SDGP-31 : SDT Inflation update

Governance Proposals (SDGP)
#1

Authors:

@tube
@Chago

Summary:

This proposal aims to update the SDT inflation structure, which has remained unchanged for two years, in order to improve distribution efficiency and the intrinsic value of SDT. The existing allocation of 1.13 SDT per block is distributed as follows:

  • 0.6 SDT to Liquid Locker (LL) strategies
  • 0.4 SDT to Vote Bounty Managers (VBM) for LL
  • 0.1 SDT to legacy NFT holders
  • 0.03 SDT to legacy FRAX gauges already addressed in SDGP-19.

The proposed adjustment would reduce the total SDT issuance to either 0.5 or 0.65 SDT per block, divided as:

  • 0.3 or 0.45 SDT for LL strategies
  • 0.2 SDT for VBM for LL
  • 0 SDT for both NFTs and FRAX gauges, with the latter already addressed in SDGP-19.

Motivation:

We have reached a point to which we believe that Stake DAO users are there for the quality of our product rather than for the incentives we provide.

Superior Yields of Liquid Lockers:

The Liquid Lockers, by design, offer the highest market yields. The additional SDT rewards to these yields were marginal and did not significantly attract further deposits.

Following SDGP-27, which eliminated SDT rewards in Liquid Locker gauges, shifting entirely to 100% Votes Bounties Manager for Liquid Lockers, a decrease to 0.2 SDT per block for lockers is considered adequate for sustaining attractive vote bounties on the Votemarket for sdTKNTKN liquidity pools.

Introduction of OnlyBoost:

The imminent launch of OnlyBoost is anticipated to provide top yields on Curve, which is where a significant portion of Stake DAO’s Total Value Locked (TVL) is concentrated. This expansion to other lockers is expected in the future.

The higher yields suggest that a lower SDT emission would be sufficient to attract and maintain TVL.

However, it’s important to note that strategies are a primary source of income for veSDT holders and Stake DAO via the Liquid Lockers. Therefore, this discussion will focus on whether to adjust the SDT per block to either 0.3 or 0.45, allowing for a smooth transition and maintaining a balance between attracting TVL and ensuring sustainable income for veSDT and Stake DAO.

Benefits for SDT:

Decreasing the SDT inflation rate is expected to lessen the selling pressure on SDT, potentially leading to a more stable or increasing price.

Currently, the inflation towards Strategies and Lockers brings approximately 2.7m new SDT to the market annually (c.50k SDT per week). Despite this rather low inflation compared to the total supply, the relatively shallow liquidity of SDT leads to this inflation having too much price impact on SDT.

NFT Allocation:

The discontinuation of SDT allocation to legacy NFT holders creates an opportunity for distributing the accumulated SDT. A separate proposal will be necessary to discuss and determine the distribution method.

FRAX Gauges Update:

In line with SDGP-19, the allocation to FRAX gauges will be set to zero. This will require a straightforward contract update to implement the new allocation.

Implementation Details:

  • Adjustment of SDT per Block: The SDT distribution per block in the SDT Inflation Contract will be adjusted according to the new allocations.

Community Involvement:

  • Admin: veSDT holders
  • Community feedback: 3 days minimum
  • Voting Duration: 7 days

Choices :

  • 1 : Set the SDT inflation to 0.5 SDT per block : 0.3 SDT for LL strategies / 0.2 SDT for Liquid Lockers VBM / 0 SDT for NFTs
  • 2 : Set the SDT inflation to 0.65 SDT per block : 0.45 SDT for LL strategies / 0.2 SDT for Liquid Lockers VBM / 0 SDT for NFTs
  • 3 : Rework the proposal on the forum and/or suggest other rates.

0 voters

2 Likes
Benefits for StakeDAO NFT holders - What's next?
#2

Is there any data readily available to analyze how much of current incentives are sold vs held or staked? Would be great to have that data to make a better decision here.

#3

It would be fair to keep 0.1 for Stake DAO NFT holders until the future benefits of Stake DAO NFTs are designed and agreed. Most of holders are early adopters who supported Stake DAO solutions in the early days. They should not be left in the middle of the river.

1 Like
#4

Hello,

I support your proposal.
However, the product revenues coming from users who deposit in search of high yields, only to dump tokens they are not interested in. I’m wondering if we are tracking the percentage of wallets that are selling the $SDTs they were rewarded with, and if so, are we comparing the amount sold per week to the amount of rewards distributed weekly? Additionally, does the revenue generated by the protocol (through fees, etc.) exceed the market value of the SDTs that are being rewarded?

I agree with rewarding NFT holders but we should discussing this further in another proposal, as it’s a significant topic in my opinion.

#6

I have created a thread to discuss future advantages of NFTs: Benefits for StakeDAO NFT holders - What's next?

I do think this discussion should occurre before voting for the above proposal which would end the only one benefit of the NFTs.

1 Like
#7

You can sell sdt to buy sdtokens and place them in LLs. Is it not supportive of Stake DAO all in all?
I used to do that before bribes where distributing in sdcrv.

#8

Not easy to get but we will try to look into it

#9

Let’s bring the NFT discussion to the subject created by @LittleKitCat . This proposal should be more focused on the adjustment of inflation for Strategies and Lockers.

#10

Those are very good questions.
It is very difficult to track what share of the inflation gets dumped, but we are trying to look into it. I think we can assume that all bribes are dumped. This is 0.4 SDT per block currently (90k SDT/month), and if this proposal passes, would be reduced to 0.2 SDT per block (45k SDT/month).
Furthermore, on strategies, users tend to be more volatile than for lockers. A lot of yield farmers, and for them, veSDT has less utility than for sdTKN holders. Therefore, I think we can safely assume that at least half of this inflation gets dumped. That’s 0.3 SDT per week currently (69k SDT/month).
All in, I think we can assume that current inflation that gets dumped exceeds 150k SDT/month. Idea of the proposal would be to reduce this significantly (to approx 80k SDT/month).

To your question about revenues, here is our current approximate revenue structure:

  • Votemarket: ~$80-100k/month
  • Treasury farming: ~$30k/month
  • Lockers/strategies: ~$5-10k/months

As you can see, the revenues exceed the inflation, but we also have costs in front of this, with 11 FTEs, and some external services.

In the current state of things we are barely breakeven (excl. SDT emissions which put us in negative territory).

We believe that PancakeSwap’s bribe market is going to bring a lot of money in the medium term. Then, if the market goes up, lockers revenue should grow exponentially.
Long term, I think we could use excess profits to buy back SDT from the market and become deflationnary. But it’s currently not the case, so I think we need to be cautious with inflation.

1 Like
#11

Thanks for the information on the revenues, and it’s great to hear that you are at least breaking even :slight_smile:

I agree with you about being cautious with inflation. Cutting too much might lead people to farm elsewhere. Reducing step by step will allow us to prepare the switch I think.

1 Like
#12

Another idea would be to simply turn up the votemarket for veSDT. That way inflation would be compensated by revenues for veSDT holders and it would de facto reduce the impact of inflation on people’s profits.

1 Like
#13

Bribing veSDT is a nice idea.

1 Like
#14

The proposal has been submitted for a snapshot vote. : SDGP-31: SDT inflation update

The discussion on the NFT continues here.

1 Like