[For Discussion] Handling of Governance Vault's Early Withdrawal Penalty

Dear Alpacas,

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

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  • The penalty for early withdrawal will be 0.75% of the withdrawn amount per week of remaining locked time.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. )


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Penalty = 0.75% * roundup(65 / 7) = 7.5% of the withdrawn amount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


I would like to open up a discussion on the distribution of the penalty and whether the community has an opinion on what the split should be.


Great to see the early withdraw coming online, it is a must have! Regarding the split, I am thinking about the higher distribution for us that have locked in the Vault. If much is distributed, it may create a bit more of selling pressure. Is it doable to distribute as xAlpaca instead of ALPACA so it could sum on the same ticket each one have locked?

Anyway, excellent job Folks, in ALPACA we trust, a lot! :llama: (alpaca not a llama)

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Everything should go to burning, the fewer coins left on the market, the higher the price will be, and the most dedicated participants will get more profit.

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Would it make sense to distribute this 50% non linearly to gov vault lockers favoring long term stakers?
That may redirect these paper paws penalty to the diamond paws of the herd even more then a linear function.


Or more incentives to lock alpaca leads to more alpaca being locked and removed “temporary” from the market + potential burns from even more early withdrawals. Staking needs to be attractive for this to work, so some portion going to staking is definitely positive

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Is it an option to withdraw a smaller amount of xalpaca or is it all or nothing?

I think linearly is already fair and straight forward. Making it exponential or some sort of polynomial functions would create additional development effort on the new distribution function. The ROI might not be there to spend time on it, in my opinion.


The plan is to allow users to choose how much to early withdraw. (unless there is some technical limitation on this.) The dev team still need to look at it in details on this particular topic.


I think that having the possibility to partially withdraw is a must, especially because this should be considered a last resort action

I believe 0.75% per week is a fair penalty to withdraw early and making it linearly scaling makes the most sense to me since the xAlpaca rate is linear.

I also like the 50% burn and 50% distribution to current stakers model. Burning benefits all Alpaca holders, be it in the LPs, lending, staking, or just holding on an exchange. The 50% distribution to stakers give bonus incentive to stake, which I believe is very important.

The only suggestion I have is instead of issuing all the early unstake rewards to stakers in the same or following week, the funds should be moved to a specific holding wallet where 10% of it is distributed each week. This can help give a much more consistent APR for xAlpaca, rather than just random spikes when/if a whale unstakes.

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I agree the idea of weekly distribution. but I think 10% is low, maybe 20% or 25%.

I think it is gonna be a good idea

If we can choose to how much to early withdraw it will be great.

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I’d propose 100% of the penalty proceeds to be distributed to the Governance Vault’s stakers.
The penalty exists to encourage staking; therefore, any early withdrawal should benefit the remaining stakers and not everyone else. Burning the penalty benefits the early withdrawers, day traders etc.
Plus retaining the penalty within the governance vault is similar to the deflationary mechanism of burning, all the while favoring active stakers who are making a sacrifice.


Thanks for the feedback.

As for distributing over multiple weeks, I don’t think it would make much differences to the APR% (unless there is a large early withdrawal that week)

For reference, as currently proposed, 1 Million ALPACA early withdrawn for 1 week would generate 3,750 ALPACA for distribution vs. ~100k / week being distributed.

I would suggest to keep it just 1 week as to not add to our dev’s team operational tasks. It might not seems like a lot but as these “maintenance” tasks add up over time, our dev would have less capacity to work on new features.


Yea let’s keep it simple, it’s already spread out over a week so it might not be worth the effort. If apr fluctuates too much we can revise it and create a new proposal

I wouldn’t recommend to build an option for early withdraw. I can explain

There are a lot of new customers on Alpaca who had locked their tokens on Governance, as I did. As a newbie on crypto I’m afraid that my wallet got scammed and a scammer is just waiting for this feature to take all tokens with penalty

I’m not sure if I got scammed or not, but if we don’t add such feature all newbies will have an opportunity to not withdraw their tokens and continue receive all the rewards as long investor

Please if devs are considering this feature as important, make some option where I can assign smart-contact which will not allow me to early withdraw my tokens

I mean such a smart contract that will disconnect this feature for me for ever

Well, that’s true. I definitely hope new features instead of wasting time on these things. Also distribution for every week doesn’t change the number of ALPACA. Let’s keep it simple.

The early withdrawal penalty amount must be returned to the deposited alpaca.
We divided the alpaca by agreeing to deposit according to the period promised by the depositor.
Therefore, I think that the alpaca according to the penalty should find a fair proportion and distribute it to the holders.

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I think the 0.75% is pretty good, the APR of the vault must be really high before people are able to exploit it. I also agree with the 50/50 split.
Maybe another option for voting would be to not implement an early withdrawal function? Or is this functionality already set in stone?

EDIT: Will the ratio and percentage be subject to change later on (by voting of course)?

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