“World is not ruled by money; Money is ruling the world” — Ashoka
The intent of this article is to quickly summarize the tokenomics of the Pana protocol. Because the Pana team has borrowed from a variety of protocols and also innovated its own solution (necessary to support democratized insurance), we thought it would be helpful to provide a quick summary of protocol tokenomics. All of us participating in the protocol are contributing to something new and uncharted — how we provide off-chain parametric insurance to the underprivileged is the challenge. The vision is difficult and requires tokenomics that can lead to that outcome.
How Did We Bootstrap the Protocol?
In order to bootstrap the protocol without revenue, we needed to mint tokens that would serve two purposes:
- Seed the initial liquidity pool — these tokens would get paired with USDC in the Sushiswap LP
- Emissions for the first two years of the protocol — this would enable everyone participating to see how the protocol works and gain confidence in the protocol pre-revenue
Over the coming months, Assurance NFTs will be created and retired as we refine the parametric offerings. Once revenue is generated from Assurance NFTs, it will slowly transition into the only emissions mechanism for the protocol. The goal is to have a revenue positive protocol that is produced from profitable parametric policies.
We should note, depending on how regulation evolves in the coming quarters, a post-revenue protocol may require special conditions in order to be a Karsha holder in certain jurisdictions. This is because revenue accrues to Karsha holders. We’ll cross that bridge in the future, particularly when Assurance NFT revenue begins to play an important role.
Here is a sequential breakdown of Pana minting:
- August 15th (PHASE 0): 2 million Pana minted to seed the initial liquidity pool
- August 15th — September 26th (PHASE 1): 2.15 million Pana minted to distribute Pana to holders who staked their tokens — this is purely to help decentralize participation in the protocol
- September 27th — October 17th (PHASE 2): 2.5 million Pana minted to distribute to Pana bond holders and continue distributing Pana to holders who staked their tokens
- October 18th — End of 2024 (PHASE 3 & 4): 88 million Pana minted (bonds and Assurance NFTs only) — this may be as few as 65 million or less depending on how quickly Assurance NFTs start generating revenue to replace minting Pana
- At some point, it is possible Pana minting will cease completely — this is a high adoption, high liquidity future which necessitates its own Medium article
Pana is technically uncapped like Ethereum, but Conway’s Game of Life mechanics flowing through the treasury can lead minting to stop and scarcity to ensue — which has some similarity to EIP 1559.
Here are some important points to consider:
- From October 18th onwards, only bonds are available at a fixed 25% APY — this may be revised down/up based on a DAO vote — likely down post-revenue
- We modeled assumptions of adoption and participation, all of which can vary based on protocol participation — for example, if participation increases, we believe Assurance NFTs will be revenue positive sooner and the inverse is also true
- Assurance NFTs buy Pana from the open market and return that to Karsha holders — this revenue distribution mechanism is key to completing Conway’s Game of Life and is how governance token holders benefit from participating in the protocol
- Assurance NFT holders receive Pana from the treasury for each principal payment — similarly, Conway’s Game of Life depends on use of Pana in the treasury and only new Pana is minted when the Pana in the treasury is exhausted (imagine a type of EIP 1559)
Lastly, and very importantly, because the protocol is so new and unique, the Pana dev team is not taking compensation from the protocol. Once the protocol is revenue positive and sustained from revenue, we will create a pPana token that enables Pana team members to buy discounted Pana from the treasury over a multi-year horizon. However, the pPana token has not been created and we are focused on building something unique that serves the underserved.
We believe we have created something exciting. We are working to be transparent, compliant and mission oriented. Thank you for being part of the project to democratize insurance!
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