Punk Protocol - DeFi 401(k) Pension Service

Nick Sawinyh on 10 Aug 2021

Anonymous co-founder of a Punk protocol, 0xJohnny told us how they are building the first DeFi 401(k) pension service on Ethereum.

Disclosure: This article was sponsored by Punk Protocol

Hello! What’s your background, and what are you working on?

My name is 0xJohnny, community lead and co-founder of Punk Protocol. I started crypto-investing in 2017 and grew my interest in the field ever since.

I started growing interest in the DeFi market, and I have been dreaming of this idea, of investment models that can be fully operated in an on-chain network. A decentralized ecosystem where anyone can join. The concept of financial products that work only with codes and algorithms without human intervention became so attractive to me. However, the DeFi market was immature back then, so I contributed and gained experience working in other public blockchain projects, crypto lending/borrowing, yield aggregator, NFT marketplace, and other Fin-tech services. Since then, Punk Protocol went full steam in January of this year, once implementation of long-term based products such as a pension service, became feasible.

Ideally, its motto lies in this phrase, ‘Punk protocol aims to provide financial tools to liberate people from traditional finance and to empower their financial freedom and stability’. Punk protocol offers the world’s first DeFi 401(k) pension service. Saver, the first product, helps to generate periodic cash flow for its users. When users deposit the appropriate coin/token, the protocol automatically selects an optimized strategy according to the user’s choice and operates an investment model accordingly. The protocol currently utilizes Compound finance behind its first investment model as other investment models are being developed, and the coverage will be extended to other protocols in the future. This enables users to enjoy compounding effect of the most advantageous plan and save gas costs.

The Punk token is a governance token allowing its users to make decisions within the protocol via voting. Through this action of the governance, users will be able to build a protocol of their preference. However, the deflationary effect is expected to be strong because the total supply is limited to 21 million. Every four years, there is a halving cycle to incentivize gathering users & TVL, and 20% of pension revenue is constantly bought back to be burned.

What’s Punk Protocol backstory?

By the time the picture of Punk Protocol came alive, I started to gather contributors from different parts of the world. Designers, product managers, developers, marketers, market analysts, and business dev. I, myself, have been involved with the blockchain industry since 2017. 0xMateo, one of the core developers, has previously contributed himself to projects like PancakeSwap, Wault Finance, and CasperLabs. Each and every contributor of Punk Protocol stands out in the field of their responsibility and industry leaders with their own expertise. There is definitely a common value that everyone agrees on and that would be the ‘decentralization of finance’. (Sometimes we are often misunderstood as anonymous projects because of nicknames, We use nicknames to strengthen our brand concept and focus on products, but we are not seeking anonymity.)

The name ‘Punk Protocol’ was inspired by the online game, Cyberpunk 2077 and Cryptopunks. In the game, big corporations such as Arasaka and Militech exploit the people by sucking all the wealth around the world. Despite the serious gap between the rich and the poor, and high crime rates, the government does very little. Although what we referred to is a game, we realized the governments and the finance system in real life are not that different. So we named our protocol, Punk Protocol with a mission to provide tools for people to gain financial independence and stability for themselves.

What went into building the Punk Protocol?

It has been quite a journey to get to this exact point. The contributors started working on the project in January of 2021. Endless days and nights of discussion has lead to a proposal for a deflationary token economy as a solution to incentivize long-term retention of Saver, Punk’s first service, following behavioral economics and to continuously increase the value of the protocol.

After we settled down the architecture and designing the protocol, we opened testnet on Kovan in late April and started marketing to let the world hear and learn about Punk protocol. In addition, to kick off the introduction of the service to the mainstream, Punk decided to partner with Gitcoin to commence their Hackathon Grants Round 10. Gitcoin is the home of Web 3.0 developers - a place for developers to earn and network while building open-source, decentralized applications, and this opportunity allowed us to meet hackers, builders, and creators with diverse backgrounds and gained the addition of a new contributor to the team.

When working with finance, as in anything with value, security is always important. Punk protocol does not neglect this aspect as we take security with the utmost importance. As such, we have conducted a bug bounty program and have multiple audits for our system.

We are so thankful for the continued support of our early backers and community, along with our contributors’ hard work around the world. Each piece was critical for our protocol to get to where we are now, and the solidarity of our team is what keeps us motivated to continue working to reach our goal of financial freedom for all despite the hurdles presented by the limitations of the technology that still exists.

What’s your business model?

Punk Protocol is based on a revenue model that is starting with opening various pension pools and collecting fees while offering various investment products to customers.

Basically, for the stable operation of the protocol over the long term, a service fee of 1% is deducted when users claim their payout or terminate their contract. (If the requested address has 1,000 pLP tokens and decides to receive the payout 10 times, then 1 pLP token will be deducted from each payout as a fee. Of course, this can be changed through governance later.)

One of the major misconceptions is about the Early Termination Fee. When users terminate their contract before the End Date, Principal and interest will be paid out, excluding the Early Termination Fee, which automatically deducts 1% from the amount of all pLP tokens received at the time of creation. (The initial value of the Early Termination Fee is set at 1% and also can be changed through governance)

This mechanism serves as an incentive to help the long-term existence and maintenance of the pension contracts. Also, it is entirely attributed to each pension contract and paid fairly to other annuitants, not for us.

This fee structure is formulated to benefit long-term subscribers. Still, we have a competitive advantage for long-term and short-term users because of the cheaper fees than other DeFi Protocols or traditional pensions that follow the 2 and 20 rules.

The most common question people often ask is what is the difference between other yield farming.

No. 1

The investment model itself aims to achieve both stability and profitability. Thus, its orientation is different from other protocols pursuing only high-yield with high risk.

No. 2

Token economy of Punk Protocol itself is also supposed to have a deflationary effect, giving incentives to users in the long term. 21 million max supply with a 4-year halving cycle and a continuous buyback structure through pension revenue.

No. 3

It is troublesome and difficult to deal directly with cashflow in other DeFi protocols. We can help to automate this process. (Of course, due to the nature of the blockchain, ‘Claim’ has to be done by each user)

Based on these advantages, we are preparing the following events to gather users:

  • Fair Launch: August 10th
  • NFT Drop: August 31st
  • LP Staking: September 1st
  • PUNK Staking: September 30th

What’s your position on the regulatory landscape today?

Cryptocurrency is built for cross-border, decentralized monetary network operated without centralized authority or middlemen. DeFi means finance run by a decentralized community and system. We think the DeFi market could remain triumphant so far because, unlike the traditional financial market, different decentralized groups reciprocate, and the individuals within participate in the decision-making of the protocols as a unity. Thus, we wish that policies will be inherited and actualize the spirit for being reasonable and consequential, considering the originality of crypto and DeFi.

What are your goals for the future?

We’ve been thinking that there are many problems with the current monetary and pension system. Therefore, the final goal is to become the first and largest decentralized pension protocol replacing existing pensions to empower people’s financial freedom and stability. We believe that this requires the experience and technology to operate funds for large institutions as well as normal users.

Since Punk Protocol is a pension protocol, we started with launching an investment model using Compound Finance only, which we believe is the most stable at this point in time. But to the great WEB3 developers who participated in the Gitcoin Hackathon, we received some strategies that utilize WBTC, IDLE Finance, Aave, RAI, Barn Bridge, Curve, and Synthetics. (Now we’re stabilizing and preparing to release them.) In the future, it will expand to other Mainnets, including Layer2, for increasing our user base.

On the user side, considering the market’s feature where short-term investors are the majority, the protocol provides customization of investing conditions so that users can use the product upon their preference - From using our protocol as yield farming to replacement of the real pension instrument.

For the institutional investors, as cryptocurrency takes part in more financial systems and in people’s lives, it is inevitable that the market will be in need of long-term asset management instruments. For the long run of the pension protocol, institutional investors are also a very important part of increasing the TVL and profitability, therefore, we plan to support separate services that comply with regulation to that end for targeting institutional investors.

What are your future thoughts for the DeFi market?

Fundamentally, the capability to actualize Economies of scale can explain the significant growth of the DeFi market at the moment. ETHlend, now known as Aave, proceeded with their ICO at the end of 2017, and successfully launched a new DeFi protocol after 2 years of development and rebranding. It took less than 6 months for Aave to explode, and the success cycle of the latecomers’ to the DeFi protocol is even shorter. In particular, during the bear market, which lasted for 2 years since the beginning of 2018, a huge amount of money flowed in while the market was maturing. Those funds began streaming into the DeFi market mostly in the early year of 2020 and eventually formed the economies of scale we see today.

The growth of the DeFi protocol so far could be classified to be the first wave, and the appearance of institutional investors in the DeFi market will be the second wave. Particularly, Compound Labs announced an entry path into the DeFi ecosystem for new banks and other financial institutions through its affiliated company, Compound Treasury, and so did Aave, with Aave Pro, targeting institutional investors. The reason why these platforms ranked in No.1 and No.2 of the DeFi market began attracting institutions would be that the funds from institutional investors can bring economies of scale to the real economy.

With the combination of the DeFi market and traditional financial markets, new types of products have been releasing even faster, which will bring in a number of related fund products for institutional liquidity. Thus, we strongly believe that institutions’ demand for the DeFi pension protocol will increase naturally.

Where can we go to learn more?


DeFi is coming. Don't get left behind

About the author
Nick Sawinyh
Nick Sawinyh is a crypto entrepreneur based in LA. He founded DeFiprime in 2019 to offer information on emerging DeFi ecosystem. He owns small amounts of different cryptocurrencies.

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