The price of vBTC should closely match the price of BTC for the market to truly perceive and value vBTC as it does BTC (i.e stay closely pegged), and encourage more vBTC to be minted. At the time of writing 1 vBTC is approximately $32,000 USD while 1 BTC is hovering around $60,000 USD - that is almost a 50% difference in value.
Since the price volatility of vBTC is purely determined by market participants buying and selling vBTC at current liquidity levels (22 total vBTC minted, roughly 60% of which are pooled in Uniswap ). So long as buying pressure outweighs selling pressure the price of vBTC should rise to meet BTC.
The fact that vBTC is trading as “discounted BTC” indicates that buyers need more incentives to purchase and hold vBTC while it is trading “below the peg”. I propose that we build a Lotto system into the protocol as another way to directly incentivize buying vBTC.
How the vBTC Peg Lotto System would work when vBTC below peg:
- Have a dedicated pool of TRDL available as rewards.
- Prize/payout can be a % of pool or specific pot sizes (i.e 25 TRDL, 50 TRDL, 100 TRDL etc) depending on size of reward pool
- Lotto tickets cost vBTC to purchase (e.g 1 ticket = 0.00017 vBTC)
- Participants purchase tickets by locking required amount of vBTC (the time lock can be another variable in determining reward size i.e longer locking = higher potential payout etc)
- Ticket purchase remains open until vBTC is 5% under BTC price or over BTC price (example of peg range)
- The Lotto is paid out once vBTC maintains desired peg price range
- Lotto winner(s) are randomly determined and rewards are made claimable to those winners
The proposed mechanics and details of the system should be discussed and refined by the community
I am not a developer so I am not 100% sure all of the changes required to achieve the proposed design, however these are a few i can think of.
- % of daily TRDL issuance diverted to the reward pool or some other mechanism for creating a reward pool without inflating TRDL (this likely the most crucial piece for discussion)
- Define for Strudel BTC what an acceptable Peg range is
- Connection to price Oracle
- Smart contract to sell Lotto tickets and hold vBTC
- Smart contract to determine winner and distribute rewards
- Front-end changes to Strudel.Finance dashboard to show Lotto details and allow users to interact with Lotto system
- Analytics to track success
The resulting impact should be participants buy vBTC from open market, causing price to increase, vBTC used for Lotto purchase is locked for short period of time allowing for less volatility. The success of this system can be easily tracked.
More considerations should be determined by dev team and community input.
The proposed Lotto system does not have to be a permanent fixture of Strudels protocol, once we have more vBTC in the protocol, more use cases, and partnerships etc… the organic demand for vBTC should itself maintain the peg. However, at this early “bootstrap” phase of the protocol strongly incentivizing vBTC purchase is needed to ensure the market values vBTC as they do BTC.
Similar Lotto systems have been/ being used in other protocols with varying levels of success. So more research can be done to compile a list of projects that implemented similar mechanics and to understand how successful it is/was and what specific aspects can be used in our specific implementation.
TBD by dev team and community.
- Lotto is a simple to understand system that directly incentivize vBTC purchase below the peg
- Depending on how reward/payouts are structured it can be highly rewarding for participants compared to farming yields, which would appeal to a new set of buyers
- Easy to track metrics and outcomes if the system is working. i.e # of tickets purchased, # vBTC locked, impact on price etc.
- Lotto feature can be reverted/turned off if failing or once it’s achieved it’s goal
- Lotto system does not conflict with recent initiatives (i.e ICHI, Sushi Onsen) it can be made to work in tandem with them
- Changes to protocol increases security risks (as with all crypto projects)
- Mechanics of the system may need a few rounds of tweaking to get right
- “Whales” can manipulate the game i.e purchase large amounts of vBTC to get majority of tickets or trying to swing vBTC price in either direction
- Concerns about TRDL price after reward is payed out i.e do winners dump etc.
- not guaranteed to “fix” the peg