sdTKN liquidity program

Hi everyone,
I would like to seek the community’s feedback on the following idea, designed to enable the lockers to engage in the next phase of their growth.

Context:
The lockers have been live for a few months now, and have proven their value. We now see several DAO using them to boost their liquidity pair or for treasury management, (Alchemix, Tokemak, Stargate, etc.), yield focused investment funds using the strategies, and a lot of smart investors choosing the lockers as their priviledged place for yielding on their governance token bags.
Since the lockers launch, Stake DAO’s CRV position was multiplied by 5, and the DAO successfully took a cornerstone place in Angle protocol.
However, we receive many more marks of interests, a lot of big users are willing to double down on their utilisation of the lockers, but the liquidity of sdTKNs, and in particular the one of sdCRV, now seems to be the main hurdle to our future growth. Users compute the time it would take to exit a multi-million sdCRV position and limit their investment according to that.

Therefore, it now seems critical to increase the liquidity of sdCRV and other sdTKN pools if we want to enter the next stage of our growth. However, one of the problem the DAO faces is that sdTKNs are so attractive that providing liquidity to sdTKNs on Curve or Balancer need to compete with a very high staking APR, powered mainly by boosted bribes.

Proposed solution
As part of the tokenomics mentioned in the lockers whitepaper (Introducing Liquid Lockers & veSDT | by Stake DAO | Medium), we mention that once the new inflation schedule will be live, a chunk of this inflation (10%) will aim to incentivise the liquidity of SDT and sdTKNs. The team is currently working on this new inflation, but it is not ready and won’t be before some time. Furthermore, those 10% will probably not be enough as the total inflation will stay low before veSDT revenues really pick up. It is therefore necessary to find a more sustainable and efficient way to finance this liquidity.

The proposed idea is to charge a fee on the bribes perceived by the DAO and distributed to sdTKN users, and use this fee to issue bribes on the corresponding pool. For example, we currently claim $100k every other week for sdCRV stakers. $5k would be used to bribe the sdCRV/CRV pool. In the medium term, the impact on the bribe APR should be partially offset due to the fact that the increased liquidity would lead to a higher boost for sdCRV stakers (sdCRV in the liquidity pool give their voting power to sdCRV stakers). Furthermore, this would increase sdTKN stakers’ user experience and security as it would be easier for them to enter or exit their position.
To highlight this effect, you can find here a rough calculation of the impact this fee should have on the bribe APR, and assess whether you think the increase in liquidity is worth the loss in revenue : sdCRV liquidity program - Google Tabellen
Obviously, as every model, it has its weaknesses. Here, the main one is that an increase in LP APR doesn’t automatically translates into a larger liquidity. However, this model points towards a medium term impact of 1% of the bribe APR for a 5% fee, and and impact of 3% of the bribe APR for a 10% fee.

Looking forward to read your feedbacks!

  • I agree with a 5% bribe fee
  • I agree with a 10% bribe fee
  • I disagree with this idea

0 voters

4 Likes

Great post. I think for the longterm viability and security of the Liquid Lockers and sdTOKENS, this is something we need to consider. The LL are a terrific product bringing boosted rewards and voting power to their users, but they rely on having exit liquidity when a user chooses to exit. Right now for Curve, we have roughly 1.7m CRV supporting over 15m sdCRV. To attract more liquidity, we must incentivize it. The DAO already supports this gauge in particular as much as possible and has a mechanism in place to maintain parity but as liquidity has grown, this gauge needs additional weight or bribes to make it attractive. What Hubert has proposed above essentially means no change for the end user in terms of returns, but should attract more liquidity to the pool, both old and new, as well as entice new users to deposit in Stake DAO versus other alternatives. Personally I think we start with 10% and adjust accordingly until we find the sweet spot.

2 Likes

Increasing liquidity is a key objective. I would agree for 10%.

1 Like

Interesting and important proposal. sdCRV liquidity is key for long term grow. SDT price will benefit and fund liquidity from pure income sounds healthy. I see potential flywheel effect, sdCRV holder can earn incentives voting for sdCRV pool, which funded from sdCRV income fee from previous period. I am propose to use bribe.crv or develop own bribe contract to avoid additional fees like Votium or Warden fees. I am for 10% fee it pushes liquidity and StakeDAO veCRV
to new level.

1 Like

Here, the main one is that an increase in LP APR doesn’t automatically translates into a larger liquidity. However, this model points towards a medium term impact of 1% of the bribe APR for a 5% fee, and and impact of 3% of the bribe APR for a 10% fee.

If we say it won’t be enough before implementing the proposal, then this is enough to reject it. Either we do something that will work or we don’t do anything until the new inflation schedule is live.

Even if sdCRV combines CVX and cvxCRV use cases, and it’s a bit wrong to compare cvxCRV and sdCRV, we must wonder: “How will we be able to compete with the pool cvxCRV/CRV currently generating 22% of APY?”

Furthermore, the sdCRV/CRV pool competes directly with the sdCRV LL. Who is providing liquidity in the sdCRV/CRV pool with IL risk at a lower APY than the sdCRV LL’s one?

The sdCRV/CRV APY should be higher than the sdCRV APY and the cvxCRV/CRV APY.

The proposal above will only penalize sdCRV stakers imo.

1 Like

Hey Rudy,

I get your point. Maybe this measure should rather be used as a way to move away from inflation-subsidised bribes in the long term, rather than a way to bootstrap liquidity. Still believe that, in the long term, we all want SDT to suffer minimal selling pressure. The lower the SDT, the easier new comers can arrive and take your boost away. While if SDT is high, it is more interesting to stake only sdCRV, which will give boost to old users with veSDT. I think long term this measure will be quite key. However, it might have a bad marketing impact in this phase of our growth… Maybe something we should save for later?

I’m a major SDT holder, I’m a major sdt locker, I’m major sdCRV holder.
I’m absolutely for increasing the liquidity of sdCRV / sdBAL in general and think that small liquidity is a problem. However, I do think that this measure won’t fit in a good way.
Why? Because it will penalise the existing income of sdCRV stakers from bribes even more will significantly decrease their interest in the ecosystem.
New users already suffer ~20% of bribes loss due to basis vote nerf that goes to veStakers for boosting. In this additional 10% fee sdCRV stakers will have only ~70% of rewards that goes to them. It will significantly decrease their motivation to come to stake dao liquid lockers.
This measure will make onboarding even harder. Right now new users without SDT and with only CRV receives only 80% of their income, 20% goes as a fee to SDT holders. In result of this - it will decrease to 70%.
As for now, there is no decent way to have SDT tokens for a new user because of really small inflation. As a result, the majority of new users won’t be onboarded into the ecosystem and will stay away with 30% fees.

More generally, from my point of view, good tokenomics is a balance of inflation mechanics, deflation, value-preserve, and value-decrease. As for now SDT has following:
1)VeTokenomics which is greatly deflationary however due to small relative inflation it’s not worth locking that much
2)Penalty for bribes without vote locking and 0.8 base voting right for sdCRV stakers goes to veSDT
3)Bribes are converted with buybacks into SDT
4)Extremely small inflation
All of that works for existing token holders and value preservation. However, works against protocol growth and token adoption. If we look CRV or CVX it has much bigger yearly inflation (like x5-x15 times more). This way they can onboard a new users to their ecosystem and provide with competitive APRs. Yes, it’s an inflationary Ponzi in some ways, but it is 1)temporary and 2)backed by real growth.

Instead of the proposed measure, I’d rather propose to increase SDT inflation and allocate a significant part of it to sdToken liquidity. I think it will make onboarding much easier and it will fit the whole ecosystem much more natural. When holders pay fees to Y and can obtain Y. And vice-versa.

2 Likes

Does the protocol own any veSDT that it could direct additional weight to these sdToken pools as part of the Strategies Allocation votes? If not, perhaps we could increase the performance fee (above the current 15%) to accumulate protocol owned SDT or as per this idea direct some of the bribes earned for this purpose instead of being used to boost bribes. Over time these pools should get a greater share of the SDT emissions, even more so if LL picks up move TVL boosting earnings leading to more protocol owned SDT (and sdToken pools boosts) creating a nice flywheel effect. This would also create a positive flywheel effect for SDT token itself as the protocol locks up more and more of the token supply.

Interesting idea.
the protocol was allowed by governance to lock 500k SDT but not more, otherwise it dilutes users and the impact of locking SDT to get a boost on voting power becomes a tax taken by the protocol from users…
The protocol already vote as much as it can for the liquidity of sdTKNs

Perhaps we should start by adding a gauge for Bribes in the liquid locker gauge controller. Wdyt @Vic_Vae @ykplayer8 @RudyKadoch ?

I have been considering the addition of an added revenue stream, in order to bribe the sdToken pool to increase its liquidity. By changing the perf fees breakdown on related strategies.

Right now we have 15% perf fees (+up to 1% for the harvester) on strategies :

  • 8% to sdTokens-gauge holders
  • 5% to veSDT holders
  • 2% to DAO

I am proposing to change that to :

  • 5% to sdTokens-gauge holders
  • 5% to veSDT holders
  • 3% to incentivize the corresponding sdTOKEN pool
  • 2% to DAO

Currently, that new breakdown will redirect a few thousands per week to the liquidity bribes

With this new breakdown, we are onboarding a reoccurring revenue stream for our sdTOKEN Liquidity Providers, which are an important part for the long term succes of the LL product.

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