Introduction

Pollen DeFi provides a fully decentralized asset management protocol ushering in the evolution of DeFi 2.0. Pollen introduces two new assets to the Avalanche ecosystem and soon the Ethereum ecosystem as well: the PLN utility governance token and the vote-escrowed powered vePLN governance token. PLN token holders can create, manage, or delegate to virtual portfolios in order to earn rewards as well as play a role in governing the Pollen DAO. Additionally, PLN token holders have the option to lock their

PLN tokens in return for vePLN tokens in order to receive boosted rewards and rewards from a pool of 20 Million PLN tokens during the first 1406 days, depending on the time and amount locked, to minimize dilution. Pollen implements an automated liquidity protocol and asset governance model designed to democratize asset portfolio management. The model leverages collective intelligence and decision-making in order to outperform the wider market. Moreover, Pollen’s governance protocol fully decentralizes the process through meritocratic decision validation and community control.

All asset pools are launched independently from the protocol and are backed by PLN tokens locked as collateral in a factory contract. The Pollen protocol utilizes liquidity pools to fulfil orders created through our governance protocol to optimize the asset pool and minimize rebalancing slippage. The Pollen protocol uses collective decision-making, user portfolio signals, and governance mechanisms to create a participatory token economy. Unlike traditional index funds, Pollen asset pools are actively managed via decentralized governance, and asset allocations are continually rebalanced and optimized for markets that operate 24/7.

Pollen’s open protocol and merit-based system rewards and empowers the brightest minds in its community. The protocol harvests crowd intelligence by allowing community members to stake PLN tokens in virtual portfolios that are exposed to asset prices. Virtual portfolios represent a collection of ‘virtual allocations. That is, a user decides what assets should be included in their virtual portfolios and their corresponding allocation weights. These provide signals to inform the composition of fully backed asset pools via reward, reputation, and rebalancing algorithms.

The protocol’s reputation algorithm identifies the best performers and uses this information to award PLN governance tokens, inform asset pools and optimize the delegation process. By fully decentralizing governance and introducing a merit-based reputation and rewards system, the platform crowdsources market intelligence to optimize the asset pool allocations.

Virtual Portfolios

Virtual portfolios represent a collection of ‘virtual allocations’. That is, a user stakes PLN tokens and decides what assets should be included in their virtual portfolios and their corresponding allocation weights. These virtual portfolios generate signaling data that can be used to inform the composition of fully backed asset pools.

Portfolios may be rebalanced at any time and when a user rebalances or closes their portfolio, the reward/penalty in PLN is calculated by measuring the initial and final values of the portfolio. When the user’s virtual portfolio performs well, the protocol awards them with PLN tokens and their reputation improves. Conversely, when the user’s virtual portfolio performs poorly, the protocol penalizes the user by requiring them to forfeit PLN tokens and their reputation weakens.

Direct Delegation

In addition to users creating their own virtual portfolios, they also have the option to delegate a portion of their PLN tokens to other members of the community (i.e., delegates). Users that delegate (i.e., delegators) are then awarded or must forfeit PLN tokens depending on the performance of the delegate’s virtual portfolio.

Delegates receive 20% of returns generated [although this percentage can change via governance voting in the future], producing a passive yield for delegators. Delegators are profitable when delegates are profitable. Convulsively, delegators forfeit PLN tokens when their delegates perform poorly. Delegators have the option to undelegated at any time.

Rewards

Rewards are shared in the protocol’s native PLN token with users that have positive virtual returns. The rewards shared are proportional to the virtual returns and the staked PLN tokens in users’ virtual portfolios. The amount of rewards shared will vary depending on the current state of the community market and the available funds in the protocol’s rewards pool. In periods where the average performance is low, the best performers are incentivized with higher reward amounts, while in market upturns, rewards generated are more conservative.

Supply Control

Supply control is achieved by an algorithmically defined tracking and virtual issuance schedule. In periods where rewards minted are low, rewards issuance increases, recalibrating with the theoretical issuance schedule. In periods where rewards minted are high, rewards issuance decreases to stay in sync with the theoretical issuance schedule.

The rewards released and penalties imposed are parametrized such that Pollen becomes more attractive compared to the market. For example, it issues more rewards in bullish market conditions and fewer penalties in bearish conditions.

This ensures that the total PLN token supply, capped at 200M for the first 1406 days, is never exceeded and helps create a healthy token economy for the protocol. The total supply is split into two, 180M is given as rewards to the users for their performance and 20M is reserved for locked vePLN rewards.

Market Benchmark

Pollen defines a custom market benchmark because the universe of tokens in which Pollenators can express market sentiment is restricted.

Therefore, a custom benchmark that considers market capitalization, token availability (e.g., through a wrapped version), and transaction costs is defined. The latter is needed because, whenever the Pollenator rebalances, the smart-contracts need to collect and store additional information to compute the entry/exit positions in the market benchmark and provide an accurate description of a Pollenator reward and skill.

The CCi30 benchmark is used as a reference for the global cryptocurrency market benchmark. Given that Pollen’s community opted for an initial deployment in the Avalanche blockchain, the following tokens satisfy the conditions mentioned above: WBTC, WETH, AVAX, BNB and LINK. The objective is to form Pollen’s benchmark as a weighted average of these five tokens (or any subset of them) such that the correlation with the broader market is maximized and transaction costs are minimized.

Pollen’s market benchmark will be reassessed as the platform is deployed in other blockchains or considerably changes the supported tokens. This is required to provide an accurate representation of the market and make sure the value that Pollenators are creating is being fairly measured and rewarded.

PollenSkill

The PollenSkill algorithm estimates the investment skill of players through the use of Bayesian inference. The algorithm assumes that investing skill follows a normal distribution. The skill of a user is updated whenever they rebalance. This creates an interesting dynamic. A player's skill is described by both a mean and a variance. The more rebalancing a player is doing, the more certainty we have around estimating their skill.

The final score is measured in points that arise as a comparison of a player against all other players. This comparison is more impactful when a player's variance is lower. Players are incentivized to rebalance when they have positive returns. Therefore, a player might forgo rebalancing when experiencing negative returns, to avoid reducing the estimation of his skill. However, other players will rebalance more, reducing the estimation error of their skill, and accruing more points, as a result. A player who doesn't rebalance often, will have his points gravitate towards 0.

Therefore, the PollenSkill algorithm creates a constant tension between determining how other players will perform and forecasting one's portfolio performance. This will lead the protocol to a dynamic adaptation, as users adjust their investment styles in order to be able to better demonstrate their trading skills.

Governance

Pollen (PLN) token holders inform the Pollen protocol by means of their virtual allocations in their virtual portfolios. Additionally, PLN token holders can lock their PLN tokens and create voter escrow PLN tokens or what we refer to as vePLN. Users that opt to lock their PLN tokens in return for vePLN tokens receive three benefits:

1. Up to 20% boosted rewards on the performance of their virtual portfolios depending on the lock period.

2. A share from a pool equal to 10% of the total circulating supply as a reward for locking their PLN.

3. Governance rights in which vePLN token holders can issue and vote on Pollen Improvement Proposals (PIPs) to improve the protocol

Rewards and voting power are higher for longer locks, and they decay over the term of the lock, thereby incentivizing users to extend their lockup periods. Users have the option to relock their PLN in order to reset and again increase their boosted rewards and voting rights thereby offsetting the decay. In this way users express long-term confidence and support in the protocol and are rewarded for doing so.

Missed Facts

• When a Pollenator locks up their PLN to create a virtual portfolio, the protocol issues them vePLN tokens that they can use to govern the Pollen DAO. They can set the lockup period for any amount of time with a minimum of one week and a current maximum of 4 years. You can learn more about the issuance schedule in the Supply Control section of this lite paper.

• The longer a Pollenator’s lockup period the larger the boost to their reward issuance while still adhering to the supply limit curve.

• The Pollenator’s vePLN tokens are non-transferable ERC-20s and represent the Pollenator’s voting rights. Voting rights and the boosted rewards decay over the period of the lock. I.e., users must continue to extend their lock-ups in order to maintain higher-levels of boosted rewards and increased voting power.

Rewards

Concerning boosted rewards for Pollenators that lockup their PLN in return for vePLN, the boosted rewards are a percentage of the increase to the rewards they’ve earned. The boost or extra rewards are received when rewards are claimed. That is, when Pollenators rebalance or close their virtual portfolios.

Further, the rate of the boost decays inline with the decay associated with voting rights over the term of the lockup. As more PLN tokens are locked, the rate of PLN rewards that will be issued decreases. Lastly, the protocol extends vePLN token holders to rewards similar to staking. That is, as new PLN is minted, vePLN token holders will get as a reward, a share from a pool of tokens equal to 10% of the total circulating supply. This way vePLN token holders get less diluted compared to others if the supply is inflationary and end up with an even bigger share if the supply is deflationary.

Voting Rights

The vePLN tokens empower Pollenators with voting rights. Rather than using the amount of tokens locked as voting power, the Pollen DAO assigns the voting power in relation to the amount of time that the user will be committed to the platform after voting for a proposal. That is, a user should be willing to confront the outcomes of the proposals for which they are voting. Voting power is designed to be a combination of the amount of PLN tokens locked and the remaining time in the lockup for those tokens. This represents and directly models the level of commitment that users with voting rights have when it comes to governing the protocol.

Pollen Virtual

Leagues Pollen Virtual users can participate in the overall Pollen portfolio. Soon, however they will also be able to participate in specialised virtual leagues: Leagues can have many different token sets or types of users and league revenue-generating opportunities, e.g., sponsorship. The reputation of the top 10 in each league determines the overall reputation of the league versus other leagues.

Although a user might not be the top performer overall on Pollen, they might be in a leader position within a specific league as such their portfolio will be taken into account by indexes that follow the specific league. Users have their own portfolio for each league because new types of assets can be added that are not available on other leagues or the general Pollen portfolio, e.g., GameFi guild tokens, ECO climate tokens, derivatives, tokens representing real assets or collectibles.

Leagues can provide collective wisdom around specific niche markets by allowing long and short positions and a broad portfolio of investable assets. Because each league has a leaderboard and overall reputation, we foresee inter and intra-league competition. Through delegation, sponsorship, and other revenue-generating league apps, league participants are rewarded for continued participation.

Plans are in place for delegation functionality to be extended to enable an educational aspect through knowledge sharing between the top performers inside a league and their followers. A community that collectively improves will significantly benefit the quality of their collective intelligence regarding indexes following their combined decisions.

Asset Pools

In addition to virtual portfolios, the Pollen protocol also has fully backed asset pools. All asset pools are launched independent of the Pollen DAO and are backed by PLN tokens locked as collateral. The PLN tokens necessary to launch an asset pool must meet a minimum capitalization threshold and be locked for a certain period of time. This is done to optimize for high-quality Asset Pools. When it comes to securing assets and rebalancing, the Asset Pools utilize liquidity pools to fulfil orders.

How do Asset Pools

Work An Asset Pool factory smart contract enables users to launch and govern their own fully backed asset pools. Through governance, asset pool users can decide if they’d like to subscribe to a Pollen DAO crowdsourced data aggregation algorithm or they can manually manage the asset pool’s portfolio themselves. Asset Pools can leverage virtual portfolio data via data aggregation from the highest reputable Pollenators to determine the rebalancing process of the fully backed assets in their asset pools.

The data aggregated will reflect different strategies that correspond to different risk profiles and can be used to help inform how an asset pool is balanced. The Pollen community does not have any direct influence in an Asset Pool's decisions using PLN tokens. Instead, users governing an Asset Pool can decide how/if they want to use data from the Pollen community’s virtual portfolios to supplement their investment strategies with other data or mechanisms. Lastly, each Asset Pool has its own corresponding token that is used to represent the participation and value of an individual’s position in a particular fund. Asset pools can include tokens from other asset pools as well.

In order to rebalance, Asset Pools use decentralized exchanges (DEXs), swaps and other liquidity providers, to buy and sell assets. Other portfolio rebalancing approaches can be added in the future provided the Asset Pool governance process votes to do so. Multi-chain asset solutions to optimize gas fee usage and other improvements will likely be added as well.

Asset Pools have a mechanism to give back to the Pollen community and incentivize Pollen DAO users to participate, as this is in the best interest of the Asset Pool. The parameters of this incentive mechanism are under the control of the Asset Pool community via governance and may involve the distribution of awards in Pollen or an Asset Pool’s corresponding token.