Tokenomics ($CLIP)

Why token?

Clip as an active liquidity management protocol can exist without a token. We don’t believe that any tokenomics design can substitute a good product. Our user experience has to be so captivating that people come and stay for the product. In the light of this, why are we releasing a token?

• Cold start problem

• Community ownership

Cold start problem

The cold start problem is a known issue in the startup world, and tokens have been a particularly useful method of overcoming that problem in the crypto space. This is why you’ve seen all the inflationary tokenomics, where early adopters have been richly rewarded for using the protocol and farming yield. This is why the mercenary capital comes in (whales), exhausting the reward structure, followed by dumping the rewards (causing the price of the token to plummet).

It’s likely that in the bull market, a lot of the people behind these protocols didn’t care, because they got to dump their team tokens as well and make a lot of money. But it’s not always the case. Many builders just didn’t have a better framework. The hope for builders is that users will come for rewards, but stay for the product.

For that to happen, the product has to be great, the token has to have a utility that outweighs the desire to sell, and you need both incentive and disincentive mechanisms in place. We will cover these potential mechanisms for Clip later in this document.

Community Ownership and Competition

DeFi is a fiercely competitive landscape, and without an engaged community, contributors, and ambassadors, it’s a hard game to win. Individual economic incentives outweigh everything else for most participants in the space.

It’s difficult to have community engagement unless the community is a stakeholder in the protocol. Building an engaged community should be a goal for every Web3 project. We don’t see any better way to grow and incentivize Clip’s community to participate in governance and contribute to Clip Finance than having our own token as an incentive reward.

Token Objectives

As an issuer of tokens, we set some logical objectives when thinking about token characteristics. For Clip Finance, these are:

1. Incentivise more users to make deposits

2. Higher TVL (total value locked/deposited)

3. Generate demand for the token

4. Community engagement

5. Long-term staking

6. Liquidity

Desired consequential effects:

1. More deposits lead to

   1. Higher TVL

   2. More revenue

   3. Bigger revenue share for token holders

   4. Better token utility

   5. Long-term staking

   6. A more engaged community with a long-term view

   7. Demand outpaces supply

   8. Price appreciation

   9. More interest -> more users -> more deposits

Incentives

To achieve these objectives, Clip Finance will incentivise desired behaviours and disincentivise undesired behaviours.

We need incentives for:

1. Bigger deposits

2. Long-term deposits

3. Long-term staking

4. Demand for the token

To incentivise bigger deposits and long-term loyality, Clip plans to reward users based on their:

1. individual deposit amount;

2. how long the user deposits (loyalty rewards);

3. collective success, i.e. rewards emission will increase for stakers based on the overall TVL of the protocol.

The Solution: Clip Finance Tokenomics

TLDR:

• Clip rewards are unlocked when TVL (total value locked) milestones are hit. We don't see why we should be emitting tokens based on time if the protocol itself isn't growing and succeeding.

• Team and investors' tokens vest based on hitting these milestones, which forces the team to work on scaling the platform instead of just waiting for the tokens to vest. In this scenario, the team and investors’ interests are aligned with the users.

• Rewards are bigger during the first milestones to incentivize adoption in the early stages.

• There’s a loyalty multiplier for users who use Clip for longer periods.

• We use a different method to measure the platform TVL than simply the raw TVL. It’s one of the ways we try to fight against gamification.

• Stakers will receive a portion of the protocol revenue (and potential fee reduction).

Solution

Clip Finance combines the simplicity of a centralized yield aggregator with the non-custodial protection of decentralized protocols. Using a custom-built Strategy Router, users’ deposited funds are split across a basket of risk-audited, yield farming strategies. The router manages and balances these positions in real-time based on performance.

Thus, Clip enables anyone to maximize yield on their crypto assets, without giving up custody, and without having to actively manage strategies.

Furthermore, Clip takes the success of their users seriously - it’s time to do away with tokenomics models that reward the team regardless of the success of the protocol and users. Clip Finance is leading the way with tokenomics that directly ties token rewards, emissions, and vesting to the growth of the Clip protocol and value generated for Clip users.

How does this work? Rather than unlocking CLIP tokens based on the simple passage of time (i.e. 6 month vesting period), CLIP tokens are unlocked based on the protocol hitting specific TVL milestones.

Put simply, the circulating supply of CLIP tokens only increases as the protocol succeeds and grows TVL (thus revenue too subject to user behaviour). CLIP holders can never be diluted if the protocol is stalling or shrinking in usage. Furthermore, the core team’s vesting schedule is tied to TVL milestones, not time, meaning the team cannot simply keep the project alive long enough to get rich at users’ expense - the team’s success is bound to the protocol’s success, and the protocol’s success is bound to users’ success.

This is in stark contrast to the current prevailing issuance models, where token holders are continually diluted as time passes - even if the project is not growing.

Benefits

Clip’s approach to the vesting and emissions of $CLIP tokens has multiple benefits:

• The team and early investors are only rewarded as the protocol grows, encouraging continued contributions to grow the project, and removing the possibility to do the bare minimum just to dump their tokens.

• Early users of the platform are rewarded with CLIP token emissions. Since reward rates decline as the protocol grows, emissions are non-dilutive on net when comparing the total number of circulating tokens to protocol TVL. This means that user rewards are far more stable than protocols that continually dilute users simply as time passes.

• Since the team, investors, and users are all directly rewarded for the growth of the protocol, everyone shares the same incentives to sustainably grow the protocol’s TVL.

How it Works

TVL Milestones

Instead of tokens being issued every block, or unlocked based on a specific milestone measure in time (ex. 6 months after launch), CLIP tokens unlock based on predefined milestones measured in TVL of the platform (ex. an emissions event when protocol TVL reaches $20M).

To avoid exploits and gaming the TVL, total protocol TVL is measured as the rolling 30-day geometric mean of the daily sum of each user’s individual TVL. This means that the platform TVL can not be heavily influenced by short-term fluctuations in any one given user’s TVL. Furthermore, TVL always excludes the value of CLIP tokens themselves, as including the platform’s own token in TVL creates unhealthy pump-and-dump conditions that can be more easily manipulated.

The circulating supply of $CLIP tokens only increases when the TVL increases (when the 30-day geometric mean TVL hits a new milestone for the first time).

Protocol Revenues

The Clip protocol’s smart contract earns revenues from a portion of the yield generated on user-deposited TVL. Protocol revenues are thus a direct function of platform TVL - all else equal, higher TVL means higher recurring platform revenues.

Unlike heavily dilutive protocols, where emissions are entirely uncorrelated to protocol growth since $CLIP tokens are only emitted when a new TVL milestone is hit, token emissions and protocol growth are tied together, resulting in net non-dilutive rewards.

Team & Investor Vesting

Token allocations to core contributors and investors vest when TVL milestones are hit, not after arbitrary amounts of time have passed since launch. In other words, token vesting only occurs when TVL increases. This ensures the team is incentivized to grow the platform, not just wait until they can dump.

Token Vesting

As each TVL milestone is achieved for the first time, a $CLIP token emission event begins. The first unlock will occur when Clip’s TVL reaches $1,000,000. Each milestone is explained in detail under the “Lifetime Vesting & Emissions” sheet of the CLIP Tokenomics Spreadsheet. Users will need to activate their individual unlock for token vesting to begin. Token vesting is over a 90-day period. This means each user will be able to claim 1/90th of their total allocation each 24 hours for 90 days. It is important to emphasize that tokens are rewarded based upon the previous rolling 30-day geometric mean of the daily sum of each user’s individual TVL. As explained above under TVL milestones, this is done to ensure no exploitation of the token takes place upon each milestone being achieved. Clip Finance wants to reward its active and long-term users instead of simply rewarding mercenary capital whales hunting tokenomics exploitation. For more details on the formula used, see below 'Share of CLIP Rewards Formula' section.

Emissions

TVL providers earn $CLIP token emissions when TVL milestones are hit. The rate of emissions in $CLIP tokens per dollar of TVL declines each milestone until emissions eventually reach zero, when the full total supply of $CLIP tokens have been emitted. Currently, though subject to change and governance votes, the total expected supply is 1 billion $CLIP tokens, 100% of which will be emitted by the time the Clip protocol reaches $1bn ($1,000,000,000) in TVL.

Update: as of March 2024 Clip DAO decided to increase supply by 100x (basically a token split). All the distribution ratios remain the same. Previous participants were not diluted.

The declining rate of emissions means that the amount of TVL (and recurring protocol revenues) per circulating token increases each milestone, whereas emitting tokens simply as time passes often results in declining TVL per token.

This results in proportionally more $CLIP rewards for earlier users of Clip, more stable rewards for Clip users, and emissions that are net non-dilutive.

Since TVL milestone emissions are discrete events, to smooth out emissions, tokens released when each milestone is hit linearly and start vesting for users over the next 90 days.

The total number of $CLIP tokens that are emitted each milestone is known ahead of time per the milestone emissions schedule, which you view on the “Lifetime Vesting & Emissions” sheet of the CLIP Tokenomics Spreadsheet.

For example, in the first milestone after launch, when TVL grows from $1mm to $2mm, a total of 5,349,144 tokens are expected to be emitted.

The distribution of how many tokens each user of Clip (each TVL provider) earns is based on several factors.

In summary, the more TVL a user provides, the more consistently a user provides TVL, and the earlier in a new milestone, a user provides TVL, the higher their share of rewards will be.

You can view a sample calculator of the share of rewards earned by different users based on their behaviors within a given milestone by viewing the “Intra-Milestone Reward Share Calculator” sheet of the CLIP Tokenomics Spreadsheet.

Staking

Beyond the control of Clip Finance and Clip Finance core team and investors, $CLIP token holders may elect in a future decentralized governance vote to make use of the protocol’s smart contract’s revenues.

A decentralized govern vote may elect to distribute protocol revenues to $CLIP token stakers, similar to Curve’s model of distributing protocol revenues to CRV tokens.

Long-term stakers may qualify for fee reduction using the protocol.

Share of CLIP Rewards Formula

When a TVL milestone is hit the total amount of CLIP tokens emitted is known according to the emissions schedule. The relative share of rewards earned by each user is dependent on users’ collective behaviors.

$$\begin{align*} P_i &: \text{Percent Share of Rewards for any user } i \\ W_i &: \text{Adjusted TVL Weight for user } i \\ M_i &: \text{Multiplier Factor for user } i \\ U_i &: \text{Unadjusted TVL Weight for user } i \\ T_i &: \text{Daily TVL Snapshot for user } i \\ D_{M} &: \text{Daily Multiplier Factor} \\ D_{C} &: \text{Current Day in Milestone} \\ D_{T} &: \text{Total Days in Milestone} \\ R &: \text{7-Day Rolling Median of Daily TVL Snapshot for user } i \end{align*}$$

Percent Share of Rewards for any user i

$$P_{i} = \frac{W_{i}}{\sum W}$$

Adjusted TVL Weight for any user i

$$W_{i} = M_{i} \times U_{i}$$

Multiplier Factor for any user i

$$M_{i} = \frac{\sum (T_{i} \times D_{M})}{\sum T_{i}}$$

Each user’s Daily TVL Snapshot is determined by taking intraday snapshots of that user’s TVL within the Clip protocol. The minimum value of the intraday snapshots is used as that user’s Daily TVL Snapshot value.

Each day’s Daily Multiplier Factor is a factor that starts at 2 on the first day of a new milestone and decays linearly to 1 on the last day of a milestone. This rewards users for depositing TVL earlier in new milestones, rather than waiting until the milestone is already mostly elapsed. As the total number of days to complete a milestone can not be known ahead of time until the milestone is finished, each day’s multiplier factor can not be calculated until after the milestone in question has been completed.

Daily Multiplier Factor Calculation

$D_{M} = 2 - \frac{(D_{C} - 1)}{(D_{T} - 1)}$

For example, for the 3rd day in a milestone that takes 30 days in total to complete:

$D_{M} = 2 - \frac{(3 - 1)}{(30 - 1)} = 1.93$

Unadjusted TVL Weight for any user i

$U_{i} = \sum \left( \frac{T_{i}}{7} \right) + \sum (R \times 7)$

Token emission schedule

Please see the Excel sheet for an overview of the $CLIP emission schedule:

https://docs.google.com/spreadsheets/d/1RONoLt-taXwKRQ1q6KOP6rzBNpFSKAucAwzZ1Kg5Ox0/edit#gid=496114049

Token Allocation