Quotas
It’s almost time for the Shell v2 guarded launch. What does ‘guarded’ mean here? It means we want to keep the initial protocol TVL small for the sake of security. As we gain confidence in the system, we can increase it in steps over time.
As explained in the Shell Points blog post, this guided growth of TVL will be achieved through the use of quotas. These quotas will not directly limit how many tokens you can swap or wrap into Shell v2. However, only tokens within your current quota will count toward earning you Shell Points.
Quotas will be set for each user on a per-token basis. The total quota for each token will be determined based on an analysis of smart contract risk. The longer a system has been operational in the wild, the lower the overall risk. Hence, total quota will begin low and increase over time, provided there are no emergent security concerns. These total quotas also do not have to be exact. They only need to guide a pool/token’s TVL toward an approximate range.
Once we have the intended total quota for a token, we divide up that quota allocation across our user base to determine each user’s quota for that token.
The Task at Hand
Here we arrive at a question. How do we fairly allocate initial quota across the Shell user base? We already know that our solution must meet a few requirements.
- It must be front-running resistant.
- It must be sybil resistant.
- It must reward current users.
- It must onboard new users.
On the subject of sybil attacks, we broadly view sybil resistance for Shell Protocol like this — it should not be more rewarding to split your funds across several wallets than it is to keep them all in one. If it is, we have created a perverse incentive and punished non-exploitative users.
Initial Quota Allotment
There are a few potential strategies for distributing quota that are clearly bad. First-come-first-served will immediately be front run. Giving a flat amount of quota to all users will suffer from sybil exploitation. So, in an effort to ensure a sensible distribution, initial quota will be distributed to users based on the following criteria:
Approximately fifty percent of initial quota will go toward LPs in Shell v1.
Approximately fifty percent of initial quota will be distributed per-toucan.
For Shell v1 LPs, quota will be based on the percent of total TVL you contributed over the life cycle of the pool. The actual formula is a bit more complicated, but that’s the general framework. This formula will be applied to a snapshot of Shell v1 from its launch until 11:59 pm Hawaii Time on Thursday, September 1, 2022. No LP activity after the end of that snapshot will affect quota allocation.
Additionally, this same snapshot window will be used in the event of future retroactive rewards for v1 LPs. This means that you can withdraw your funds from Shell v1 from this moment forward without diminishing any possible future benefits. With the guarded launch, we want to shift the focus to our new platform and the Shell v2 ecosystem.
For toucan holders, we’ve made it simple. For every toucan in your wallet at the moment we take our toucan snapshot, you will receive roughly $5 USD of quota for each of the current and near-future tokens on Shell v2. If Alice holds 50 toucans, for example, her initial quota for each pool and wrapped token will be around $250 USD.
This toucan snapshot will be taken at noon Pacific Time on Friday, September 9th, 2022. Your initial quota from toucan ownership will be allotted based on however many toucans are held in your wallet at that exact moment in time.
Post-Launch Quota Allotment
With this, we’ve explained how initial quota will be distributed. But how will it increase over time? In short, a large portion of future quota will be allocated based on how many Shell Points you’ve earned. A wallet holding 10% of all existing Shell Points, for example, may receive 10% of a future increase to the total quota limit.
This creates a virtuous cycle for early and active users of the Shell Protocol system. The more quota you use, the more Shell Points you earn, which in turn earns you more additional quota.
This system fulfills most of the initial requirements we set, but it has an obvious shortcoming. How does a new visitor to the Shell ecosystem start earning Shell Points if they missed the Shell v1 LP and toucan snapshots? To solve this, we will have to make sure that some of the additional quota added goes toward new ecosystem members. We have a few things planned to help achieve this, including a very exciting community event. More details will be shared on this shortly after the guarded launch begins.
As a reminder, you cannot earn Shell Points on tokens in excess of your quota, but there is nothing stopping you from holding excess wrapped or native tokens regardless. In the event of a quota increase, your previously-excess tokens will immediately start earning you additional Shell Points if you had ‘overfilled’ your wallet.
Launch Plan
The guiding doctrine behind the Shell v2 guarded launch is to release new features in stages. To start, the guarded launch will support wrapping of DAI, USDC, USDT, and ETH. There will be no liquidity pools, but you will immediately be able to start earning Shell Points (up to your quota limit) just by wrapping tokens.
When will this launch occur? After many months of speculation and allusion, a firm date is finally at hand:
Shortly after our September 12th launch, we will begin to introduce liquidity pools in roughly the following order:
DAI+USDC
USDT+(DAI+USDC)
ETH+(DAI+USDC)
As liquidity pools are added, each user will receive a quota for each added LP token. These quotas will increase through the earning of Shell Points (and various other mechanisms) as the pools’ total quota increases.
Once we have established a basic liquidity network through the introduction of the pools above, we will begin deployment of our Government Toucan AMM. This will happen in the following stages:
First, shTOUCAN (wrapped Government Toucans) will be added to the interface, allowing users to wrap their toucans into the Ocean.
Next we will introduce the Toucan Fungibilizer, allowing toucans to be exchanged for a magical, fungible token called “Toucoin.” Toucoin will be toucan-backed, meaning you can always put a fixed amount back into the fungibilizer to redeem a toucan NFT (though not necessarily the one you first put in).
Last, we will introduce a Toucoin+Stablecoin AMM pool, connecting fungiblized toucans to the overall Shell v2 liquidity network.
Our goal is to complete everything in the above roadmap by the conclusion of 2022. We’re shooting for a weekly rhythm of updates, alternately increasing quota and adding new features to the front end. As Shell v2 proves itself reliable on Arbitrum One, quotas will increase again and again — until eventually lifting for certain token types altogether.
Eventually, all the core functions of Shell v2 will be built-out and live without any quota restriction. When that point comes, we will look again to the future, and the full launch (plus governance release) will be close at hand.
Join the Shell community!
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GitHub: https://github.com/cowri/
Website: https://shellprotocol.io/