SDIP #6 (3+3): Introduce SDT bonds for AMM liquidity

Summary
Building on SDIP #5, this proposal outlines a mechanism for the DAO to begin accumulating its SDT/ETH liquidity on AMMs. Currently, there is $5.5M in total liquidity for SDT/ETH between Uni ($3.9M) and Sushi ($1.6M). In order to maintain this liquidity, StakeDAO is incentivizing these pools with 1 SDT per block. This translates to roughly 7,000 SDT per day, or $3.5M in annual emissions at the current SDT price.

This proposal is born out of discussions with the team at OlympusDAO and aims to replicate their bond mechanics to offer bonds that sell xSDT at a discount in exchange for SDT/ETH LP tokens. As a pilot we can contribute an equivalent amount of current SDT/Block rewards towards these bonds for 1 month and assess the impact on liquidity accumulation and token price. This would translate to roughly 200k SDT offered as bonds during the pilot program.


Motivation
Shift from the initial liquidity mining phase of SDT to reduce the supply per block and enable the DAO to own its own liquidity. Implementing bonds reduces the need for SDT incentives which only create temporary liquidity and persistent sell pressure. Importantly, bonds incentivize active StakeDAO members to participate in the program and help distribute tokens to these users.


Specification
For those unfamiliar with the Olympus bond mechanism, the bond contract essentially sells a token (ex: xSDT) at a discount in exchange for assets (ex: SDT/ETH LP tokens). Bonds operate by initializing the price for LP tokens above market price and then applying a discount function that decrements price until a bond is purchased, which pushes the bond price back up. This mechanism allows the market to determine the optimal price for bonds. For reference, here is the average discount of OHM bonds with their extremely high APY:


Olympus is offering to provide its expertise in bond contract management to support other DAOs interested in owning their own liquidity. This will include providing the UI for bonds and maintaining bond control variables to balance emissions with liquidity accumulation. In exchange for the implementation and community engagement, Olympus would take 3.3% of all xSDT sold and use as backing for OHM. This will align the success of our communities and allow for cross-DAO governance participation.

StakeDAO’s bonds would be offered with a 7-day vesting period to ensure that discount buyers are incentivized to hold their positions. This helps align the goals of bond participants with the goals of the DAO. Bonds will be paid out in xSDT in order to save users the gas cost of staking. In addition to purchasing SDT at a discount, bonders know that they are providing permanent liquidity to StakeDAO’s treasury. An additional benefit of bond programs is that they eliminate impermanent loss inherent in traditional liquidity mining and the discount is locked in at the point of purchase.

Proposed Bond Program:

  • Accumulate SDT/ETH liquidity on Sushi
  • Bond 200k xSDT over 4 weeks
  • Vesting period: 7 days
  • Max bond payout: 4,856 xSDT

For

  • Implementing bonds for SDT/ETH liquidity adds value to the DAO treasury
  • Protocol-owned-liquidity allows liquidity incentives to be tapered over time
  • Lower SDT emissions in the long-term should improve tokenomics

Against

  • Reducing incentives for SDT/ETH impacts LP farmers
  • Higher SDT emissions via bonds in the short-term may cause sell pressure
4 Likes

love the idea! huge fans of olympus dao and protocol own liquidity!

2 Likes

Hi everyone,
Amazing proposal here, many thanks to the Olympus team for publishing it!
We have seen the success of Olympus in acquiring its liquidity through its liquidity bond mechanism, and it woul be amazing to enable this for Stake DAO.
A few adjustments might be needed with regards to inflation to make this campaign successful:
1/ Inflation for liquidity providers has already reduced significantly in the past months: to not penalise our liquidity providers we should keep a flat inflation for them, notably for the Sushi pool, subject to the campaign.
2/ To avoid an increase in selling pressure resulting from this bond mechanism, the sanctuary needs to be attractive. In general, our sanctuary had a fairly low APY for the past months, and we feel it’s time to reward more our faithful users. Therefore we could redirect part of the inflation towards the sanctuary, on top of current buybacks, to achieve a 60%+ APY.
3/ 200k SDT for 4 weeks for bond acquisition corresponds to a 1.07 SDT per bloc

Please find here the proposed allocation if the proposal was to pass.

1 Like

Like the detail of the proposal and feel there’s been some useful discussion. It seems the discourse is aligned with the ideas above and don’t see any latest comments so think we can move this to a vote.


Snapshot at 6 PM CET 17/09/2021 to vote you must hold either SDT or xSDT in you wallet before the snapshot for this vote is triggered. (There are no penalties for withdrawing from the palace).

On-chain voting for the implementation of this proposal will occur on our signal here. The vote will run from 6 PM CET 17/09/2021 until 6 PM UTC 19/09/2021.

https://signal.stakedao.org/#/stakedao.eth/proposal/QmWQsi4cB97QDyoRasphw18RApbw4pbFLBfFTUiPrJTyBu

1 Like

I think this is a great idea. The LP inflation that could be used for incentivizing strats is rather large. One enhancement though. Since SDT and Sushi are on Arbitrum and Ohm will deploy there, I think this incentive should take place on Arb. (and decrease LP rewards on L1 by the same amount) to encourage migration from L1.

Vote has passed. SDIP #6 will be implemented as above.

Fees are certainly an issue for the community which we are really aware of. This suggestion has merit and is a part of the new multichain architecture we’re thinking about, although that wont be ready in time for the launch of the bonds.