PRFC-9: Method of bPLS yield distribution

Overview

With Plutus' productive treasury and products producing yield, we propose to choose a method of yield distribution.

This proposal decides how Plutus distributes productive treasury- and bought back plsASSET yield to bPLS.

Over time we will move to bPLS gauges controlling these distribution methods but we start off with a baseline through this proposal.

Definitions:

Bluechip

Yield tokens ETH and BTC and their wrapped / equivalent versions.

plsASSET-underlying ASSETs

The asset swappable or convertable to the corresponding plsASSET, e.g. SYK for plsSYK.

Method: Buy back and distribute $PLS

Pros:

• Price Support: Buybacks provide constant buy pressure and support the price of $PLS.
• Less value leakage: Blue Chip yield accumulating for dormant bPLS is wasted and distributing vs burning tokens concentrates the value accrual to bPLS. This is opposed to bought back $PLS serving the purpose of supporting $PLS price.
• Reduced float: Buying back and distributing to bPLS increases chances of tokens being locked and taken out of circulation.

Cons:

• Dependency on Token Performance: If the $PLS price underperforms, holders may feel less incentivized by the yield distributions.

Method: Buy back and burn $PLS

Pros:

• Price Support: Buybacks provide constant buy pressure and support the price of $PLS.
• Reduce supply: Burning tokens, similar to distributing them, reduces the floating supply.
• Lower FDV and MC: Burning tokens, as opposed to distributing them, reduces the FDV and MC which can attract speculators.

Cons:

• Undirected value: Burning doesn't direct the benefit towards bPLS as distributing tokens does. This means that liquid PLS, i.e. speculative assets, reap the rewards while locked assets might accrue value but don't benefit from possible PA.

Method: Distribute Yield in blue chips

Pros:

• Diversification: Blue chip yield is generally attractive.
• Optics: While subjective, the optics of realizing yield by selling a token can be negative.
• Decentralized risk: Diversified yield tokens reduces the effect of timing the market on realizing yield as all $PLS can cause large differences in returns depending on the performance of the token at any chosen point in time.

Cons:

• No value from dormant bPLS: As opposed to the above, the dormant bPLS yield does not benefit the token

Method: Distribute plsASSET underlying ASSETS as bought back plsASSETS

Pros:

• Peg support: Using these ASSETs to buy back and distribute plsASSETs supports the peg of those plsASSETs building confidence and indirectly enabling TVL growth - benefiting bPLS through higher total protocol fees.

• Decentralized risk: Diversified yield tokens reduces the effect of timing the market on realizing yield as all $PLS can cause large differences in returns depending on the performance of the token at any chosen point in time.

• Less value leakage: Dormant bPLS still contributes to plsASSET peg and assuming dormant bPLS means dormant plsASSETs, those assets are contributing to total rewards while not participating in yield distribution while not staked.

Cons:

• Development overhead: While a minor effort, automating the buybacks and distribution adds some overhead to the implementation.

Conclusion

None of the above alone may be the best option. We suggest to consider a mix of these as the means of distributing the yield we generate.

Proposal

Choose the method of bPLS yield distribution from options 1-8.

The default method for plsASSET underlying is to buy back plsASSETs. Options 4-8 do not default to this.

1. Buyback and distribute PLS and plsASSETS Use all plsASSET underlying yield to buy back and distribute plsASSETs.

Use the remaining yield to buy back and distribute $PLS 2. 69/31 PLS/Blue chip and plsASSETs Use all plsASSET underlying yield to buy back and distribute plsASSETs.

Use the remaining yield to buy back and distribute $PLS and Blue chips at a 69/31 ratio (PLS/Blue Chip)

3. 100% Blue Chip and plsASSETs Use all plsASSET underlying yield to buy back and distribute plsASSETs.

Use the remaining yield to buy and distribute Blue Chips.

4. Buyback and burn PLS and distribute plsASSETS Use all plsASSET underlying yield to buy back and distribute plsASSETs.

Use the remaining yield to buy back and burn $PLS

5. 100% PLS without plsASSETs
6. 69/31 (PLS/Blue Chip) without plsASSETs
7. 100% Blue Chips without plsASSETs
8. 100% PLS burn without plsASSETs
9. Abstain Count towards quorum without taking a stance.