Tokens have been a popular solution for crypto projects, rewarding early adopters and incentivizing initial usage around a new project launch. However, this approach often leads to mercenary whales and bot farms who gamify farming rewards to scoop up the majority of liquidity in launch pools, causing the underlying token to crash in price. As a result, the recent cycle of airdrop farming has led to a series of unsuccessful token launches.

Luckily, web3 and crypto projects are constantly moving, reinventing, and adapting. Enter Clip Finance, an AI-driven liquidity management platform that is rethinking tokenomics and governance to provide users with immediate and long-term value for their token.

Clip Finance’s token, $CLIP, is on track for its Token Generation Event (TGE), which is launching exclusively on Linea. From launch, the platform is embracing a thought-out tokenomics and governance model that will drive long-term engagement and attract token holders who plan to stick around.

Read on as we dissect the importance of governance and break down Clip Finance’s tokenomics and governance model.

The Importance of Governance

Governance plays a pivotal role in crypto projects, ensuring that decision-making processes are transparent, democratic, and aligned with the community's interests. Clip Finance is keeping this front of mind, tying $CLIP rewards to total value locked (TVL) growth and implementing a thoughtful governance process to ensure the protocol’s success benefits everyone involved. As opposed to launching a token and blindly hoping that users stay for the rewards, Clip Finance is creating a product and token centered in real utility.

DeFi is exponentially competitive, and community engagement is key, but this engagement is difficult to properly achieve unless the community itself is a stakeholder in the protocol. “We don’t see any better way to grow and incentivize Clip’s community to participate in governance and contribute to Clip Finance than having our own token as an incentive reward,” shares Artur Schaback from Clip Finance.

Clip Finance’s Tokenomics

Clip Finance’s tokenomics system is built around TVL milestones – which unlocks with TVL growth – and is protected by a 90-day vesting for all users.

• TVL-Linked Rewards: Instead of time-based emissions, $CLIP tokens unlock based on TVL milestones. This means equal opportunity whether you're a liquidity provider, user, team member, or investor, as $CLIP tokens unlock as TVL grows towards each milestone. It also means the team, users and investors are incentivized for growth to actively scale the platform.

• Incentives Mechanism: (1) Users are rewarded based on their deposit amounts and duration, (2) long-term users receive additional loyalty rewards, (3) rewards emission increase for stakers based on the overall TVL of the protocol, and (4) rewards are bigger during the first milestones to incentivize adoption in the early stages.

• Emissions: TVL providers earn $CLIP token emissions when TVL milestones are achieved. The rate of emissions in $CLIP tokens per dollar of TVL declines each milestone until emissions eventually reach zero, when the full total supply of $CLIP tokens have been emitted. Currently reaching $1 billion TVL the $CLIP token emissions finish.

• Platform TVL for Achieve TVL Milestones: TVL is crucial, but Clip Finance mitigates the risk of tokenomics distortion from large single deposits by whales or mercenary capital. By calculating the daily geometric mean of liquidity providers' balances, the platform ensures that TVL reflects a more accurate and less manipulable measure. This approach prevents any single entity from gaming Token Generation Events (TGE) and emission events, maintaining the integrity of the platform's tokenomics.

• Token Emissions and Vesting: Each TVL milestone triggers a $CLIP token emission event, with tokens vesting over 90 days for everyone equally. This protects from sell pressure spikes when TVL milestone is reached. Liquidity providers, contributors, investors, and team members receive $CLIP over the same 90-day period from each token emission event.

• Protocol Revenues: The Clip protocol’s smart contract earns revenues from a portion of the yield generated on user-deposited TVL. Unlike heavily dilutive protocols, where emissions are entirely uncorrelated to protocol growth since $CLIP tokens are only emitted when a new TVL milestone is hit, token emissions and protocol growth are tied together, resulting in net non-dilutive rewards. As a part of governance, users who stake their $CLIP will be able to determine how the community share of this fee is distributed via a vote successfully voted YES and passing a minimum Quorum threshold to the metric determined for this type of vote.

Governance Rollout

Clip Finance will undergo a three-stage governance process, ensuring the smooth and efficient development of the protocol while gradually transitioning to a fully decentralized system where both on & off-chain governance systems are implemented.

• Stage 0 (Alpha): Intract Governance: As a crypto first, $CLIP will be incorporated into Intract Quests for a governance campaign. The launch is planned with events and proposal that will be crafted with input from the community.

• Stage 1: Multisig Governance: In the initial stage, most of the governance will be conducted through the off-chain voting platform Snapshot and executed by the core contributor’s multi-sig wallet. Proposals are created, discussed, and voted on using Snapshot, ensuring swift and continuous development of the protocol while allowing the community to participate in decision-making.

• Stage 2: On-Chain Governance: As Clip Finance progresses, governance will transition to a combination of on-chain and off-chain mechanisms. In this stage, the ownership of the contracts will be transferred to a timelock contract, providing an additional layer of security and decentralization.

Proposal Process and Policies

Users must lock $CLIP tokens to submit proposals, preventing spam and showing the user’s interest in the protocol’s success. After locking $CLIP tokens, users receive Governance Clip Tokens (GCLP), which represent locked $CLIP tokens and grant voting power. Proposals are created, reviewed, and voted on within the Clip Finance Governance Portal.

In order for a proposal to succeed, a minimum of 1 CLIP or GCLIP must participate in the vote. Any changes to the quorum requirements must be amended by the community through a CLIP Improvement Proposal (CIP).

Each vote has to reach the minimum quorum, even if it has a majority, for it to be considered an official proposal. It is the responsibility of the proposal author to enlist voting participation from the community in order to reach a quorum.

There will be different Quorum minimums for the different levels of significance of proposals being submitted to the community. These different types of policies will carry their own weight and some may require the input of Clip Finance as elements of Clip Finance’s development is handed over to the community to decide upon.

• Protocol Policies: These govern the overall behavior of the protocol and the entities belonging to it.

• Strategy Policies: These policies are defined in the context of each strategy and, for strategies belonging to the Clip Finance ecosystem, they are specified within the boundaries identified by the Protocol Policies. A strategy participating in the Clip Finance ecosystem needs to operate under safety policies that do not violate the protocol safety policies.

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To launch, Clip Finance is preparing its governance plan in and around its TGE on Linea. Stay tuned as more details develop.