CVE Call Options
Token airdrops and excessive protocol token emissions are very popular strategies for attracting initial protocol usage and TVL growth. However, there are numerous problems with the traditional airdrop model that Curvance aims to fix with its call option emission structure.
- 1.Diminished perceived value: When users are given tokens for free, they may not place as much value on them as if they had to pay for them. This can lead to a diminishment in the perceived value of the tokens and the overall protocol.
- 2.Attracting low-quality users: Some users may sign up or participate solely to receive free tokens without any intention of actually using the protocol long-term. These users may not stick around after the airdrop has been completed or the excess emissions have been reduced, leading to a high churn rate and difficulty in user acquisition.
- 3.Dependency on airdrops: If users become accustomed to receiving airdrops or excessive emissions from the protocol, they may grow to expect them and be less likely to utilize the protocol during periods of more standard reward systems.
- 4.Sybiling activity: Users have found the best way to maximize returns from airdrops is to perform basic tasks across numerous wallets to qualify on each wallet. This is often a disaster since the protocol receives no new users from these tokens, and it negatively affects actual participants in the protocol.
Overall, providing free tokens can be very effective in acquiring users, but there are many issues to fix regarding the current model. Curvance aims to tackle these issues in a number of different ways.
- 1.Curvance's token airdrop will be smaller in nature and require active participation from users who aim to take advantage of the incentivized testnet launch by filling out user feedback to qualify.
- 2.Token emissions will be moved mainly from the testnet launch to the beta launch and be provided through the protocols gauge emission system, rewarding users consistently adding value to the Curvance protocol.
- 3.An anti-sybiling review will allow community members to report potential sybiling systems and receive a portion of all reported tokens. There will also be other methods utilized but they will be kept secret for now to prevent creative workarounds.
- 4.Curvance's token airdrop and beta launch will be provided as call options rather than standard tokens. We can limit potential sell pressure and align incentives by requiring users to put capital in to receive CVE tokens. A user's call options become more attractive the more successful the protocol is, and the more successful the protocol is, the more call options a user will receive.
- 5.CVE call options will be exercisable immediately following the LBP auction with an expiration six weeks after. The strike price will be 50% of the starting LBP token price.
A call option provides the holder the right, but not the obligation, to purchase the underlying commodity (CVE) at a particular price called the strike price. Options have a duration in which they can be exercised, after which they become useless. Thus, a holder benefits from an appreciating price over the life of their option. The payoff chart of an option can be seen below.
Example Call Option payoff at varying spot price levels
If the holder wants to exercise their option, they can pay the strike price in USDC, which will be used for deeper liquidity via treasury POL.