“Finnisher” in the telegram group raised a concern about people aping into Vanilla Funds based on short-term performance like is common in the traditional world. This lead us to speculate whether we could and should try to mitigate this sort of behaviour with incentives.
There are certainly some things we can do if we think it necessary. For example, we could provide capital mining rewards (VNL for LPs of Vanilla Funds) only to funds which meet specific criteria. The criteria could for example be some minimum amount of time that the fund has outperformed a relevant index. Capital mining rewards will have some impact on where capital flows, so by tying them to long-term performance we could incentivize LPs to deploy capital into more long-term oriented funds.
So there is certainly things we CAN do, but I think the bigger question is SHOULD we do them. I don’t think the Vanilla protocol should dictate what kind of LP investment behaviour is “good” and what is “bad”, but a gentle nudge with incentives would probably be OK. Especially since the more successful the Vanilla Funds LPs are long term, the more successful the project overall.
Given this, something like the capital mining structure described above would make sense. We don’t try to stop people from aping if they want to, but at least we don’t reward them extra for it. Furthermore, we actually get to incentivize capital to go towards better, more long term investments.
What do you guys think?