[Economic Model Suggestion] Adaptive Pbuy with Vesting

#1

Radix Stage 1 - Adaptive Pbuy with Vesting

In Brief:

Instead of always buying 1 XRD for 1 USDT during Stage 1, new investors will buy 1 XRD at a price of Pmin + 0.3. The purchase price for XRD in a given period is called “Pbuy”. The Pbuy price of Pmin + 0.3 will naturally increase as Pmin increases each period. In addition, the Genesis investors (and Radix team) will receive 104 million XRD instead of 79 million, but will start out with 10 million and the rest will vest over 5 years.

This model was inspired in part by @tesslerc who proposed a different adaptive model.

Summary of Advantages:

The Adaptive Pbuy With Vesting model increases the Pmin value much more quickly as compared to the original model. It also provides better returns for new investors, and less risk (due to the higher Pmin). These improvements will give new investors more incentive to invest in the Radix network. Otherwise, the new model is very similar to the original model.

What Problems Does This Approach Solve?

This Stage 1 proposal solves the following problems in the current economic model:

  1. In the original model, Pmin does not increase very quickly, especially if the amount of investment is not very high in some periods.

    • The Adaptive Pbuy with Vesting model increases Pmin more quickly even for lower amounts of investment.

      • This reduces risk for new investors, encouraging more to invest.
      • Increasing Pmin more quickly during Stage 1 will mean reaching 0.9 more quickly in Stage 2.
  1. In the original model, Stage 1 investors are quickly diluted and do not see a significant return relative to their risk.

    • The Adaptive Pbuy with Vesting model provides investors with more Radix for the same fiat, as compared to the current model. This results in a better return on investment for new investors.
  2. In the original model, as the end of Stage 1 approaches, investors would have less and less incentive to buy for two reasons: (a) their rate of return is significantly lower and (b) because they could wait for the DEX to open in Stage 2 and potentially buy for a much lower price (and at worst 10% higher).

    • The new model provides better rewards for investors who buy in the middle or at the end of Stage 1.
  3. The Adaptive Pbuy With Vesting model will also reach a Pmin of 0.9 more quickly if we assume the same Stage 2 model as in the original economic paper. Reaching a Pmin of 0.9 faster will mean that it requires less total new investments to reach stage 3.

Conclusion:

All of the above advantages provide better incentives to the Stage 1 investors to put in more money, which will increase Pmin more quickly.

This model still provides businesses with a simple way to calculate the cost of buying Radix (since it’s just Pmin plus 0.3).

Details:

There are three main changes proposed by this model. All other aspects of the original paper remain the same. These changes only affect Stage 1:

  1. Adaptive Pbuy. The price at which new investors buy during Stage 1 will increase as Pmin increases. This improves the investors’ return and lowers the risk for new investors which should increase the amounts invested.

    • Pmin starts at zero and is equal to nR(t) / M(t) (the amount in the reserves divided by the total Radix in existence). This is the same as in the original paper.
    • Pbuy = Pmin + 0.3
    • After each period, recalculate Pbuy based on the new Pmin. Pbuy will be capped at a max of 1.1 USDT.
    • New investors will all purchase at a price of Pbuy (during Stage 1).
    • During Stage 1, all USDT tokens spent will go into the reserves (same as original economic model).
  2. Vesting of the Genesis Investors and Radix Team. Using vesting significantly improves the rate at which Pmin will grow during Stage 1 (see table and spreadsheet below).

    • Instead of 78,926,251, the Genesis Investors and Radix Team will get 104,000,000, but won’t get it all at once. The higher total value makes up for not having as much at the start.
    • The Genesis Investors and Radix Team start with 10 million XRD, prior to week 1.
    • The remaining 94,000,000 will vest over a maximum of 5 years. It could vest faster, if sufficient funds are entering the system (see details below).
  3. The amount of XRD created for redistribution each period will be smaller. Having some redistribution helps investors who hold, including the Genesis Investors, but we no longer need the large redistribution found in the original economic model.

    • The amount of Radix created for redistribution will be 0.25 * nR(t’). This will still help existing Radix holders, but will not overinflate the number of Radix.

Comparison

The following table is a comparison of approaches after 6 months of Stage 1 participation. All examples use an initial investment of $10,000 USD. When using the Adaptive method, the Pmin is 72% higher after 6 months (with $10 million in new investment per week), as compared to the original method. And Pmin is over 100% higher after 6 months when there is $1 million in new investment per week.

Pmin # Radix Owned for Week 1 Investor Minimum Value at Week 26 Potential Value (at 0.9 Pmin)
Original Model ($1million/wk) 0.15 15,377 $2,369 $13,839
Adaptive Model ($1million/wk) 0.33 39,236 $13,038 $35,312
Original Model ($10million/wk) 0.32 33,147 $10,489 $29,832
Adaptive Model ($10million/wk) 0.55 46,496 $25,548 $41,846

Genesis Investors (and Radix Team) Vesting:

  • The Genesis Investors (and Radix Team) can see their 104 million vest more quickly if lots of money is coming into the Radix network. In the spreadsheet, the amount that vests each period is either 1/10th of the number of dollars that were spent on new Radix that period, or 361,538 (the amount needed to vest within 5 years max), whichever is higher.
    • This gives the Radix Team extra incentive to bring in new investors.

Detailed Spreadsheets:

  • The following spreadsheet shows the Stage 1 Adaptive Pbuy With Vesting model. Make a copy of it and customize the parameters to see how they affect the results. Get it here:
  • For comparison purposes, I also have created a spreadsheet which reflects the original paper’s formulas (based on the one published by the Radix team) that adds the ability to test it with vesting and also provides the ability to see returns on an investment made in different weeks. Get it here:

NOTES:

  • I experimented with various values other than 0.3. Others worked too, but I found that 0.3 was a reasonable compromise between increasing Pmin quickly and giving new investors a good return throughout Stage 1 (and thereby incentive to invest).
  • The initial starting amount for Genesis Investors of 104 million was somewhat arbitrary, but based loosely on how much they would make using the original redistribution method.
  • The vesting time of 5 years was selected to spread out the impact of the 104 million so that Pmin could increase at a reasonable pace.
  • If the initial Genesis allotment was less than the proposed 10 million, Pmin would grow even more quickly during Stage 1, but such a change should probably also require a total allotment of higher than 104 million. The provided spreadsheet allows for such experimentation.
  • The original model requires extremely large amounts of investment to reach a Pmin of 0.9 and takes a long time to do so. The Adaptive Pbuy with Vesting model requires less investment and will reach a Pmin of 0.9 faster.
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#2

This sounds like a really interesting and good idea.
Only issue as I see it, is that it depreciates the value of early investors (genesis). Due to vesting, the genesis holders don’t enjoy the redistribution in the same manner as people investing on day 1.

For instance, your model shows that at Pmin=0.9 an investor at day 1 will make potentially x4.1 ROI, however the vesting model leads to a much lower ROI for the genesis holders. This may be tackled by giving the 25M surplus you suggested (104M - 79M) to the genesis holders and not to the foundation.

But overall, faster Pmin and more ROI for early investors is a great idea :slight_smile:

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#3

@tesslerc
Thanks for the feedback. In the proposed model, most of the early gains come from being able to buy the XRD at a lower price (instead of $1), not from redistribution. But you’re right that the genesis investors won’t gain as much from redistribution as in the original model since they’re not getting all of their XRD at the start. The amount extra given to the genesis investors could be increased to further make up for that. For example, the early investors could get 150 million and the Radix Team 50 million, for a total of 200 million, and then have it vest over 10 years instead of 5.

These numbers can be adjusted while still retaining the benefits of a fast growing Pmin and better returns for new investors. The spreadsheets I provided make it easy to play with the numbers.

I feel like an approach like this one will be more likely to be successful because it provides significantly better incentives to new investors which will bring in a lot more money.

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#4

Only issue as I see it, is that it depreciates the value of early investors (genesis). Due to vesting, the genesis holders don’t enjoy the redistribution in the same manner as people investing on day 1.

What about letting the locked RAD of the genesis investors be part of the redistribution mechanism, under the condition that the redistributed RADs get added to the locked supply? I think the redistributed locked RADs wouldn’t affect the growing rate of pMin too much.

Depending on the rate of adoption, the duration of vesting for genesis Investors would probably be extended, but the potential profit would eventually be higher (if we assume Radix is going to be successful in the long term)

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#5

@p0x
Thanks for the feedback. I don’t quite understand how your proposal would work. What do you mean that the that the redistributed RADs get added to the locked supply? Can you give a specific example?

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#6

@steve
Assuming that the part of the genesis fund that is going to be vested over time, will already exist in the economic system at technical-go-live. But it is going to be locked until it gets vested after each period.

I imagine it like having a specific wallet for each genesis member where a part of the RAD is locked und another part is unlocked. After each period, the system vests the appropriate amount by unlocking part of the funds, which can then be used freely in the network.

Or maybe you could give each genesis member 2 wallets, a specific wallet for the locked funds and a regular wallet for the spendable funds. After each period the appropriate amount gets automatically sent from the locked wallet to the spendable wallet.

I think it could be possible to configure the redistribution mechanism in a way, that it takes into account the locked up part of the genesis funds.

Lets say genesis member has 90 RAD in the locked wallet and 10 RAD in the spendable.
The distribution mechanism counts all 100 RAD as eligible for newly distributed RAD.
For the sake of simplicity, lets assume the period is over and the system is going to redistribute 1 RAD for every 10 RAD that are already in the system.

The locked wallet would receive 9 RAD and 1 RAD is going to the regular one.

Since the funds in the locked wallet can’t be used, the pMin mechanism/calculation doesn’t have to account for them until they get unlocked/vested.

  • Pmin starts at zero and is equal to nR(t) / (M(t) - locked Rads)

M(t) = locked and regular RAD in existence

The amount of redistributed RAD would be the same as in your model, but everyone would receive less per RAD they hold.

Most profit for Stage 1 and to a lesser extent Stage 2 investors would still come from price appreciation.

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#7

So Genesis investors not only had to wait 6 years, they need now to wait another 5? And if the platform survives and thrives for that long, they can sell?

This is hardly fair imho. Incentivize the stage one holders a lot more - agreed. Leave genesis holders alone. For all we know, by the time the platform launches, BTC might be >$20k and the genesis holders won’t even have any early investor advantage. This plan would make them worse off than stage 1 investors.

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#8

However, the vesting idea is GOOD in a certain manner. It does help build up the effective Pmin (spendable funds divided by money in reserves) much faster. The thing is all early investors should be treated the same and not only the Genesis investors.
My point being - if any purchase from an AM during Stage 1 results in 10% funds immediately accessible and 90% sent to a vesting contract, Pmin will rise very quickly, everyone will enjoy the same terms and ROI multipliers. Vesting needs to be relative to new money flowing in and not relative to time in order to prevent Pmin from decreasing due to no money coming in and a lot of contracts ending.

If the goal is a stable currency, it needs to be as stable as possible, vesting provides incentive to all early investors to help push the system forward, we are all invested in the long term. It helps push Pmin higher. It can also be used to provide early investors with a small bump, similar to what is done in an ICO. You can give people 10% more than what they paid for and if the funds are locked for long enough it will be meaningless.

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#9

@windjc
Thanks for the feedback. I too was reluctant to require that the Genesis investors (and Radix team) wait longer for their returns. However, I’ve been unable to find a better method that will increase the Pmin at a reasonable rate. I’d certainly like to hear other proposals. You can use the spreadsheet that I provided to easily test it for yourself. Simply set the initial amount received by the Genesis investors to the original 79 million rather than the 10 million that it’s set to by default. Then play around with other numbers to see what results you can get. I’ve love it if you can find something better.

Also, the reality is that given the original proposal the Genesis investors will not be able to sell their XRD for anything close to $1/XRD until Pmin grows significantly. So they will have to wait for years anyway. My proposal actually grows the price at which they can sell much more quickly than the original proposal.

I mentioned another option above: if you want to provide a better reward for the Genesis investors while still using my proposal, you can just increase the amount that they will receive after being fully vested.

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#10

@tesslerc
I like the concept of the new investors having the same terms as the Genesis investors (e.g. 10% immediately and 90% vesting over 5 years). It think you’re right that it would increase Pmin much faster – I’d have to put together a spreadsheet to see the exact effects.

However, it would be less appealing to early investors (which is why I was giving a larger total to the Genesis investors). In particular, as the end of Stage 1 approached, it would be hard to justify making an early investment versus just waiting for the start of Stage 2. I think that it would be necessary to give the early investors a significant bump (more than the 10% you suggested) to increase their interest.

I agree that vesting should be relative to new money coming in. I did account for that to a certain extent in my spreadsheet, but not fully. The amount of vesting should tend toward zero if the amount of new money coming in tends toward zero.

I totally agree that if the goal is a stable currency that we need to push Pmin higher as soon as possible.

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