Yield in crypto is on everyone’s mind, especially “real” yield. Some brief thoughts on how Inverse is generating real yield for its INV governance token stakers.
How We Think About INV Yield
While most governance tokens are “useless” and at best provide voting rights, we’ve been implementing positive sum benefits to the INV governance token for over a year, starting with our INV+ launch in February 2022.
One important innovation we put forward at that launch was xINV staking rewards. Then and now, xINV staking rewards provide a unique way for INV stakers to “stay whole” while we emit INV tokens for bribes and other protocol owned liquidity initiatives. In other words for xINV stakers, potential dilution caused by liquidity-based emissions is offset by xINV rewards.
Looking at INV performance in terms of marketcap shows INV stakers performing better than the median of a basket of stablecoin governance tokens:
The performance of Liquity is the standout while many of last year’s top projects are well off the median, not to mention stables like UST and others which are no longer with us. So while no one should be satisfied with the performance of INV in the last 12 months, in the context of the broader market, our xINV rewards strategy probably played a large role in preserving overall INV portfolio values for INV stakers despite poor macroeconomic trends, multiple crypto market downdrafts, and our own price oracle exploits.
Sustainable Real Yield for xINV Stakers
In addition to continued INV anti-dilution rewards – which will continue – INV stakers on FiRM now also receive real yield through DBR streaming. This is an exciting change in INV tokenomics as it allows stakers to directly benefit from FiRM’s success! If you missed the announcement, here it is.
The DBR reward rate now stands at 7,000,000 DBR’s per year and with today’s announcement, will increase to 10,000,000 per year shortly. Today’s updated reward rate stands at 19.40% APR. (!)
But the beauty of this strategy for INV yield is that unlike governance token emissions, which may be prone to dumping, DBR yield in some ways is meant to be “dumped” - into liquidity pools, into new DOLA loans, or just swapped into the marketplace. And due to the interactive nature of this unique rewards strategy, value accrues directly to the smartest fixed rate borrowing platform in existence: FiRM.
So not only are DBR rewards not dilutive in terms of INV tokenomics, they are accretive as they drive additional value for the Inverse ecosystem. DBR Rewards, compared to conventional governance token emissions, also create a deeper bond between the INV governance token staker and FiRM borrowers, which we believe will have a non-zero impact on xINV staker retention and, we also believe, repeat usage of FiRM.
A good way to measure all this is to continue to watch INV’s market cap in relation to comparable projects like those listed above. Fixed rate DeFi borrowing is an essentially virgin market in crypto - many billions in market opportunity today - and there’s no better solution to the challenges of fixed rate DeFi than FiRM. As we roll out programs to help the world switch from schizophrenic variable rate loans in the coming weeks and months, FiRM is well-positioned to capitalize on this inevitable shift in DeFi lending.
Better Than A Dividend
Some might say “why not just distribute an annual dividend to INV holders in the form of DOLA?”. DBR-based rewards are a more efficient way to, in effect, distribute future revenues to xINV stakers, except they aren’t revenue. DBR’s are like interest rate vouchers and users can sell them, hodl them as a hedge, or use them directly for a DOLA loan on FiRM. Distributing DOLA, by contrast, would have placed downward price pressure on DOLA, among other negatives. DBR rewards also enable other innovations not possible with DOLA. For example, it will soon be possible to directly claim and swap your DBR or claim and repay part of your loan in just a single transaction…