Exploring the tokenomics of the KP3R token
A deep-dive into the tokenomic design of the governance token of the keep3r network & fixed forex, projects built by Andre Cronje
Edited 15th March 22 to update section on emissions
Why tokenomics matter?
Tokenomics are probably the most important factor when deciding whether a token has intrinsic value, and as we will see below, a deep understanding of the tokenomics of any given protocol should be considered essential for any investor or budding analyst
The tokenomics of KP3R prove to be quite complex for newcomers to understand, not least because KP3R is the governance token of two separate solutions that deploy some innovative & unique features when it comes to incentivizing liquidity & paying out rewards
In this article I hope to provide the reader with a simplified guide to the tokenomics of KP3R along with some useful tips on how to access all of this data directly
My hope is this will help new (and maybe some experienced) users of KP3R, the Keep3r Network or Fixed Forex to understand how KP3R tokenomics work, what factors are driving token valuation &, perhaps, along the way even dispel some myths about emissions & dilution thanks to the innovative ways that KP3R incentivizes liquidity
What are the keep3r network & fixed forex? Why are they governed by the same token?
The keep3r network is an on-chain job registry that seeks to match keepers with protocols needing upkeep
Fixed Forex is a liquidity incentive, fee claiming system and, now, a low cost asset swap function for the ib* stablecoin assets of Iron Bank (collectively known as Fixed Forex)
Iron Bank is a lending/borrowing protocol that offers both over-collateralized lending facilities to end-users & un-collateralized lending facilities to other protocols. Iron Bank’s functionality is integrated into the UI for the sites of Fixed Forex & Yearn Finance but also launched a stand alone website on Fantom network in January 2022 — note, Iron Bank is developed and operated by a different team than the KP3R governed protocols
Originally launched as separate projects in Oct 20 & July 21, The keep3r network & Fixed Forex were consolidated under a single governance token (KP3R) in late August 21 when Andre Cronje also announced an expansion of the services on offer, including Options Liquidity Mining & Uniswap v3 liquidity mining program. But why were these seemingly un-related projects consolidated?
It was explained by Andre Cronje as being due to the fact that he soon realized that The Keep3r network was more than just a simple job registry and, in fact, formed the basis of a liquidity ecosystem that could immediately be expanded to benefit both protocols. To see exactly what this means, and how it works, read on below
The four pillars of tokenomics
The recent article “The Pillars of Tokenomics” by the Captain BTC establishes an excellent framework for evaluation consisting of four basic pillars
- 1) Supply, including Circulating, Max and Total Supply
- 2) Distribution
- 3) Monetary Policy
- 4) Value Capture
We’ll leverage this framework as a guide to helping us understand at a deep level the tokenomics of KP3R
Pillar 1 — Supply
Part A — Circulating Supply
Circulating supply of KP3R is impacted by several factors, however, perhaps the easiest way to understand it is to comprehend what factors would keep the KP3R token locked up for any period of time, and effectively out of circulation
This can be impacted by two different locking mechanisms, each with separate purposes. The first of these is when prospective keepers Bond KP3R tokens. They do this to qualify for consideration for keep3r Jobs, with the Bonded KP3R token acting as a proof of creditability to qualify for work, on the understanding that the keeper will forfeit some or all of the KP3R tokens if they prove to be a malicious actor. Protocols that post Jobs to the keep3r network can set a minimum KP3R Bond that the keeper must meet in order to qualify for working the keeper tasks. A KP3R Bond can be withdrawn however unbonding requires the keeper to wait 14 days before the withdrawal can be made
At time of writing, 2,907 KP3R is Bonded - an up-to-date & current figure of total KP3R bonded can be seen on the landing page at the Keep3r.live dashboard at any time
The second of the locking mechanisms occurs when KP3R token holders Vest their token at fixedforex.fi which they do so in return for receiving a share of the protocol revenues gained from fees generated by the keep3r network & fixed forex. Users can Vest their tokens for upto 4 years, and when they do so they will receive vKP3R
Each KP3R Vested for 4 years will receive 1 vKP3R. For periods of less than 4 years the amount of vKP3R scales downwards linearly and is further explained in the vKP3R 101 article by Andre Cronje. The total volume of KP3R vested can be viewed in an up-to-date & current form at the FixedForex.live dashboard at any time. At time of writing, 82,199 KP3R was Vested
An average lock duration can also be determined by utilizing total voting power figure on the Fixed Forex dashboard (see image below) dividing by total locked KP3R figure available on the fixedforex.live dashboard (see image above) and multiplying by 4. The output will be equal to the average lock period — in examples shown this would be 67,769.67 / 82,199.01 * 4 = 3.297, although would recommend running this calculation manually based on current figures for anyone seeking to determine average lock period
A further breakdown, demonstrating the duration of each lock period and the volume of tokens locked is available on the dune analytics dashboard by Chainsight Analytics
In total, that’s just over 85,000 KP3R currently kept out of circulating supply, a little over 23.5% of total token supply (at time of writing, inclusive of Bond & Vest). So perhaps, given the use cases of the two protocols, we should ask why isn’t more locked up?
Well, to understand that we’d need to factor in the KP3R that is allocated to CEX’s (Binance, etc.), DEX’s (in the form of LPs), Protocols posting Jobs that are maintaining kLP to earn credits & wallets that are holding KP3R for speculative purposes — all of these factors ensure that KP3R tokens remain in circulating supply
Part B— Maximum Supply
An easy one to cover, as KP3R has no maximum supply. This being due to the ongoing need for new KP3R to be minted to fund keep3r tasks — which we’ll take a deeper look at in the third of our tokenomics Pillars (below)
Part C — Total Supply
Again, an easy one to cover as maximum supply is a single figure — at time of writing standing at 361,131 & can be easily seen on etherscan on the KP3R token info page. However, please note that this figure will increase over time due to new token emissions (covered in detail in Pillar 3)
For those that are curious how total supply has increased over time, a data set is available on Dune Analytics that provides a great visualization of the growth due to the monetary policy (also covered in Pillar 3)
Pillar 2 — Distribution
Looking at the distribution of KP3R token holders on etherscan demonstrates that the top 10 token holders is dominated by contracts & centralized exchanges (Binance, in particular)
So, what happens when we look further down the list of token holders? Well, this actually makes for quite reassuring reading as it clearly demonstrates that the majority of holders (just over 6,500) own less than 1% of token supply meaning that the token is well insulated against sudden sell offs by whales
Pillar 3 — Monetary Policy
KP3R has an inflationary supply and is creating emissions in three unique (and interesting ways), these are;
- The creation of new KP3R within the Keep3r network protocol
- The emissions of newly created KP3R to secure Protocol Owned Liquidity (POL) via the Olympus Pro bonding system — ended on 15th March 22
- Options Liquidity Mining (OLM) rewards granted to users vesting KP3R or providing liquidity for ib*Stable assets on Curve
Let’s take a look at why each of these is necessary, and how they work within each protocol. Explaining the first of these three inflationary steps requires a brief understanding of how the keep3r network operates and how it incentivizes protocols to post keep3r upkeep tasks as Jobs
Protocols have three choices when listing keep3r Jobs when it comes to how they can fund payments, they can choose to either pay in the token of their own protocol (as long as it is an ERC20 token), pay via any other ERC20 token or provide liquidity to a KP3R/wETH liquidity pool (known as kLP) in return for credits which would pay keepers in KP3R token
The disadvantages of the first two options for protocols is that they would require either an emission of their own token, or an irreversible transfer of assets from their own treasury. By contrast, providing liquidity benefits protocols in two clear ways; One, any funds provided as liquidity can be reclaimed and restored to a protocols treasury at a later date (if, for example they wish to remove the keeper job, or if they have temporarily secured enough credits to fund the keeper jobs needed); Two, credits effectively ensure that keeper jobs are funded without further impact or cost to their treasury
It’s clear that this is an innovative way to attract protocols to utilize the keep3r network over rival or alternative keeper protocols. Further, the process also ensures that demand for KP3R token will be maintained all the time the keep3r network can attract other protocols to post Jobs as they will be highly incentivized to purchase KP3R tokens in order to add liquidity to the kLP credit mining mechanism
A breakdown of how kLP credit mining works is available in the product documentation but for the purposes of this article let’s explore how many KP3R tokens have been emitted over the last week as a snapshot or example of this process in action. The easiest way to view this data is to head over to the keep3r.live dashboard where we can see that just under 3 KP3R have been paid out to keep3rs over the last 7 days — so not a major impact or concern for emissions currently
Interestingly, a proposal has been made to reutilize the liquidity that the KP3R treasury already owns into kLP in order to generate revenues from the LP positions. This could provide tangible benefits for either vested token holders or provide an opportunity to fund future developments of the protocol
To understand the second of these three areas, securing POL, we need to first understand why protocols would do this and/or why they would consider it advantageous. Fundamental to understanding this is that without Protocol Owned Liquidity then protocols HAVE TO rely on other entities to provide liquidity to pools that would benefit the protocol, and in order to ensure that happens the protocol will incentivize liquidity providers to do so. Usually this is executed by committing emissions from the protocol via their native token to reward users providing liquidity
An example of this in action can be seen on the agEUR/ibEUR LP pool on Curve.fi where ANGLE is currently incentivizing liquidity (alongside curve gauge & rKP3R rewards)
The alternative to this is for a protocol to attempt to own enough of the liquidity in required pools to ensure that steep incentivization isn’t necessary — as when a protocol owns a significant enough proportion of liquidity then it would not be efficient to reward (since rewards would be emitted from the protocol just to route back to the protocol). Olympus Pro runs a marketplace that allows protocols to purchase liquidity positions in return for a bond that offers a discounted & fixed valuation on the protocols native token at a future time, usually 5–7 days
Between 8th December 21 & 15th March 22 KP3R was taking advantage of the Olympus Pro bond marketplace to offer KP3R tokens in return for LPs. The program secured over $25m in protocol owned liquidity. Emissions directed to securing POL via Olympus Pro were limited to upto 5k KP3R per week
As a result of this program a total of 57,000 KP3R were emitted as detailed at fixedforex.live
The third, and final, of these areas is emissions via OLM. Options Liquidity Mining can be quite a complex subject for those unfamiliar, so I recommend reading the original article where Andre announced OLM to gain a deeper understanding. However, the short version is that via the Fixed Forex protocol KP3R users will notice four versions of the KP3R token:
- KP3R (the subject of this article)
- rKP3R (redeemable KP3R)
- oKP3R (option on KP3R)
- vKP3R (already discussed)
Currently users vesting their KP3R & users providing liquidity to curve ib*stable pools are receiving rKP3R rewards upto a maximum of 2k rKP3R per week (1k to vKP3R holders, 1k to fixed forex gauges on curve). The KP3R rKP3R rewards directed to vKP3R holders can be viewed as a concession granted to vested token holders to compensate new token emissions. This is further boosted by the fact that 100% of fees generated when rKP3R options are redeemed are directed to vKP3R holders. To understand how this works, let’s dive in;
Each rKP3R token has an inherent value of 10% of that of KP3R. For example, where KP3R is valued at $1,000 then rKP3R will be valued at $100. Users can utilize the rKP3R position to activate an option on KP3R with 10% discount on the market price of KP3R, once activated the option has 24hrs before expiry. All options must be funded via USDC. Let’s look at a live example;
In this transaction we can see that the user acquired just over 10 KP3R via utilizing the options on rKP3R at a cost of 6,398.09 USDC
All of those funds have been allocated for distribution to vested KP3R holders and can be viewed on fixedforex.live dashboard
The rKP3R rewards that are directed to fixed forex gauges on Curve can be claimed by any users that are actively providing liquidity to any of the ib*stable pools that have active rewards. vKP3R holders also have the ability to vote for directing rKP3R to each of these pools on the fixedforex.fi governance voting section of the UI.
These incentivized rewards are necessary for the fixed forex protocol to secure enough liquidity of ib*stable assets in order to be able to eventually offer high volume stable asset forex swaps between stablecoins tracked to different underlaying real world currencies. This will prove to be especially effective if it incentivizes enough potential liquidity providers to mint new ib*stable assets with the express purpose of providing liquidity positions of those assets
We can see that vested KP3R holders are effectively receiving a double benefit from being granted rKP3R tokens and receiving fees from all other users redeeming options on their own rKP3R positions. Some factors to consider here are that rKP3R can be redeemed at any time, as rKP3R has no expiry, meaning that there is some unpredictability to the rate at which rKP3R/oKP3R redemptions are enacted. Additionally, for vKP3R token holders their revenues are currently greatly impacted by the market price of KP3R, since when options are claimed the fees generated will be directly based on current market price of KP3R & because OLM is currently the main fee generating product of the KP3R protocols
Pillar 4 — Value Capture
Value captured by the two protocols governed by KP3R is distributed back to vKP3R token holders via ibEUR rewards — effectively paying each vested token holder a share of protocol profits via a stablecoin pegged to the EURO. So, where exactly are these two protocols generating these fees?
Andre’s vKP3R 101 article & 0xSato’s KP3R FAQ both provide an excellent overview of where these two protocols are generating fees, including a breakdown of how these fees are shared with vKP3R token holders
It is worth noting here that fees expected to be generated from Uniswap v3 liquidity incentives have not yet gone live & appear to be on hold due to the concerns with Uni v3 managed liquidity positions generating profitable returns. A breakdown of current active fees is available at the fixedforex.live dashboard
It’s also anticipated that fee generating activities will continue to evolve, including generating fees from new areas as fixed forex continues to develop new features and opportunities for on-chain forex swaps. To stay upto date on any further changes in these areas it’s worthwhile paying close attention to Andre Cronje’s medium and twitter posts for official announcements for any new fee generating activities
What’s to come — ve(3,3) Tokenomics
The KP3R token has been announced to be moving to the new ve(3,3) tokenomics model pioneered by the solidly exchange and its SOLID token (also developed by Andre Cronje). This will mean the following changes to KP3R;
- vKP3R will become a ve(3,3) token
- vKP3R holders will no longer receive rKP3R rewards as ve(3,3) mechanism will rebase vKP3R position proportional to new emissions of KP3R token
- ibEUR reward distribution (as share of protocol fees) will remain
- rKP3R rewards will still be in place for incentivizing LP pools of ib*Stable assets, continuing to generate OLM fees for vKP3R holders
- Unlike the SOLID token, vKP3R will not be tradable as NFT since the KP3R code is not upgradable
These changes are likely to yield beneficial outcomes for vKP3R holders in both the short and long term since, in the short term, this will allow more rKP3R to be directed to incentivize liquidity of ib*stables — vKP3R will benefit from their vKP3R position increasing in line with these emissions & will benefit through increases in fees from OLM and possibly even minting & reserve fees (especially if Iron Bank’s own native token, IB, is also used to incentivize lending/borrowing via Iron Bank). In the longer term, the deeper the liquidity of ib*stables on-chain, then the higher potential there is for on-chain forex swaps between ib*stable assets — this would benefit vKP3R holders through an increase of fees generated from swaps, an intriguing prospect since swaps may be easily facilitated through the new solidly exchange protocol at low fees for users which may be highly attractive to potential new users. It’s not inconceivable to envision the potential of rapid expansion of growth of fees due to these factors
This change is expected to be implemented upon completion of audits, currently underway. Further & official announcements are expected to follow from the official channels
Conclusions
The KP3R token and the protocols it governs can be difficult for newcomers to get their heads around, although as detailed above, some of the ways in which this token seeks to address demand & supply are truly innovative and unique which should put the KP3R token in a position of advantage over other similar protocols. What’s clear, and hopefully has been clearly demonstrated in this article, is that the tokenomics are sound
With the keep3r network planned to launch shortly on Fantom & Optimism and with Fixed Forex well positioned to integrate with and take advantage of the low trading fees offered on Solidly exchange KP3R could reasonably be expected to continue to grow and deepen revenue streams for both protocols. Will this be successful?
See you in the future, where we’ll find out how it all plays out
