Illuvium Revenue Distribution Explained

Illuvium Revenue Distribution Explained

By Deraji | ILVFi | 20 Sep 2021


One of the most misunderstood aspects of the Illuvium DAO is the idea of revenue distribution.  While one of the strongest generators of long-term value, early public descriptions of revdis, as it is more commonly known leaves people confused, even among the official Discord moderators.  Today, I’ll share my interpretation and analysis of what revdis is, and how it will work.  

Note: this article is not official nor is it confirmed to be 100% accurate.  As the DAO has not generated any revenue yet, we have not seen this capital distribution in action.  Much of this information has been confirmed by Illuvinati Council, founders, or those close to the game.  I’ll indicate when this becomes my interpretation below.

What is Revdis?

Revenue Distribution is the idea that 100% of all revenue earned by the DAO will be distributed back to staked tokens.  To me, this was a great draw to the project, but also made me question the long term viability of Illuvium's model.  If 100% of all revenue  (not profit) is distributed back to stakers, how can the organization persist?  The DAO will have expenses such as web hosting, operations, and I even questioned how core contributors are paid.  While millions of dollars were raised in early funding rounds providing a multi-year runway, creating a AAA-grade gaming studio is a huge operation requiring increasing expertise and staffing.  Personally, there is no way that I would work for only ILV tokens, particularly when team tokens are subject to a 12-month lock-up period.  As much as I believe in the project, there is no way I could survive and “volunteer” my work for a year in hopes of receiving a payout.

The Treasury

I have confirmed that core contributors and developers are paid a regular salary from the Treasury leveraging these early funding dollars.  However, that provides only a certain runway of time, and given the DAO’s goals to become a longer lasting initiative continually developing content, there needs to be a sustaining revenue mechanism.  Certainly, there are about 1.9 million ILV under custody of the Treasury, but that too is a finite sum of funds.  In the case of a major market correction, the value of the Treasury could swing wildly, and that would cause short term decisions for how to operate the DAO, such as cutting staff or reducing service if the broader market were to endure a long term 50%+ correction.

Thus, the first misunderstood aspect of revenue distribution is that all Treasury-held tokens are eligible for revenue distribution.  Effectively staked in their own pool with no yield farming rewards, these 1.9 million tokens provide a mechanism for ongoing operations, generating additional ILV held by the DAO.  These tokens will essentially be removed from circulation unless required by the DAO, but in doing so, will provide a sustained means of operational funding.

Team, Seed, and Management Tokens

There was a lot of news almost exactly one month ago when Kieran Warwick (co-founder) announced that the “upper management” of the project had extended the lock-up period of their tokens to a three-year vesting schedule rather than the previous announced one-year.  This also was misunderstood by many, as the vesting schedule had been extended to three-years, but these leaders would begin unlocking their tokens in March 2022.  Estimated at 1.4 million tokens, a three-year vesting schedule means approximately 38,000 tokens will unlock monthly from March 2022 through February 2025.  However, much like the Treasury tokens, these tokens, along with the 2 million held by pre-seed and seed investors, plus the additional 100,000 tokens for the team are all eligible to receive revenue distribution.  While unlocking gives each of these token holders the option to sell or move their tokens, they will continue to receive revdis benefits regardless.  I mean, come on, there was no way the founders would give up revenue for the first three years of this project!  

The team, seed, and pre-seed 2.1 million tokens begin a one-year vesting unlock in March 2022, with approximately 175,000 tokens entering circulation monthly from March 2022 through February 2023.  You can see the overall unlock schedule tracked on my sheet here (see Unlock chart).

So what isn’t revdis eligible?

Obviously, staking ILV holders want to know how many tokens are revdis eligible, and how much they can expect to earn via revenue.  As the game has not yet launched and the first major revenue generating event (the initial land auction) is still more than a month away, all value estimates are pure speculation based on various revenue streams and the number of active players.  That said, we can outline the estimated number of eligible tokens, and how such revenue would be generated.

Overall, there is a maximum of 10 million ILV for the lifetime of the Illuvium DAO.  This could be changed later by the Illuvinati Council, though such a move is unlikely to be in the best interest of the DAO.  Above, I outlined the current holdings of the Treasury (~1.9 million), seed & pre-seed investors (2 million), the team (100,000), and upper management (~1.4 million).  Currently, there are only 634,000 tokens in circulation, and these were generated from the Balancer sale in March.  The intent was for this sale to total 1 million tokens, however, only 634,000 were sold, with the remaining tokens being placed in the Treasury.  Original tokenomics documents show the Treasury’s intended holdings were 1.5 million, so this additional 366,000 tokens came from this missed early investing opportunity.  

The remaining 4 million tokens are set up as player rewards, divided into 3 million yield farming rewards distributed over a three-year period, and 1 million ILV set aside for tournament prize pools and other future player rewards structures.

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Overall, the only tokens that are NOT eligible for revenue distribution are 

  1. Player rewards (1 million ILV)
  2. Unissued Yield Farming Rewards (~2.4 million ILV)  
  3. Circulating, unstaked ILV (~140,000 ILV as of 9/20/2021)
  4. Unclaimed yield farming rewards (~100,000 ILV as of 9/20/21)
  5. Yield Farming rewards claimed as sILV

This gives us the following breakdown of overall ILV.

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Staking Revdis Breakdown

As of today (9/20/21), there are a total of 732,545 ILV staked in the ILV core pool.  Of this, just under 300,000 ILV staked is from the circulating tokens, and the balance of over 400,000 ILV is from claimed rewards.  All yield farming rewards claimed as ILV are placed in the ILV core pool for a 12-month vesting period.  During this time, they earn additional yield farming rewards at a 2x weight, and are revdis eligible at a 2x weight in their pool.  

For the Sushi Liquidity Pool, these ILV are also eligible for revenue distribution.  This is confusing to many, as the number of ILV associated with the SLP token is dynamic, adjusting with the price ratio of ILV and ETH.  As of today, nearly 200,000 ILV are staked via the SLP.  For individual investors to determine their current number of ILV associated with their stake (and thus, their revdis eligibility), take the current price of the SLP (available here), divide by two, and then divide by the current ILV price.  As of this moment, each SLP includes 2.71 ILV.  The ETH portion of the SLP is NOT eligible for revenue distribution.

Over time, if revenue distribution becomes a major value aspect of investing in Illuvium, there will be an equilibrium of those interested in pooling their ILV for SLP staking rewards versus those interested in moving their investment to the ILV pool.  I also speculate that once team, seed, and upper management tokens begin unlocking in March 2022, a number of these tokens will be migrated to the yield farming pools in order to generate additional returns.

Revdis Token Breakdown

This gives us a total of nearly 6.4 million ILV that are eligible for revenue distribution.  Often, folks are confused as official articles from the DAO on revdis refer to eligible tokens as “staked,” which is interpreted by many to mean tokens staked in the yield farming core pools.  However, each of these other tokens are effectively staked during their lock-up period in separate pools that generate no yield farming benefit.  This also includes the Treasury “pool” of 1.9 million ILV.  

Here is my expectation of how revdis will work (beyond this is NOT officially confirmed).  We will use a placeholder of $100 million in revenue to understand how that would be distributed.  We effectively have 4 pools eligible for revenue:

  1. Yield farming Pools ("Staked")
  2. Treasury Pool
  3. Seed/Pre-seed Pools
  4. Team Pool (including upper management)

When revenue is generated, a snapshot of the eligible pools is taken to determine the total number of eligible ILV.  As of today, that snapshot looks as follows:

58d833b53664b5254a824cdd90826ee0450ce3e29330491c8c700253093ab79c.png

Converting these eligible 6.4 million ILV into a relative percentage of pool weight, we get the following.

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Therefore, the treasury would receive 29.7% of the revenue, seed & pre-seed receive 31.3% of revenue, and so on, with yield farming pools receiving 15.6% of the current revenue.  Considering our $100 million example, that means each pool would receive the following.

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Now that each pool is assigned its revenue, this will be distributed to each token as appropriate within said pool.  However, we have not yet introduced token weighting.  Token weighting only comes into play once each pool has been assigned its revenue. 

Upon staking, investors are given the opportunity to stake flexible, meaning they are free to withdraw their principal at any point.  These tokens are assigned a weight of 1.  Investors may also lock-up their tokens in the staking pools for a period of up to 52 weeks (likely extending to 2-years in Staking V2), and earn rewards at a weight of 2x.  Any number of weeks in between can also be selected, with the weight determined by 1 + (locked weeks/52).  For example, a lock of 13 weeks would be 1+ 13/52 = 1.25, while a lock of 26 weeks would be 1 + 26/52 = 1.5.  This weight is used in determining the distribution of staking rewards, but also revenue distribution.  

All rewards claimed as ILV from any yield farming pool are placed in the ILV core pool and locked for 52 weeks, and assigned a weight of 2.  All unclaimed rewards are not technically pooled, and are not eligible for revenue distribution or staking rewards.

Looking at the staking data here, we can determine the average weight of tokens within each of the staking pools.  My analysis of this as of 9/18/2021 is available here in the weight SLP and weight ILV tabs.  Overall, the ILV pool has an average weight of 1.634, while the SLP has an average weight of 1.633.  These were surprisingly close values at first glance, though further thought, these numbers make sense.  The largest portion (~431k) of the ILV pool’s 732k tokens are from claimed rewards, thus have a weight of 2.  In the SLP, the most common lock-up period is 52 weeks, at nearly 37% of the total pool volume.  

We’ll take these average weights, and assign an “effective” number of tokens in each pool.  For the ILV pool, the ~800k locked tokens realistically look like ~1.3 million ILV for the purposes of revenue distribution.  For the SLP, the staked ~200k look like ~326k ILV for revdis purposes.  Therefore, we can divide the allotted $15.6 million as follows:

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Each pool receives its set amount of revenue, and then that value is divided by the number of effective tokens in that pool.  For the ILV pool, each token staked flexible (weight = 1) would receive $9.56 per ILV.  This also means that each yield farming claimed ILV (weight = 2) would receive $19.12 in revenue distribution.

For the SLP, each ILV would receive $9.51, meaning for each SLP token staked flexible (weight = 1) would receive $25.77, since each SLP currently includes 2.71 ILV.  For an SLP token locked for 52 weeks, each SLP would receive $51.54.

19b4cb55fca08840731ff962003c216a48cd4a13d24df8ff74a5e0a27108dcff.png

How is revdis paid?

Revenue distribution is paid in unlocked ILV.  The Vault (DAO’s storage of ETH paid) uses the Sushi Liquidity Pool to swap ETH for ILV, and it is this ILV that is distributed to eligible tokens.  Those who receive this ILV are allowed to sell, swap, or stake as they see fit.  For those in the yield farming pools, you will receive ILV in the wallet associated with your staking.  Should you want to add this to your existing pool, you must actively create a new staking transaction and pay all associated transaction fees.

What generates revenue?

The final topic I’ll cover is a quick recap on what the DAO considers revenue.  The major components will be money spent in-game, such as travel fees and shard curing fees, with 100% of these transactions counted as revenue.  The Illuvidex exchange will collect 5% of all player-to-player transactions as revenue.  Leviathan arena (player-vs-player challenges) will collect a percentage of the wagered amount, believed to be ~10% as revenue.  Future revenue streams will also be included, such as profit generated from merchandise sales, future game titles, movie/television deals, etc.  For now, the biggest focus are the in-game mechanisms above, and of course, the Illuvium Zero land auctions.  Auction dates have still yet to be announced, but are believed to be in early November. 

These auctions will be the first opportunity for investors to spend sILV. Briefly, sILV is a synthetic ILV that is immediately available in the staker’s wallet, and is not subject to the 12-month vesting period like claimed ILV.  The value of sILV is pegged to the current value of ILV for the purposes of in-game purchases, though it currently trades at a significant discount on the open market.  Any sILV spent in-game or for the land auction will be eliminated, and it does NOT generate revenue.  However, each sILV claimed eliminates an ILV from being created, effectively reducing the long-term number of ILV, increasing revenue distribution for each remaining ILV.

That’s my breakdown of revenue distribution, and how to think about current and future token eligibility for this key benefit of the Illuvium DAO.  Please share your thoughts and questions, and if you’re Illuvium leadership reading this and I got something wrong, please send me a note on Discord and I’ll make sure it is corrected.  Thanks as always for reading and for your support!

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Deraji
Deraji

Crypto curious thinker, amateur economist, geriatric millennial gamer passionate about Illuvium. Happy to share my economic and financial assessment of this unique blockchain NFT Play-to-Earn project. patreon.com/ilvfi


ILVFi
ILVFi

ILVFI focuses on the upcoming P2E game, Illuvium, the first proposed AAA-quality video game based on blockchain technology and NFT ownership. We'll focus on both the game play, as well as the in-game and ILV governance token economics.

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