AIP-3: Handling of Governance Vault’s Early Withdrawal Penalty

Background

We published an article last month on the early withdrawal feature for the Governance Vault Governance Vault Part 2 Is Here! Early Withdrawal, Governance & Insurance Plan! | by Huacayachief | Alpaca Finance | Jan, 2022 | Medium 8

In the article, we outlined the penalty structure for an early withdrawal:

• The penalty for early withdrawal will be 0.75% of the withdrawn amount per week of remaining locked time. ( There needs to be a sufficient penalty so that those who would consider early withdrawal could not game the mechanism by choosing a long lockup duration for higher APR, and then withdrawing early. )

Example:

Alice wants to perform an early withdrawal of 100 locked ALPACA from the Governance Vault, but her position still has 65 days locked time remaining. Alice will have to pay:

Penalty = 0.75% * roundup(65 / 7) = 7.5% of the withdrawn amount

And she will receive: 100 ALPACA * (100% — 7.5%) = 92.5 ALPACA

How the penalty from early withdrawal above will be utilized is the focus of this discussion thread. In the article we proposed the following:

• 50% of the penalty will go towards weekly burn

• 50% will be distributed as rewards to the Governance Vault’s stakers in the following week.

Voting

Four voting choices were presented and users can vote by Ranked Choice Voting (IRV) Voting types - Snapshot 24

• Option1: 100% to burn

• Option2: 75% to burn 25% to stakers

• Option3: 50% to burn 50% to stakers

• Option4: 25% to burn 75% to stakers

• Option5: 100% to stakers

Resolution:

Community voted for Option#3 (50% to burn 50% to stakers)

References:

• Snapshot Voting
• Forum Thread