Emissions farming in its current form has never sat well with me. Yes, using a speculative market for a token as a source of financing makes a lot of sense — your capital structure gets weighted towards speculators to whom you owe little, if any, legal or financial obligations. But then most charts end up looking the same, even for tokens that have some marginal — or promise of material future — rights or benefits. That is to say, they overwhelmingly went down and to the right, with a few dead cat bounces, as emissions continued. I think this is partly because issuers are not very sophisticated in how they design these emissions programs. The main innovation has been to use points, which in practice work as a kind of soft rug, with wide profit-loss corridors that whales grew tired of quickly. Before offering a suggestion, let’s recap the classic emissions playbook. Users deposit/trade/do the thing, and in exchange are offered a fixed amount of TOKEN every so often, which is typically in addition to whatever organic yield the protocol generates. This creates a kind of asymmetric bet on TOKEN, which is pretty good at the beginning point. Everyone wants the price to go up, farmers have limited downside on yield and (barring bad protocol design) protected downside on the stablecoin deposit/LP position. The tension arises when we stop our analysis here. The farmer collects their periodic TOKEN emissions, sells for cash or stablecoins. TOKEN price has constant sell pressure, which lowers the real yield to the farmer over time since they’re usually getting subsidies denominated in TOKEN rather than dollars. To understand why this is, consider updating your analysis as you progress along this timeline. 1) At the beginning, the subsidized user — who are often risk-aware managers similar to @Santiza4thePeople or @Octoshi or @dialectic_group — is relatively insulated from TOKEN price moves. They collect more if TOKEN goes up, similar to someone holding spot, but there’s not a realized downside if price dumps because they’re just earning on stablecoins. 2) Then the user collects their first round of TOKEN subsidies. Now the risk-reward has changed. You no longer have the same band of possible profits. Your upside is pretty similar — sky is the limit, in theory. But now you’re holding TOKEN so you have downside. This requires hedging, selling, or accepting the risk. This is a good time to remember that if someone wanted the risk profile of holding spot, they’d just buy TOKEN. A user that is providing stablecoin deposits or liquidity probably has a different risk tolerance than someone holding a bag of TOKEN. Specifically, a stablecoin deposit or liquidity provision can be reasonably considered an investment, rather than a speculative venture. Holding spot on TOKEN, however, is quite speculative. You are creating an awkward situation when a risk-limited user must be put in the position of maximum risk. So the logical, and easiest, thing to do is immediately hit the bid and sell your TOKEN to protect against downside — you still have upside exposure through the next epoch of the farming rewards program. Repeat this across enough users and timeline and you get the familiar, stereotypical post-TGE chart. How could this have been structured better? I would suggest that instead of offering a rate of n TOKEN every so often, in our hypothetical case above, it would have been better to offer n TOKEN only when the price hits some threshold.

From the TOKEN issuer point of view, you accomplish a few things: 1) You do not dilute your TOKEN holders in a down chart. 2) You remove regularly scheduled selling pressure, as farmers are not managing their risk by selling into a down chart. (NB: You will probably want to stagger price thresholds to prevent synchronized selling, just at a later date — your threshold price could be set to 50% above the price at time of deposit, for instance) 3) If you’re thoughtful in the specific thresholds, you are still offering users a subsidy that replicates much of the upside exposure of spot — particularly at the right-hand tail, which is so important for total portfolio returns in crypto. 4) Anyone who withdraws their deposits before hitting the threshold price doesn’t have to be paid any TOKEN (although one could envision a USD-denominated subsidy that converts to n TOKEN rather than no subsidy at all). From the user point of view: 1) Your TOKEN could accrue more as a function of price action. From a profit perspective, this is still replicating spot-like exposure to the up side, but because you are not being given regular TOKEN payments along the way, there is no realized profit that can be yanked away by a red candle. 2) Race conditions are less intense, since there aren’t regularly scheduled supply overhangs. This is especially true if there is granularity in what threshold price each user has. 3) Time value of money becomes more important and harder to model. You don’t know how soon you get TOKEN, since it’s based on price and not time. An astute reader who has made it this far might remark that we’ve recreated convertible debt. That could be true, particularly if you put some kind of tradable deposit token (complete with the TOKEN rights at the threshold price). I think that kind of transfer would closely resemble convertible bonds, but I still wouldn’t call it one. I would also be remiss if I didn’t address the biggest weakness in this model: it is prone to price manipulation on thin spot markets if not properly hardened against. This is why unlocks shouldn’t be instantaneous — perhaps it has to be at or above the threshold price for some number of hours or days. But this is solvable, and crypto has no shortage of clever risk mitigation engineers, so long as you’re aware of it. Writ large, if this became the standard practice, it would probably make farming payments much more pro-cyclical. In down markets, there’s zero or reduced subsidy, since TOKEN is unlikely to go up and stay up. This means farmers realize profits when prices are up. But it also means farming *supply* should be more counter-cyclical. Particularly if your threshold price is based on some fixed distance from the TWAP’d TOKEN price when you first supply or based on how thin the project’s deposit base is, the incentive is to get in when TOKEN price and liquidity are low. I’m sure there’s some rough edges that people can sand off and twists that could make this structure their own — nothing is perfect when first imagined. But I’m going to make a point to try to put more ideas out into the void since I’m always bemoaning the lack of imagination in DeFi (it’s basically all margin lending and leveraged spot-like trading, with a few notable exceptions like @Pendle_fi or funky experiments like @40acres_finance). No one is going to build one of these widgets if they just sit in the pages on the notebook on my desk.