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Velocimeter Pro

oTokens in Velocimeter eco-system

Instead of directly emitting Velocimeter Tokens on relevant chain as the reward token, Velocimeter uses option tokens as a reward token. This has the benefit of enabling the protocol to accumulate a cash reserve regardless of market conditions, as well as letting loyal holders to buy Velocimeter Token at a discount.

When user exercises options, they need to pay. The payment amount is determined by the TWAP market price of Velocimeter Token and the discount rate. This payment then redistributed to the treasury, Maxxing Gauge LP depositors, bribes and Master Booster.

oTKN have three options of exercise:

  1. Exercise to liquid tokens
  2. Exercise to LP with lock
  3. Exercise to veNFT

The options vary in the amount of discount one gets when exercising. The liquid tokens option has the least discount, while the veNFT option has the most discount. The LP exercise discount also varies depending on the lock time duration selected by the user.

We have the following observations:

  1. Reallocation of cash:

Using oTKNs instead of TKNs as the reward token effectively transfers cash gains from the farmers to the protocol, and the LPs.

  1. Trading off incentivization efficiency for protocol cashflow:

For each TKN token issued by the protocol, the farmer Alice only gets $10 of rewards instead of $100 in the case of regular liquidity mining, which is less efficient. The higher the discount is, the more efficient the incentivization is, but the less cash the protocol gets.

  1. Effectively a continuous token sale:

Instead of giving away tokens for free in regular liquidity mining, we effectively turn incentivization into a continuous token sale at the current market price, which enables the protocol to potentially capture a lot more cash compared to a one-off token sale since the protocol would be selling tokens at a higher price when the market price goes up.

Now, this of course brings some complications:

  1. The oTKN liquidity mining brings another step of extracting revenue from it.

We have addressed this issue with deployment of oTKN Helpers which are the contracts that lets users utilize flashloans to exercise their oTokens to liquid tokens and sell it into payment token all in one transaction.

  1. UX complexity

There needs to be additional learning curve for users to understand the concept of oTokens and how to use them.

Useful links:

Exercise Sortoor

The ExerciseSortoor contract is a contract that sorts the revenue obtained from users exercising their oTokens (option tokens). There are four destinations for the revenue with this added module:

  1. The Maxxing Gauge
  2. The Treasury
  3. The Master Booster
  4. Incentives for Velocimeter Token LP voters

The default setup is to divide the revenue between the Treasury and The Maxxing Gauge. The ratio of this is customizable, but the default is 5% to the treasury and 95% to the Maxxing Gauge.

Fantom Velocimeter instance first met deployment of the ExerciseSortoor, but the success there has warranted the same setup to be deployed on other Velocimeter instances.

Exercise Sortoor simply takes treasury's cut of oToken exercise revenue and splits it between the treasury and buying back the Velocimeter token. The amount bought back is used to fund Master Booster or to incentivize Velocimeter Token LP voters.

For more information, see Exercise Sortoor blog post.