SLURP-5 | Solidify SDL Supply Economics

[EqS]

New NOPs’ token allocations would not enter the circulating supply.

With SLURP-4, a node operator’s SDL can enter the circulating supply subject to approval by the Security Council.

The present cohort is already giving up their v.0.1 LINK staking allocations. There is, in the immediate term, no benefit to doing this; they are investing in the success of stLINK, with the expectation that it will become the de facto LINK LSD.

The benefit is that they were able to outsource the 50,000 LINK requirement and not provide it themselves. Of course they get a lower return but it does free up $350,000 of LINK that they would have needed to locked up.

This is why SDL has a lot of promise as future pool expansions will likely bring new node operators who are unable or unwilling to provide all of the LINK allotment from their own holdings.

[Fox]

@EqS

With SLURP-4, a node operator’s SDL can enter the circulating supply subject to approval by the Security Council.

Pending a ratified proposal. It’s not as if millions of tokens enter the circulating supply as soon as a node joins. No node has even asked for tokens to be unlocked. It makes no sense to portray stSDL disbursement as dilution when those tokens are not liquid

[EqS]

No node has even asked for tokens to be unlocked. It makes no sense to portray stSDL disbursement as dilution when those tokens are not liquid

Well SLURP-4 just passed this month so the lack requests so far is unsurprising.

[Sinbua]

@Kevin

Following the discussion, the main problem I see that nobody seems to want to address is the revenue/viability of the protocol itself :

Q. Why would future node operators use stake.link and pay a cut of their revenue?

Not everyone has over $300k available to be locked in a pool for an undefined period of time, specially some tech startups focused around web3 infrastructure (node operators). By lending their allocation to the protocol they are moving the risks to the liquidity provision layer while they still get benefits from their staking allocation (they get their fair share of fees from staked SDL).

On top of that, if a competitor protocol were to arise (land-grabbing node operators to lend them their staking allocations) you need to incentivize node ops properly to choose you instead of the competitor. SDL incentives fill that gap.

@EqS

Of course they get a lower return but it does free up $350,000 of LINK that they would have needed to locked up.

This

[Kevin]

Hi everyone,

Super nice we are getting some discussion going! I will share a bit more feedback but even if we do not all agree on all aspect I feel we will be going somewhere.

@Fox

I disagree with the characterization that issuance of locked stSDL amounts to dilution. NOPs have not sold any SDL, there is clearly no intention to sell any time soon, originally such tokens were set to be vested and that notion has since been consigned to oblivion. New NOPs’ token allocations would not enter the circulating supply. Hence why I am a proponent of splitting the token system (and expanding the Treasury) to make the distinction between “liquid SDL” and “node SDL” clear.

I am interested in this notion of distinction between liquid SDL and node SDL. I think we could innovate on this. Only concern I would have right now is to not confuse good faith in not selling equal to non circulating supply. (I understand at the moment there is a locked schedule).

@Fox

The present cohort is already giving up their v.0.1 LINK staking allocations. There is, in the immediate term, no benefit to doing this; they are investing in the success of stLINK, with the expectation that it will become the de facto LINK LSD.

I am somewhat not in line with this, or maybe just the choice of words. I do not think they are ‘giving up’, but more like ‘using up’ or ‘renting’ in exchange of (1) massive amount of SDL (2) use of the platform (and all the benefits that comes with it not materialized at the moment this I agree).

Also I would not think of them as ‘investing’ but more ‘using’ the platform as intended. When you are using a service with your capital, be it TradeFi or DeFi you are not really an investor. But I do agree they are ‘invested’ in the project in hope that stLINK works and become liquid.

@Fox

Rather than gating nodes through SDL, what I would like to see is a way for nodes to join as easily as possible. I agree that stakedotlink should be so attractive that nodes want to join, and preferably I would like to see stakedotlink become a gateway for new nodes that would otherwise have no way of building reputation. But all of this would require refactoring based on entirely immature technology, and if the platform is interested in expanding now, they have the choice of either making judicious use of the mint function, or just minting a lot of tokens all at once to represent future node participation.

Agreed

@Fox

Personally, rather than terming this SLURP a “solidification of supply economics”, I would prefer that it be considered a stopgap measure until a smart contract alternative becomes practical.

I think that is my main point here and we are all at the same place. When does it becomes pratical and what is the roadmap to get there?

@EqS

With SLURP-4, a node operator’s SDL can enter the circulating supply subject to approval by the Security Council.

Good point thank you for briging it up! I think this is something to keep in mind.

@EqS

The benefit is that they were able to outsource the 50,000 LINK requirement and not provide it themselves. Of course they get a lower return but it does free up $350,000 of LINK that they would have needed to locked up.

Interesting. Now the question is, will this specific benefit still be there after v0.1 and for a constant future?

I believe so but I do feel like we need other benefits and a roadmap to get there.

@Sinbua

Not everyone has over $300k available to be locked in a pool for an undefined period of time, specially some tech startups focused around web3 infrastructure (node operators). By lending their allocation to the protocol they are moving the risks to the liquidity provision layer while they still get benefits from their staking allocation (they get their fair share of fees from staked SDL).

So what we are saying is that the only market for SL is (A) web3 startups with <300$K capital available to be locked and/or (B) one who do not want to hold the risks of liquidity provision ? (I believe there is not much risk with v0.1 but someone can correct me)

So by providing solution for A and/or B , are we enough attractive to onboard new nodes or we still have to give them free money to come use the protocol?

@Sinbua

On top of that, if a competitor protocol were to arise (land-grabbing node operators to lend them their staking allocations) you need to incentivize node ops properly to choose you instead of the competitor. SDL incentives fill that gap.

So the only way to keep node operators onboarded against a competitor is to incentivize them and the only way to incentivize them is with free SDL?

I do believe we need a way to attract, onboard and keep node operator. Maybe SDL is a part of the solution but I feel like minting-and-giving-away is not the right way. At the end of the lock period, they can just sell and get out. Also if this happens, they have incentive to sell before the next out boarding operators.

Couple of points on my side:

1. SL should find the least expensive way to (1) attract nodes and (2) give them skin-in-game in the DAO.

2. Node operator should be a positive factor in making the DAO profitable. Receiving SDL should come with incentives to increase the DAO revenue and profit and not be a incentive to keep using the platform.

3. The SL protocol total revenue minus total incentive should be positive in the long run. SL should establish a clear path/roadmap to this before minting more SDL.

4. Roadmap (to revenue/profitability) should include lots of composability initiatives and partnerships around stLINK/ixETH to increase usage and liquidity. This include integrating them into other DeFi protocol and building on top of them (see all that is built with stETH)

[EqS]

I just had some more thoughts on the tokenomics building from @Fox 's posts that I thought I’d add here. My main concern is that I still don’t really understand how this will all fit together as the staking pool expands, and even more so with the arrival of v1 and v2 in the coming years.

As discussed above, we can expect node operators to want to use liquid staking protocols such as stake.link in order to fulfil collateral requirements that they may otherwise not be able to met. There is very real need for such protocols as even the initial node operator allotment saw node operators needing to lock up $350,000 worth of LINK for 9-12 months.

Currently, the node operators get ~$3600 per year from their 10 million SDL (given 0.00006165 stLINK income per SDL and a LINK price of $6). They also have the potential to dispose their SDL following approval from the Council following SLURP-4. Such disposal would mean the loss of passive income.

The only information we have about future staking from the Chainlink team is that the 25m staking pool will increase to 75m at some point. If the node operator allocation triples to 7.5m and the 15 existing nodes provide 2.250m LINK capacity then that would mean that each node operator should, in theory, have 30m SDL. 30m x 15 node operators = 450m SDL which clearly doesn’t work and which the team has acknowledged. Then you would also have the additional node operators that would want to join.

I just don’t see how this all fits together as if the SDL amount provided per LINK is reduced then the node operators get reduced income. It would also create ongoing imbalances for node operators joining later.

Then you have the broader issue of the longer term implementations of v1 and v2 of staking which will expand to multiple price feeds, and Chainlink services, and potentially with a much larger set of node operators. It could all get very messy quickly.

I do wonder if the cleanest solution would be to create a “nopLINK” token which could directly the reflect the amount of LINK capacity provided by a node operator. So currently, each node operator would have 50,000 nopLINK. This would provide them a percentage fee (15%) for providing the LINK capacity and could be dynamic so that fees could be adjusted if other protocols emerge. nopLINK would also act as a governance token for node operators.

Meanwhile, SDL could be kept for the community with a smaller percentage (5%) of the revenue, as a governance token and as a gating token for staking access. This staking access could also been lent on the market for a small fee and give further utility.

The development team could then have a third token (devSDL) to give them a percentage for protocol development and maintenance (3%).

This would be to my mind be a lot cleaner. However, it would remove the ability for the development team or node operators to dispose of SDL. The account for this, a Treasury of SDL (50m SDL?) could be retained by the team which would provide additional income and could be disposed of in the future as needed. In addition, node operators and team could dispose their nopLINK and devSDL if they so wish (presumably OTC). Node operators may also wish to distribute their nopLINK to team members as part of salary compensation.