SLURP-4 | Node Operator Staked SDL Locking

SLURPs
1

Abstract

We propose instituting contract changes that will lock node operators’ staked SDL (stSDL), and will require a governance proposal and Governing Council vote to unlock and withdraw any amount of SDL.

Rationale

Requiring a proposal and vote for the unlocking of node operators’ stSDL will ensure several key benefits and alignments:

  • Node operators will still have access to their SDL allocation for purposes of staff incentives, fundraising, liquidity provision, etc. but will be required to thoughtfully consider and delineate the intended use of tokens via a public proposal
  • Community members will have visibility into and be able to offer their feedback on proposed use of SDL tokens by node operators
  • The DAO will be able to burn stSDL from node operators in the event that they fail to fulfill their duties in serving the protocol
  • Locking stSDL will enable directing rewards/fees from products like ixETH which node operators do not secure to only unlocked stSDL tokens, i.e. community stakers

Specification

Contract revisions to DelegatorPool.sol, the stSDL token contract, will remove the concept of a vesting schedule to node operator’s stSDL allocations and allow the stake.link multi-sig to lock and unlock their stSDL allocations. All node operator stSDL allocations will be locked, and any unlocking, burning, etc. will only be performed after a publicly presented and reviewed proposal, and a succesful Governing Council vote.

Token Distribution Proposal Framework

At minimum, the proposal for unlocking and distribution of tokens must include:

  • Description of the purpose of the distribution of tokens
  • The amount of tokens to distribute
  • Timeframe over which tokens will be distributed
  • The vesting schedule (if applicable) of the distribution of tokens to their final recipients

Copyright

Copyright and related rights waived via CC0.

2

This is a good proposal. Node ops in SDL SHOULD contribute more than their stake allowance. Hopefully this SLURP get them to step up.

3

Imho, Chainlink node operators should receive their cut before hitting the pool (such as planned for the upcoming sdlETH). This 1st design presented could eventually make sense for a LINK LSD limited vision, but the complexity when adding other LSDs (such as sdlETH) and even the SDL role itself within LINK staking can quickly escalate.

• Will SDL be burnt/mint each time a Chainlink node op joins/exits the platform?

•Will SDL be burnt/mint and blacklisted from LINK rewards each time an ETH node joins/exits?

• In a future, what if different Chainlink services earn different APYs that vary overtime? Will the DAO be making mechanisms to adjust NOPs SDL distribution over time?

• Why add the complexity of giving SDL tokens and letting the DAO arbitrarily to lock/unlock a Chainlink NOP SDL allocation? What’s the whole benefit/purpose of this added layer?

We’re still early and should be very careful to make the right design choices. This SLURP seems to be a ‘quick fix’ for something that is further broke on the overall design.

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I’m inclined to be a “yes” on this, in part because it proportionality gives the community a higher amount of the circulating supply (if im understanding things correctly). However, Ari certainly has a point about potentially over complicating things early. Are we pushing away high quality node operators by putting handcuffs on this?

1 Like
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Appreciate the detailed and thoughtful reply @Ari.

Imho, Chainlink node operators should receive their cut before hitting the pool (such as planned for the upcoming sdlETH). This 1st design presented could eventually make sense for a LINK LSD limited vision, but the complexity when adding other LSDs (such as sdlETH) and even the SDL role itself within LINK staking can quickly escalate.

I don’t think there’s much room for escalation of complexity in regards to reward distribution, rather just reward distribution to all or just unlocked supply. The criteria for which bucket each reward set goes in just depends on the involvement of each participant within the platform, and in practise will probably result in just staked LINK rewards being distributed to all participants.

Adding more utility to the token will only incentivise more high-quality participants to join in the future. Without this it could be easy to see simple variations of Chainlink staked contracts that node operators could adopt minus the protocol fee, doing this creates some form of incentive for continued and active participation wanting its growth.

Will SDL be burnt/mint each time a Chainlink node op joins/exits the platform?

Yes. If a operator fully exits, then the remaining locked SDL would be burnt. For new operators joining, this process would have to be defined formally. Idea being that every new operator would receive a percentage less of SDL vs their staking allocation, increasing rewards to early participants when a new operator joins. The use of SDL creates an easy way to do that rather than having different percentage fees defined by the DAO on per-case basis of each node operator. In turn, it also incentivises continued participation as any unlocking and disposing of the token from each operator is then disposing of their relative staking allocation.

Will SDL be burnt/mint and blacklisted from LINK rewards each time an ETH node joins/exits?

ETH validators joining/leaving results in no SDL burns/mints.

In a future, what if different Chainlink services earn different APYs that vary overtime? Will the DAO be making mechanisms to adjust NOPs SDL distribution over time?

This would be the case yes. The DAO in this scenario if it voted on it could mint/burn SDL to operators to balance any differences in reward rate, but how this would work in practise just depends on how it would take shape within Chainlink Staking.

Why add the complexity of giving SDL tokens and letting the DAO arbitrarily to lock/unlock a Chainlink NOP SDL allocation? What’s the whole benefit/purpose of this added layer?

Hopefully the start of my reply explained this point, really it’s an incentive mechanism to keep incentives aligned and to encourage new high-quality operators to join.

5 Likes
6

I’m loving it. Will poll the community on TG and see what they say

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7

Love it too. Node Operators are showing Stakeholders that they’re taking the long view here.

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Have node operators provided private feedback on this proposal? Or are any going to provide input? It seems odd that we don’t have any public feedback from any node operator when this directly impacts them.

I am opposed to this approach as I see it introducing complexity and potentially contentious decisions around the disposal of tokens by node operators. This is heightened by the small number of Council members and the potential for conflicts of interests to arise such as a want to maintain personal and/or business relationships. I note that currently three Council positions are held by one node operator.

Disposing tokens would also have the effect of inflating the community portion of the SDL supply and also potentially reduce the commitment of node operators to the platform.

If node operators wish to provide staff incentives then they can do this by providing a split of SDL rewards internally. I am not convinced that disposing tokens for fundraising is a particularly helpful use of SDL for the protocol.

I would instead suggest that node operators are treated with a simple “in/out approach” where they get a cut of rewards for remaining in the protocol, and lose this if they wish to exit.

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