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tags: Meetings
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# 12/2/2021 Discussion Topics + Summary

## Updates

### Revenue Sharing Policy Options

- V1 is completed with 5 regular policies and 6 behavioral policies
- No math/functional representation has been written out yet while the representations are still being iterated on/discussed
- Document can be found <a href="https://hackmd.io/Wbzd_SRYQnSXHlB6_j8ZSA"> here</a>

### Traditional Finance Inspirations + Discussion

- Listed below are 4 traditional finance inspirations and their possible applications or insights for Streamr
- 4 discussion topics also listed to work through in terms of building the system representation

### Smart Contracts Work

### cadCAD Model

- The delegator retirement actions are implemented into the system.
- Broker slashing implemented into the system.

Current Substeps :

1. [**Behavioral**] Broker revenue is simulated as a behavioral function that is based on how much stake an agreement has.
2. [**Policy**] Yield allocation policy is used for disbursing revenue
3. [**Behavioral**] Brokers potentially leave
4. NEW [**Policy**] Retirees that have all debits taken care of can be removed from the system
5. [**Behavioral**] Delegators potentially leave and join the retirement pool
6. [**Behavioral**] New brokers potentially join
7. [**Behavioral**] New delegators potentially join
8. [**Behavioral & Policy**] Delegators perform their asset allocation and transfer funds to brokers
9. NEW [**Behavioral & Policy**] Brokers potentially are slashed on their staked funds
10. [**Behavioral**] Brokers stake funds on agreements
11. [**System**] Bookkeeping is done in terms of system state

Summary of Changes:

- On leaving a delegator gets added to the retirement pool, their shares are added as debits, and then over time the yield is diverted to pay off the debt (or free funds are used to pay off)
- When delegators add funds there is an exchange process for converting funds to shares. All money is added to free funds + increases fund value by that much.
- Any slashing reduces the fund value.

## Discussion Topics

*** SUMMARIZE THE CURRENT CRYPTO MECHANISMS THAT HAVE WORKED ***

1. How does revenue get allocated, there are two ends of a spectrum:
A. End 1: All revenues are disbursed to the shareholders.
B. End 2: Revenues go into the "fund value" which is unrealized until delegators withdraw.
C. A mix between the two is feasible and we can think about capital appreciation heavy stocks vs. dividend heavy stocks in equity markets.
D. This can be a policy design

-Revenues sep from capital, funnel revenue to second struct where you can claim from
-Barlin working on similar
-Delegator opt into auto re-invest?
-Escrow contract for tokens

3. Bonding Curve for delegator allocation
- What are the benefits of using a bonding curve here versus simple linear shares based on staking?
- How does it work at initialization of the broker pool contract?

- 2 ways, based on first transaction to set initial conditions (the hatch which is linear phase with rules), switching rule goes from linear to bonding curve. Either time or money bound. Relevant implementation (slava wrote), delphia project used it, set initial price and single transaction. 1st transction/capital based switching/time rule.
- First transaction rule might, MIGHT be the best for these smaller contracts

4. Yield Allocation: What kinds of methods for yield allocation do we want to use?
- Owner share of revenue is given to owner and then the rest allocated by share ownership?
- Instead of disbursing every period, making the revenue held as a reserve which the delegator profits from when taking out?
- Is a vesting schedule a good policy choice?
5. Further discussion of the traditional finance mechanisms.
6. Splitting of policies around shares for delegator investment and divestment into brokers.
A. Policy 1: Translation between shares/tokens equation.
B. Policy 2: The timing of payments, ability to withdraw, etc. Such as using a debit on the broker pool versus allowing only for direct withdraw when there are free funds.

## Prior Discussion Summaries

1. There ought to be a way to represent the lifecycle of the system
- Enough brokers for smaller scale+completely selfless
- Differing incentive structures for agents to join/leave/etc
- Not only time effects but capacity effects/demand
- Mechanisms that map higher demand to drawing in more brokers.

2. How to handle withdraw mechanisms
- Time locks on the withdraw
- Once a withdraw is asked for, compounding value of the debit until it is paid off
- Can we have clawbacks/grace period of asking for money back.
- Need solvency criteria, threshold for force close
- Fixed income, annuities are similar topics
- Are there secondary market type effects?

## Traditional Finance Inspiration

### Perpetuities

1. Modeling view of the delegation: In the current set up, the delegation can be thought of as buying a perpetuity with a non-fixed coupon.
2. Alternative system: An option is to have the broker pool sell semi-guaranteed perpetuities where a delegator buys in and then is guaranteed (as long as the revenue can support it) income each period.
- The difference between broker revenue + payments is either stored as collateral or allocated to the broker
- Ability to implement a tranching of sorts where early buyers get allocated their income at a higher rate to incentivize early adoption
- Has drawbacks with brokers changing their capacity/revenue over time.
- Can lead to more effecient markets if a secondary market can be utilized allowing brokers to sell out rather than doing a withdraw mechanism

### Bonds

1. Alternative System: Broker pools have fixed term and either fixed/floating rate coupon bonds
- Having the face value redeemed at the end of the term allows for more stability in that brokers know when they need to return stake.
- An ability to extend would likely be very helpful.
- One way around worrying about the withdraw of the stake at inopportune would be to make the bond not pay a face value but rather have the fixed term and ensure the coupons return a large enough ROI to make it worth it
- These could also be a bond that has a floating coupon but essentially says that coupons will continue to come until a target ROI has been reached.

### Private Equity Fees/Clawbacks

- Private equity over a long timeframe returns money to investors but gets both a management fee and performance fee.
- Management fee (typically 1% of assets under management) is rewarded every year to the fund for running the actual fund. The similarity here is the "broker share" of the revenue they have generated
- Performance fee (typically 20% of the profits greater than benchmark) is rewarded for performance over the benchmark. The similarity is how brokers get rewarded for doing good work over the expectation.
- Clawbacks are when performance fees were given to the fund but the actual profit in the future is lower than expected (generally because not all profits are realized until the sale of the assets and the sale may differ from the expected valuation) and the limited partners are able to claw back money. Similarity is how there may need to be a clawback mechanism when brokers are slashed or under-perform.

### Redemption Mechanisms

1. Notice Periods: Hedge funds can impose minimum days notice for withdraw before a quarter (generally 45 days notice to get things in order)
2. Lock-up Periods: Time from an initial investment where it can not be sold. For example, IPOs often have a period such as 180 days before IPO investors are allowed to begin selling their shares.
3. Gates: Hedge funds sometimes impose gates on how much can be withdrawn during a period of time such as 15-25% of assets

### Solvency Criteria

1. Reserves: Requiring a certain amount of cash or liquid assets as a percentage of total liabilities to be held in reserve
2. Stress Testing: Ensuring that in a worst case scenario there is enough solvency to pay off debts
- Streamr example: Taking the 95th percentile worst revenue versus a level of expected outflow or capital need and requiring reserves held that would mitigate this risk