Vesting UMAMI incentives Pilot Program

Proposed By: Umami Core Contributors

Date: 3/1/24

This proposal establishes sticky TVL for Umami’s products by allowing qualified vault depositors to purchase UMAMI at a discount. This system will leverage vested UMAMI incentives to increase capital flowing through the Umami ecosystem, benefiting UMAMI holders and products.

Proposal: Start a pilot program to allow qualified Umami vault depositors earn vUMAMI emissions. vUMAMI is a 1 week vested contract that allows users to instantly purchase UMAMI with zero slippage at the quoted discount price.

Initial Seeding and Funding Mechanism: The treasury will allocate 5,000 UMAMI to initiate the pool and pilot the emission program for 1 month. As the STIPs oARB vesting contracts finish ETH will be received. We can decide whether to extend the vUMAMI program with ETH depending on performance or find another incentive program.

Sustainable Emissions: Start with a conservative emission rate, focusing on sustainability. Monitor and adjust vUMAMI emissions based on market demand.

Protection Against Market Manipulation: Implement a 10-day time weighted average (TWAP) for the vUmami redemption price to protect against price manipulation.

Incentive Structure:

• vUMAMI offers a ~10% discount for purchasing UMAMI with ETH, based on a 10-day time-weighted average.
• Enhance UMAMI’s utility by boosting yield on our products.
• Motivates increased ETH investment in Umami LPs, boosting protocol fees. - - Incentivizes the protocol’s TVL to earn after ARB emissions.

System Mechanics: Establishes vUMAMI as a closed system. The interplay between v emission rates, UMAMI purchases, and ETH investments will create an automated self-sustaining cycle, extending the program’s reach and effectiveness.

Initial Vesting Mechanics: Users accumulate vUMAMI weekly by having the appropriate amount of UMAMI/cmUMAMI in their wallets to be eligible for incentives. Eligible users will accumulate vUMAMI which can be used to purchase UMAMI with ETH at zero slippage at the quoted redemption price. The UMAMI purchased will be vested for 1 week. When vUMAMI is used, the ETH spent market buys UMAMI to refill the emissions pool, creating a self-replenishing system that significantly extends the use of the 5,000 UMAMI. Initial redemption rate = 10% discount to a 10 day TWAP vUMAMI emission rates will be monitored and adjusted to ensure APR efficiency.

Example: Chad owns $10k in gmUSDC tokens. To qualify for the max vUMAMI rewards, he needs about 200 UMAMI or cmUMAMI in his wallet. After accumulating 100 vUMAMI, with the market price of Umami at $5 and the vUMAMI redemption rate at $4.50, Chad uses his 100 vUMAMI to buy 100 UMAMI for $450 worth of ETH. This transaction secures Chad a $50 instant discount, with no price slippage. It’s this value that forms the basis for calculating the APR.

The market price and 10 day time weighted average price will differ changing the value of vUMAMI which affects the calculated vUMAMI APR. There are possibilities where the vUMAMI exercise price can be higher than the market price causing no calculated APR boost.

Goals:

• Increase Total Value Locked (TVL) in the Umami Finance ecosystem and extend incentives beyond the ARB Short Term Incentive Programs.
• ETH from the STIP can be used to foster sustainable growth and stability for the UMAMI token and products.
• Encourage long-term participation and investment from both current and new UMAMI holders.

Initial Emission schedule: TBD - Emission APR target = 9.1% with $1,000,000 eligible TVL, $5 per UMAMI and a 5% executed discount rate vs market price. APR will fluctuate based on the emission rate and the difference between the UMAMI price and the quoted discount price.

Voting:

Yes: Approve a pilot implementation of the vUMAMI system.

No: Reject the proposal.

Conclusion: The value of vUMAMI is based on users purchasing UMAMI and contingent on the amount of UMAMI in the vesting contract able to be utilized. Because this is a pilot program the pool may be depleted so yield will be first come first serve. The vUMAMI system presents an innovative approach to incentivize participation in the Umami Finance ecosystem while safeguarding its stability and growth.