I was intrigued by Tokenized’s post in Telegram about reSDL liquidity mining rewards, so wanted to put down some thoughts and invite others to join in.
For implementation, it’s hard to disburse NFTs directly. What we could instead create is a contract where locking SDL mints an equal amount of ereSDL. The locked SDL can only be removed by minting it into an reSDL NFT, which is achieved by burning ereSDL.
In effect, the ereSDL is a receipt for an reSDL NFT. Instead of distributing liquid SDL to our LPs, the team would lock the liquidity mining rewards into the ereSDL contract, and disburse ereSDL instead. Perhaps there’s a more clever way to do this, but this seems like a fairly simple approach.
I do think a balance can be struck between liquid and locked rewards. So I wanted to float the idea that there would actually be two options with ereSDL: the holder could either burn their ereSDL to receive 100% of the value as an NFT, or, they could take the “instant exit” option, where they must take a haircut (say, 50%), to receive liquid SDL tokens. Would that haircut be too onerous? Too generous?
I’m still not convinced if it makes sense for stakedotlink to build this itself or rather someone else build it on top. Either way, I’m happy people are realising what I was saying last summer Keen to read other takes on this topic
I think we should always strive to align incentives such as liquidity mining with the long term vision of the protocol. Currently, liquidity mining is offered unvested, and I believe that a lot of the selling pressure is coming directly from that.
That would be less critical if the DAO had it’s own POL (protocol owned liquidity). Currently from my understanding LinkPool helps bootstrapping the pools, but a protocol owned liquidity by the DAO creates a long term approach to grow the liquidity and have it’s own treasury in the future.
Without protocol owned liquidity, none of the LM rewards trading activity is captured back by the DAO (whether it be in SDL ,LINK or ETH) - and it’s a net negative for the short term if it simply creates a selling pressure.
So either create a 3,3 model for liquidity mining, reducing the incentive to farm and dump for short term mercenary capital (0x lock can still be an option, just with lower APY)
You can argue reSDL rewards creates friction, but that would be the case only if the liquidity provider is aiming to sell them as soon as possible.
Or If we proceed with the current LM rewards, I think there’s a place for discussion about creating a POL to offset the negative PA with a floor fund that will serve as a moat for liquidity in the future, and maybe a DAO treasury.
@Ari
I see what you mean. The incentives may not be as strong as they are for Convex, but someone may eventually have the motive to create a service that provides a sellable receipt token in exchange for locked SDL. And switching to locked rewards could drive farmers to dump their tokens into that service, growing its protocol-controlled reSDL NFT at discount prices. It’s hard to say what the consequences would be, but it’s worth considering.
ereSDL would not be quite the same thing as a Convex-style cvxToken. There would be no incentivized ereSDL liquidity pools where the token could be sold; its only official purpose would be to redeem it for locked rewards, either in the form of a max-locked reSDL NFT, or as liquid SDL tokens minus some percentage as a penalty.
@Jonny
That’s a fair point, especially with the necessity of attracting LPs for the insurance pool. I guess it’s a question of whether there is any percentage of haircut that would be acceptable to farmers who prefer liquid rewards. 50% seemed reasonable since the tokens would be immediately liquid, but that might be too steep.
I did have an idea: if someone takes the haircut, there will be extra SDL remaining in the pool once the mining epoch is over. We could distribute this bonus SDL (as ereSDL) pro rata to anyone that converted ereSDL into reSDL during the epoch.
I’m not sure how much selling pressure can be attributed to farmers, but I generally agree with the idea of shifting some rewards over to the locked version of the token. This is not intended to be a bum deal, since the yield of reSDL should increase over time as the stLINK pool grows, and the NFT itself can be sold, either on a marketplace or through some future 3rd party Convex-style service. The goal is to encourage participation in the system and usage of the SDL token for its intended purpose.
I was thinking earlier today about how reSDL might be used for (3,3) style LP boosting, but I think ultimately it would be counterproductive for the insurance pool. Boosting doesn’t inherently bring more liquidity to the platform, and it will also create disparities between insurance providers, with non-boosted providers getting paid less despite taking the same risks. But it’s an interesting thought.
Keen to read other takes on this topic
