Vesting Cliff and Vesting Complete Periods - Deep Dive

(This post was made with the help of @Griff)

What Are the Vesting Parameters?

There are 2 Vesting Parameters:

  • The Vesting Cliff Period: The period of time in which the tokens minted during the hatch are 100% locked and can’t be converted into xDAI using the Bonding Curve.
  • The Vesting Complete Period: The period of time from the end of the Hatch in which the tokens minted during the Hatch become completely unlocked.

In the Rinkeby Hatch Test, the Vesting Cliff Period was 3 days and the Vesting Complete Period was 21 days. So, if the Hatch would have succeeded, on day 1, 2 and 3, every token created during the Hatch would have been locked, and on day 4 these tokens would have started to be unlocked linearly until day 21 when all the tokens would have become unlocked and able to be sold into the bonding curve.

Does this match the original Commons Stack Design?

No, the current implementation unlocks tokens based on time, but there are other ways, taken from this article that could work better (but have not been coded yet)

https://medium.com/commonsstack/deep-dive-augmented-bonding-curves-b5ca4fad4436

  • The Hatchers tokens are slowly unlocked in correlation to how much capital has been allocated to fund projects that support the commons. This means that for the Hatchers’ tokens to vest, capital from the Funding Pool has to be allocated to fund projects that positively impact the Commons. With this vesting process and introduction of a governance model (we will be exploring Conviction Voting), members of the Commons (token holders), are economically incentivized to participate in the system’s governance process to allocate funding to curated projects that have the most beneficial impact on the Commons. This combats a known incentive misalignment observed in capital-allocating DAOs — in which capital allocations are rare because members are too selective or stingy with funds.

Vesting Cliff Period

So, since we are limited to time, we could try to categorize and see the benefits of:

  • A short vesting cliff (1-4 weeks)
  • A medium vesting cliff (1-3 months)
  • A long vesting cliff (3-12 months)

Some questions we could ask to each of these options could be:

  • What are the benefits?
  • What are the drawbacks?
  • What information should we use to decide the actual value of the Vesting Cliff Period?

Vesting Complete Period

  • A short vesting complete period (1-8 weeks)
  • A medium vesting complete period (2-12 months)
  • A long vesting complete period (1-4 years)

Some questions we could ask to each of these options could be:

  • What are the benefits?
  • What are the drawbacks?
  • What information should we use to decide the actual value of the Vesting Complete Period?
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Even though I’m probably mixing things up, I will give my 2 cents:

I would say that it probably would be better to gradually increase the % of the tokens that get unlocked during the vesting complete period.

For example starting the 1st day with a 2%, the 2nd a 3%, the 4th a 5%, the 5th a 6% and so on until reaching 100% by the 21st day (or end of period).
(These %s are as example and are not mathematically tested to see if they reach 100% by the 21st day)

In the Rinkeby test hatch the vesting complete period was 7x the vesting cliff period, if we happen to choose a large vesting cliff period, then having a 7x vesting complete period could make it too long.

I personally don’t know where this 7x came from, i am basically completely guessing and haven’t found yet any more info to get to a reasonable conclusion.
I will write down what comes to mind (very basic) when trying to answer the questions above.

Benefits of a longer periods (Vesting Cliff and Vesting Complete)

Higher stability of the token price, could make it more attractive to investors

Drawbacks of longer periods

The covestors have less availability of their tokens

I didn’t know about the original Commons Stack design for vesting, and I like the idea of encouraging hatchers to participate in conviction voting, so more funds they distribute, more unlocked tokens they have. At the end it’s their money that is initially being distributed, so they may be worried of spending them too fast.

On the other hand, we don’t want people to vote, we want people to vote well. This mechanism inventives hatchers to spend funding pool money fast, on projects that maybe are not as much impactful as if we let proposals sit for a while.

We expect hatchers to be the most interested in using the money the better way possible (they are trusted members, and also it’s their money the first to be spent), but the balance here is delicate. I am supportive of taking into account time for vesting, at least as one of the variables, so we aim for a sustainable commons in the long term.

Because VESTING IS REALLY IMPORTANT!!, I think we need a long vesting complete period to let time to the community to start running with conviction voting.

A common vesting period for startups is 3 to 5 years, but this is crypto, things tend to accelerate, and we may want to adapt our project vesting taking into account periodic bull and bear markets. How well will be tolerate crypto-winter? Would 4 years vesting be acceptable (being it complete by the next bitcoin halving)? Do we want shorter term returns setting the vesting to end during the current bull market (1 year)?

I’m more inclined for the long term and I’d prefer sustainable growth over time than token pumps and dumps. Token Engineering space is full of serious projects with compromised people, we can be patient, as we develop valuable things in the long run. This is why I propose a short cliff of 2 months with a long period of 4 years of vesting.

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This is not an easy question to answer but I will leave you my impressions.
I would discard a short-term period, we need time to consolidate the project and the last thing we want is funds getting out before we even have time to start. All hatchers will be known and members of the CSA so we can be confident they completely support the project they have invested in time, money, or both so waiting a few months should not be too much of an issue. On the other hand, a long period (years) is kind of risky, things go very fast in crypto and a very long period may stop some hatchers to fund with bigger amounts. I would go for a mid-term period, especially considering that we can always use Dandelion to change the initial period if we decide to do so as a community.

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