a faster expansion and adoption, that eventually drive up demand and price for all stakeholders.
This begs the question why isn’t it appropriately funded? Appropriately funding expenses that generate the most value are a key tenant of cash flow management in successful businesses.
In business cash flow is one of the single most important indicators of the viability of the organization.
The Polis Foundation wants to take this opportunity to change the reward structure to increase the cash flow available to the DAO for high-value expenses.
The table below only accounts for chain-based new coin creation revenue and not any revenue generated from external services such as PolisNodes, PolisPay, or farming if any.
Here is a list of a sample of some of the current and future operational expenses that the Polis Foundation has or could have with additional funding. This example is meant to be representative, not exhaustive.
The Polis Foundation, after running on less than 10% of the block rewards for almost 8 months now, and having taken all of these factors into consideration, proposes a model that will allow funding key development areas for the project, accounting for the deficits we have seen, and with full certainty that these investments will benefit the project in the long term, increasing capital gains and creating value for our whole community.
It is worth noting that some of these large expenses such as tier 1 exchanges that might cost $100,000 USD are going to be one-time expenses. Success on these generates cheaper listings on other exchanges as they vie for a share of the commissions by offering discounts or free listings on their sites. Once trade volumes and market value are up then the DAO operational expenses can be reduced in the future, and this will always be up to the community to decide. The DAO Operational Budget can and should be reduced in the future.
At The Polis Foundation, we understand that there will be a part of the community that will not be impressed with the new reward structure and leaves. We will never be able to continually satisfy people who are looking for discounts or otherwise being paid to hold coins. It is our recommendation to break out of being a discount coin, as being a discount service is never an enviable position to be in as that position puts an organization in the position of fighting over table scraps. Discount providers base their discounting on economies of scale. We want to be a premium coin that people invest in on the expectation of capital returns. Having said that, many investors do choose assets that pay dividends which is why we are keeping staking as a dividend payment. This is a dividend payment as it isn’t staking anymore as the coin holders won’t be adding blocks to the chain.
After performing a business and financial analysis on the currently available cash flow, we are convinced the proposed reward distribution will kickstart the project’s development into areas we have not been able to tap into yet, and on an unprecedented scale. Ensuring the long-term viability of the project and capital returns for our investors. A business with cash flow issues is doomed to failure. Most stakeholders will recognize that the long-term impact of being able to afford more developers, advertising, exchanges to name a few expenses will have a huge impact on the ability to build new products and create brand awareness that leads directly to an increase in demand.
I am a masternode owner, why would I want to earn fewer rewards?
We realize that some existing stakeholders may have purchased solely for the advertised ROI on staking and holding Masternode. What should be apparent based on the charts for the past three years is that the inflation that this incentivization program creates means that at the end of the year the total value of your holdings after rewards end up being less than what you paid.
Example using real numbers.
- January 1st, 2020 purchase 1000 Polis for a masternode for $958
- Earn estimated 30% in rewards between then and now for a total holding of 1300 Polis
- Today sell 1300 Polis for $624
- Net loss of $334
Clearly, in this example, it didn’t matter that 30% sounded like a good return at the time of purchase because, in reality, the inflation caused a net loss even after the rewards.
The solution is to use the funds for expenses that will generate demand. Increased demand drives prices up. Instead of ending up with 1300 coins worth less than what you invested, you should earn in capital gains instead. Meaning the same 1000 coins in the example above might be worth $2000 instead of $624. That is of course a better outcome that benefits everyone.
By accepting lower rewards you are helping fund large expenses that the DAO believes will greatly benefit your existing holdings.
The DAO sells most of its coins over the counter (OTC) and therefore doesn’t affect the prices on exchanges.
This new chapter in the history of the Polis Blockchain Project on the Binance Smart Chain and deeper integration into the DeFi world brings a whole new universe of possibilities to the project. As a community, we need to create a sustainable model that allows the project to afford the necessary expenses required to increase stakeholder value throughout all our activities. Repurposing rewards from areas that provide little to no ROI to the whole and redirecting them towards operational costs will drastically impact the ability of the DAO to fund large purchases that will go a long way to increasing the market value of POLIS.
The community is always able to change the rewards distribution through the governance smart contracts and locked staking votes at any point in time. In fact. the Polis Foundation encourages this distribution to be changed to favor the community once some key results are achieved in the areas this distribution is designed to help develop.
We thank you for your support, and please voice your thoughts on all of our community channels.
We have been receiving many questions and comments directed to our managers!
It has been exciting to see the participation from our community, that is why we want to provide a way for you to access the team directly and specifically, depending on the department you wish to approach.
DAO Technology Manager.
Luis Correa — [email protected]
DAO Marketing Manager.
Maria Sidorova — [email protected]
DAO Adoption Manager.
Frank Servedio — [email protected]
DAO Community Manager.
Marc Rapf — [email protected]
DAO Business Manager.
Andreas Meyer — [email protected]
If you have any questions, don’t hesitate to ask.