SLURP-8 | SDL Tokenomics v2.0

SLURPs
1

Abstract

We propose a major update in the SDL tokenomics for the stake.link platform. Ushering in a new era of liquid staking tokenomics by implementing a reward escrow model that boosts rewards and staking allocations and keeps skin-in-the-game for the participating node operators & ecosystem partners.

Rationale

With stake.link being live and having solidified its position as the first of its kind liquid staking offering for the Chainlink Network, now is the perfect opportunity to reflect on how the protocol was originally designed. By redesigning native tokenomics with the focus on simplicity, clarity and scalability it will lay the foundation for future iterations of not just Chainlink Staking but for the platformā€™s long-term success.

With this proposal, we believe it will solidify how the native token provides security and value to the platform. By keeping the proposition simple, rewarding its participants with boosted rewards and allocations from their long-term participation, it creates positive feedback loops that benefit all.

Motivation

After various discussions, especially SLURP-5, itā€™s become abundantly clear that for the platform to secure its success and growth the tokenomics need to be changed to promote value accrual and simplicity. If thereā€™s active community members that still have questions on design decisions, ambitions and reasons then the marketable case for the existence of the native token is not sound. For a platform to see critical success, the establishment of the core community and their understanding of the core value proposition needs to be well understood.

We truly believe that stake.link not only is an incredibly beneficial platform to anyone that looks for staking options on the Chainlink Network, but serves as an extremely important pillar in the growth of Chainlink Economics 2.0 by increasing security, promoting capital efficiency, and directly enabling collaboration between node operators and token holders. The implementation of the native token needs to promote that goal by design.

Timing

With the launch of the LINK staking pool and it consistently being full, outside of any future initiatives, it provides an opportunity to revisit and rethink tokenomics with minimal impact on the existing functionality. In addition, with the expectation of further Chainlink Staking iterations to be released at the end of the year, itā€™s a perfect time to rework tokenomics that ensure the launch of the next iteration of stake.link is optimised to benefit token holders.

Goals

The main three goals for the revisit of tokenomics were:

  • Increase the reward rate for long-term participants
  • Increase staking allocations for long-term participants
  • Promote an increase in long-term participation

Design Decisions

In the current token model, if someone uses the platform and wants to provide value with long-term commitment, thereā€™s no benefit in doing so versus a participant who wants to hold the native token for shorter term gains. For example, staking SDL prior to a LINK pool increase without the incentives to keep and stake the token once the allocation has been secured.

By implementing a reward escrow tokenomics model, similar to the vote escrow tokenomics first designed by Curve, it benefits committed participants in three major areas: reward rate, staking allocation and governance votes.

Upon the inception of the new reward escrow model for SDL, it gave the opportunity to revisit the original token allocations and incentives as the new design doesnā€™t blend with the initial idea of Node Operator allocations. The reward escrow model, especially when taking into account some technical design issues, would be an anti-pattern to how SDL was created on launch.

In order to implement the new rewards escrow tokenomics, we needed to change the original design where the amount of staked SDL tokens directly determines the share of fees. This new system considers not just the number of staked SDL tokens, but also how long they are locked in for. This means that the amount of SDL tokens used to calculate your rewards can change, depending on your chosen lock-in period. In practical terms, this would affect the distribution of rewards from the staking pools. Specifically, it would have changed how rewards were divided between node operators and community stakers.

Based on that reason, it encouraged an entire rethink of the token distribution and how the platform rewards long-standing node operators and community members alike.

Token Distribution

The idea to revisit the token distribution is to secure the third goal of promoting long-term participation.

With the original design of locked SDL allocations to participating node operators, it resulted in equal weighting between key value providers with token usage governed by the DAO. Although, it has the trade-off of an inflated total supply with significant amounts of locked tokens that in practice will never become unlocked.

Thatā€™s why in this SLURP, as well as the implementation of a reward escrow token implementation, we propose to simplify the token allocation to provide five clear token tranches:

  • community
  • node operators
  • treasury
  • core contributors
  • ecosystem partners

Reward Escrow

Vote escrow is a widely adopted style of native tokenomics design that was originally created by Curve Finance. The aim is to promote long term participation in the platform by increasing boosts and governance votes while giving holders the opportunity to vote on gauges that direct where rewards are distributed.

By implementing a similar model for liquid-staking, it allows the platform to achieve the goals of increasing the reward rate and staking allocations for long term participants, solving the issue that was mentioned earlier in regards to short-term gains by holding the native token for benefitting from pool increases.

Importantly, reward escrow scales more as the platform grows. The larger the total stake and rewards flowing through the platform for work performed, the larger the rewards directed to the participants who lock for longer periods of time. From a user perspective the rewards from staked tokens such as LINK donā€™t increase when the size of the pool scales. Although with reward escrow within SDL, it does. Having this positive loop is critical for encouraging extended participation, giving the design decision for implementing reward escrow.

When designing and implementing our reward escrow model, it was important to take into consideration the advancements that have been made in this area. With that, we felt it was important for the locked SDL positions to be represented as a transferable NFT similar to what is seen in Velodrome.

Node Operator Incentives

With the removal of the locked SDL tokens for Node Operators, the platform still needs to incentivise node operators to have skin in the game and participate for the immediate and long-term future. The incentivisation of Node Operators to participate and join is critical to the platformā€™s growth and success.

With the proposed major iteration of tokenomics, the design rationale is to keep this process clear and simple, by allocating an amount of SDL from the treasury to each node operator that currently participates in the platform and for any new node operators that join.

To keep node operators incentivised, the allocations for any existing and new node operators will be linearly vested over a 4 year period. By doing this, it gives node operators the freedom to decide how they use their own SDL. Whether thatā€™s for further initiatives that benefit the platform or staking it and locking it to earn more rewards. If a node operator chooses to exit the platform, the currently locked and vesting tokens can be claimed and sent back to the treasury.

SDL Mint Function

As part of the clarification and simplification of the tokenomics, the SDL mint function should no longer be required as tokens will no longer be minted as part of Node Operators joining the platform. The removal of the mint function is not in-scope of this proposal, but if this proposal is ratified then we seek to remove the mint function before the end of 2023. The time delay is to avoid any unforeseen circumstances that could negatively impact the platform.

Staking Allocations

As outlined in this proposal, the locking of SDL will boost staking allocations in-line with the multipliers detailed in the specification. The details of the new staking queue system will be outlined in a separate SLURP.

Specification

Token Distribution

image
image1200Ɨ742 38.6 KB

  • Community: 30,000,000 SDL (30%) (Unchanged)
  • Core Contributors: 20,000,000 SDL (20%)
  • Treasury: 40,910,000 SDL (40.91%)
  • Ecosystem Partners: 7,690,000 SDL (7.69%)
  • Current Node Operators: 1,400,000 SDL (1.4%)

Total Supply: 100,000,000 SDL

Community

The community bucket of SDL remains unchanged, the airdrop will continue as ratified in SLURP-3. The only change this proposal makes is that once the airdrop ends, rather than the DAO multi-sig withdrawing and burning unclaimed tokens, the multi-sig would withdraw and add to the Treasury bucket to retain the total supply amount.

Core Contributors

The core contributor concept is fundamental to the success of any project, stake.link included. Core contributors are those entities or individuals who lay the groundwork, dedicating substantial time, skill, and, often, significant financial resources to bring a project to life. For instance, from May 2022 to June 2023, stake.link was bootstrapped with a USD 1,911,014.00 investment from its core contributor, LinkPool.

The allocation of tokens to core contributors is a strategic move, designed to further align the interests of these contributors with the projectā€™s long-term success. It represents an appreciation of their initial investments and a reinvestment into the project, securing an influential stake for those who have contributed the most. With this perspective, we hope our community gains a better understanding of the core contributor token allocation, recognizing it as a necessary step for sustainable growth and innovation.

image
image1610Ɨ992 63 KB

Core Contributor allocation as follows:

  • 10M Founders Allocation, vested over 48 months
  • Budget beyond Founders Allocation set at 1M annually
  • Usage beyond this budget requires Governance Council approval

Treasury

The treasury amount will be increasing by just over 10M SDL as part of this proposal. Reason being is that the treasury will be now used for Node Operator incentives as well as the existing proposals for items such as liquidity incentives. The treasury bucket having a long runway is critical to the platformā€™s success due to needing to incentivise, giving the cadence for the increase. The specifics on the proposed models for Treasury usage are detailed below.

Ecosystem Partners

Ecosystem Partners are reserved to teams and individuals within the Web3 space who are interested in actively participating in the advancement of the protocol. In the current situation, the 7.69M SDL amount for ecosystem partners is allocated to Chainlink. This preserves the original percentage allocation that was made during the launch of SDL. To facilitate this change, Chainlink will burn 12,310,000 SDL around the time of proposal ratification.

Any new ecosystem partners that join the stake.link platform will receive their SDL amount as ratified by the DAO from the SDL amount in Treasury.

Current Node Operators

The 1.4M SDL bucket represents the current amount of SDL that is unlocked and awarded to Node Operators upon joining the platform. This amount will increase gradually over time the more Node Operators that join and the more incentives are distributed. The exact proposal for incentive distributions is detailed below.

Fee Changes

With this proposal, node operators will receive a percentage fee (initially set at 5%) assessed against their own rewards, as defined by the rewards that flow through the Chainlink Staking delegator pool assigned to their representative staking allocation. This solves the problem of representative fees at scale, since node operators will earn a fee from only their own rewards rather than a percentage of the pool.

In addition, the community fee will increase to 15%. The fee is taken from the overall pool rewards and sent to the new SDL pool. The increase in fees to the SDL pool for the community stakers represents an 8.48x increase from the current fee model.

The core contributor fee will remain at 3%. Currently this fee is spent on the Chainlink Automation jobs that trigger the token rebases.

Overall, this keeps the sum of fees at 23%.

Reward Escrow

As outlined, the reward escrow will mark a large change in how the SDL platform works for native token participants. The details are as follows:

  • No Lock: 1x SDL Multiplier
  • Minimum 12 Month Lock: 2x SDL Multiplier
  • Minimum 24 Month Lock: 4x SDL Multiplier
  • Minimum 36 Month Lock: 6x SDL Multiplier
  • Minimum 48 Month Lock: 8x SDL Multiplier

As detailed in Motivations, when SDL is staked & locked, users will receive a transferable NFT that wraps the underlying SDL. Once the lock period is over, the NFT can be redeemed for the underlying SDL.

Locking Mechanism

Once SDL is staked and locked, users will receive full reward boosting as per their initial multiplier until the NFT holder initiates a withdrawal request. Withdrawal requests can be initiated after the NFT has exceeded past 50% of its lock-in duration and will last for 50% of its locked duration.

Example A:

  • User locks SDL for 48 months, receiving 8x multiplier
  • After 24 months, the user initiates a withdrawal request
  • For 24 months, the user receives no multiplier for the remaining duration
  • After 24 months, the NFT is burned and SDL is unlocked

Example B:

  • User locks SDL for 12 months, receiving 2x multiplier
  • After 48 months, the user initiates a withdrawal request
  • User receives no multiplier for 6 months, reflecting 50% of their total lock-in period

To further clarify, when SDL is locked, the period is a minimum lock-in. The locked SDL will receive its full multiplier for infinite time until a withdrawal request is initiated. Withdrawal requests can be initiated after 50% of the minimum lock period, and last for 50% of the minimum lock period. If a withdrawal request is not initiated, then the full multiplier is retained.

The technical reasoning for implementing lock-in and withdrawal with no linear decay is due to decay not applying until an action is performed on-chain. In the projects that implement vote escrow the decay is only applied once a transaction is sent to the platform that interacts with the contracts, if the user performs no action then the boost they receive does not decrease.

Keeping that in mind, if someone locked SDL for 48 months receiving an 8x multiplier while they left it untouched for the duration of the lock-in, they would receive the full 8x multiplier for the full duration without any decay.

In this model, a user will receive their full multiplier up until the point of a withdrawal request. When modelled, if a user withdraws 50% of the way through their lock-in period, then the amount of boost they receive on average is the exact same as a linear decay. This implementation further incentivises users to keep long positions as they receive full multipliers up until they decide to withdraw. Since the locked position is represented by a transferable NFT, it also provides the user with the ability to exit without needing to wait the full period.

Reward Escrow Modeling

To understand the value added by including reward escrow into the native token, itā€™s important to model the outcomes based on the current scenario and in a scenario of pool growth to prove the model.

Current Scenario

Itā€™s important to note that within the current scenario, the concentration between lock-in periods is unknown due to no knowledge of how much SDL will be locked for how long.

Parameters:

  • SDL Staked: 15,000,000
  • SDL Price: $0.125
  • LINK Staked: 750,000
  • LINK Price: $6
  • Overall LINK Reward Rate: 7%
  • 0,1,2,3,4 Year Lock Concentration: 5%, 10%, 60%, 15%, 10%

image
image1200Ɨ742 27.2 KB

Exact rates being 0.58%, 1.16%, 2.32%, 3.48% and 4.63% respectively.

Growth Scenario

Within the growth scenario, the parameters provided are not an expectation of future growth. It is simply a model to prove how the model performs.

Parameters:

  • SDL Staked: 20,000,000
  • SDL Price: $0.125
  • LINK Staked: 7,500,000
  • LINK Price: $6
  • Overall LINK Reward Rate: 7%
  • 0,1,2,3,4 Year Lock Concentration: 5%, 10%, 60%, 15%, 10%

image
image1200Ɨ742 25.9 KB

Exact rates being 4.34%, 8.69%, 17.38%, 26.07% and 34.76% respectively.

As demonstrated with the above, even with the increase in total amount of SDL staked and locked within the SDL pool, under the exact same conditions the model performs exceptionally well at scale, encouraging long-term participation.

Node Operator Incentives

Incentivization Model for Node Operators

This proposal seeks to restructure the allocation of SDL tokens for Node Operators, aligning with the new token distribution structure and the 100M SDL maximum supply. The goal is to ensure Node Operators maintain active engagement and continue to contribute to the platform by holding significant stakes.

Under this revised model, existing Node Operatorsā€™ current SDL holdings will be burned. In replacement, they will be awarded a vesting schedule of 1,000,000 SDL over a four-year (48-month) tenure. This mechanism enables Node Operators to progressively unlock their vested SDL, which can then be staked in the SDL pool. Additionally, functionality will exist to claw back unvested SDL to treasury in the case of Node Operator exit or performance degradation.

Onboarding New Node Operators

As new Node Operators join the platform, they will be granted SDL tokens from the treasury, subject to a 48-month vesting schedule. The recruitment of Node Operators is anticipated to occur in batches, which may influence the specific SDL allocation for each operator. This allocation will be subject to governance decisions and is expected to reduce incrementally with each successive batch. This approach rewards early adopters while sustaining direct incentives for new participants.

As part of this revision, it is proposed that each Node Operator in the forthcoming batch will receive an allocation of 500,000 SDL.

Incentives Model Governance

The Node Operator incentivization model will be subject to an annual review by the Council, with potential amendments proposed through a SLURP. Under certain circumstances, driven by market conditions, proposals may be initiated outside the regular annual review cycle.

Deployment

SDL Pool

If ratified, then the deployment for SLURP-8 would require a new SDL pool to be deployed and current stakers will need to mint one or more reSDL NFTs with or without lock-in periods, determining the boost to their rewards and staking allocations.

In addition to the new SDL pool being deployed, the current SDL pool will be upgraded by the protocol multi-sig, triggering the current amounts of locked stSDL allocations to Node Operators to be burnt.

Unfortunately, it is not possible to upgrade the current SDL pool to support the new rewards escrow model as the change to represent locked positions within NFTs makes it incompatible with the current design.

Core Contributor & Treasury Amounts

Upon ratification, the protocol multi-sig will mint the required remaining Treasury amount to the existing wallet.

The Core Contributor amount will be freshly minted and sent to the existing LinkPool multi-sig wallet: 0x6879826450e576b401c4ddeff2b7755b1e85d97c.

3 Likes
3

I think that this model is far better. It is clear, scalable and ā€œmakes senseā€.

Just a few comments:

  • I do wonder if the 15% fee distribution to SDL holders is too generous while node operators are left with 5%. While this is line with platforms like Lido, it can be argued that Chainlink node operators do more work. It would be good to know the thoughts of the node operators on this.

  • What is Chainlink providing the project? They have a large allocation and yet have not even publicly acknowledged the project. It would be good to know their value-add.

  • I realise that this will be clarified in a separate SLURP but will SDL holders be able to rent their staking allocations? This would give further utility to the token.

4 Likes
4

Had a read through late last night, but overall isnā€™t this proposal bad for nops? Maybe itā€™s not that big of a deal for them - would definitely need their input here.

If we polarize the community vs nops this early for community benefit on paper, donā€™t we risk the whole thing by risking nops leaving? Whatā€™s the incentive for them to stay?

Obviously if everyone is on board this is a win for SDL holders long term. Glad thereā€™s some thought finally into what this token can be used for. Better late than never.

2 Likes
5

Thanks @EqS and @linkies4life for the candid feedback. I grouped both of your questions into three categories below. Curious to get your feedback on these.

Node Operator Sentiment and Incentives

Node operators (ā€˜nopsā€™) and community members each play a critical role in our ecosystem - nops provide the necessary staking capacity (ā€œworkā€), and community members offer the needed LINK tokens as collateral.

In the current model, nops have a higher amount of the total supply, which is to the detriment of the value proposition for the community. Without strong value accrual for all participants, it decreases the potential of the platform for everyone. This proposal aims to find equilibrium between all participants so that net value accrual is increased.

While each nopsā€™ ownership of SDL will reduce from 3.77% to 1.00% of total supply, weā€™ve incorporated three significant changes to offset this reduction.

  1. We have replaced the periodic mints for new node operators (which could have resulted in an indeterminate amount of dilution) with a fixed supply of 100M.
  2. The fixed 5% fee for nops is now independent of their SDL balance, which allows for increased flexibility in their SDL usage without compromising their earnings from work performed.
  3. We expect this overhaul will stimulate a healthier ecosystem, characterized by a reduced supply, enhanced reward rate, and overall increased net value for all participants. Our projections show an increase, not decrease, in net USD value for nops under this model.

In essence, these changes aim to provide a balanced environment, aptly recognizing and rewarding the contributions of all parties involved, thereby fostering sustainable growth

Chainlink

Chainlinkā€™s ownership reflects their role as a strategic partner in our ecosystem. Their involvement enhances our platformā€™s credibility and potential for future collaborations. While we operate independently, Chainlinkā€™s presence in our ecosystem, a solution based on their LINK token, strengthens our standing as a reliable solution in the LINK staking space.

SDL ā€œRentingā€

Weā€™ve explored a renting mechanism, but found it could shift value from the SDL token itself to individual ā€œlendersā€. In theory renting sounds great, but as we modeled this out, we found rewards to those lenders were too far diluted to justify the value shift from the token itself (e.g., the net value for lenders is greater without renting than with). Additionally, renting would come with added complexity. For example, this would require an additional LSD for the lenders. While we arenā€™t against complexity, the value accrual was not commensurate with the added complexity. That said, weā€™re still exploring this and open to ideas.

5 Likes
6

Appreciate this detail, I think it really helps paint a clearer picture of the overall situation.

Not sure I follow point #2 under nop incentives but that could just be that itā€™s been a while since Iā€™ve read the original framework of the platform.

In general the rest is very good information to provide context.

Thanks

3 Likes
7

Thanks @linkies4life!

The essence of #2 is that the current flow of rewards is that 20% of stLINK from the LINK pool flows to the SDL pool. Nops own a majority of that pool, and this is how they earn their payment for work performed. If nops were to use any of their SDL balance, it would reduce their reward, which creates a bit of a dysfunctional dynamic.

In this proposal, nops no longer receive payment from their balance of SDL. Instead, 5% is directed to them from the rewards they generate, and 15% is directed to the SDL token (still a combination of 20%, but now split such that payment for nops is decoupled from their ownership of the token). In addition to this, nops receive an SDL allocation. So the SDL allotment is no longer required for them to be able to receive their payment, but is like a bonus incentive to encourage long-term participation. In this way, weā€™d not expect them to have the same % ownership of total supply, as now theyā€™ll always receive their 5% payment regardless of their SDL balance.

2 Likes
8

I think this is a great proposal, and IMO improves the system for all participants. Somebody can check my math:

  • Node operator governance power reduced to slightly over a quarter of what it currently is. (Am I correct in my understanding that they will be able to vote using their vested SDL?)

  • In this context, Linkpool governance power roughly doubled

  • Community governance power almost tripled

  • Node operators now paid through 4 year vesting, new nodes immediately begin developing their stake through vesting

  • Node rewards now dependent on individual performance; larger community fee will naturally accrue value to the token and presumably will encourage cycling SDL rewards into reSDL (I assume weā€™ll be able to merge SDL into existing NFTs)

  • Treasury handles onboarding. About 34% of Treasury funds are earmarked for vesting to existing nodes. Green slice indicates nodesā€™ current liquid 100k allocations

  • Supply now capped.

I question why someone intending to lock would opt for a lower multiplier. Not a criticism, just open to opinions. Iā€™m curious if NFT trading will be facilitated through the stake.link site or if weā€™ll need to rely on external marketplaces.

I consider the staking allocation to be a major element of the tokenomics, so Iā€™ll look forward to that SLURP. From what Iā€™ve read about the queueing system, it sounds like reSDL will have an explicit use in prioritizing access of ā€œpending LINKā€ into pools whenever space opens up. I really appreciate your responsiveness to feedback and the work youā€™ve done to solve the problems raised by the community.

I think this proposal adequately solves the problem of node operator compensation - their reward rate is now directly tied to their performance, and their SDL stakes are now more liquid than before - and makes the system less murky for everyone. Would love to hear some thoughts from NOPs regarding the changes and the platform in general.

3 Likes
9

@Fox ,

Many thanks on the thoughtful response. Directionally confirmed on everything youā€™ve asked for confirmation on (some numbers are a little rounded, but close).

Regarding governance, the DAO is structured more akin to a representative democracy than a pure democracy: a council with a 5 of 7 rule, of which nops have 2 seats and community have 2 seats. Nops vote for nop reps and community vote for community reps. In this way, not much changes with governance in practice based on these changes of distributions. As the DAO evolves, it is possible more types of voting mechanisms may be implemented, of which will be evaluated as to whether it makes more sense for the council or all holders to vote.

A critical note here; the aspect of this slurp that relates to separating nop rewards from the SDL token was in large part thanks to your feedback, among others, from SLURP-5. Just want to call out that community feedback matters. This is a notable part on why we did not hold a council vote on SLURP-5, and instead moved forward with the current proposal.

As to the multiplier, Iā€™ll just share my own personal opinion. Everyone has a different risk appetite. In the same way on locking max multipliers, why would not everyone max their 401k contributions, or staked eth? Why donā€™t people chose max lockins for the current protocols that exist that have similar implementations (e.g., Curve), or any other major financial decision that involves balancing risk and rewards? In practice, we generally find a distribution of risk inclination.

Regarding the NFT trading, weā€™ve envisioned this would likely open a secondary market, of which we donā€™t necessarily see stake.link building. There are great markets out there for this exact kind of thing, why reinvent the wheel? Weā€™re interested in creating DeFi composability to add more utility and functionality for our users without necessarily always being the ones to build the platform for those functionalities.

Much appreciated on your feedback as a whole, and we look forward to more.

4 Likes
10

Iā€™m on board with this proposal, as I feel itā€™s a great move for the community and has the best value capture potential.

  • Expanding on Foxā€™s question of the NFT secondary marketplaceā€¦ will it be possible in the future to split NFTs? When discussing this with the Velodrome team, I believe this had to be built into the contract but could possibly go live at a different date. Is that possible with reSDL?
  • I am assuming the treasury SDL would not be reSDL, therefore not considered circulating/eligible for stLINK rewards.
  • On that note, can someone clarify what amounts here would be considered part of the circulating supply/eligible to be locked as reSDL on day 1. Considering Chainlink is the sole ecosystem partner, but holding a very large amount, do we have knowledge if they intend to be max locked? Better yet, can we make that decision for them in this proposal? Iā€™m assuming not, considering itā€™s mentioned they would need to burn tokens, so that means they are already have them.

Overall, I really like this. Great job to those involved! Ideally, this is the last ā€œpivotā€ we need to make on tokenomic structure. The criticism on the multiple large changes lately is warranted. Nonetheless, I am glad the team is working through the root of the issues versus spending time and resources on something unsustainable.

1 Like
11

Makes sense re: governance and marketplace. And happy to provide feedback - glad that itā€™s been helpful.

I think itā€™s good for users to have options when they approach the platform, what I donā€™t want is the lower multiplier to feel like a trap for those who start small, since the unlock time is fixed regardless of how much time has elapsed. I could see a situation where someone elects for a smaller multiplier, then later regrets not going for more, but has no way to increase it without unstaking and restaking, which will be a lengthy (and costly) process.

Principally: how about a feature allowing a user to ā€œupgradeā€ their multiplier? A user could go up, but not down. Upgrading to a higher multiplier would reset the NFTā€™s lock-in time to the beginning. Depending on your preference, this option could be available whenever, or it could be gated behind the 50% mark like unstaking is. Could make for a friendlier user experience, and perhaps improve liquidity on the secondary market, since a buyer could have the option of upgrading a lower multiplier NFT, without having to wait an extended period with a 1x multiplier.

On reflection Iā€™m not sure how merging would work. My assumption is that merging NFTs would have to have the same multiplier, and the lock-in time of the merged NFT would be reset, so Iā€™m not sure if it would really add anything worth the complexity. But perhaps thereā€™s something Iā€™m not considering. Splitting as mentioned by @SethVdL seems more achievable and immediately useful.

Iā€™m also wondering how the NFT will interact with the queue. These questions are more relevant for the queue SLURP, but I may as well post them here:

  • Will the NFT itself need to be staked to gain priority access to the LINK staking pool?

  • Will the NFT track how much LINK it has successfully priority-allocated into the pool?

  • Will it not be transferable until said LINK has been withdrawn from the pool?

  • Will the queue be first-come-first-serve, or will open pool space be provided proportionately to everyone in the queue who has both available LINK and unused allocation from reSDL?

EDIT: To clarify, Iā€™m concerned with the following problems: 1) how to prevent NFT-holders from exceeding their allocation, 2) how to prevent sale of an NFT with an allocation that is currently in use, and 3) how to make sure access to the pool remains equitable to everyone with available allocation and available queued LINK. You may already have other solutions to these problems that would make these questions irrelevant.

2 Likes
12

I appreciate the feedback Seth.

Splitting NFTs isnā€™t supported in this proposal, but it will be possible for us to add it in the future.

Correct regarding the treasury. In regards to the amounts that would be regarded as circulating, it would be the: community, ecosystem partners and current node operators. Thereā€™s also the current liquidity incentives which are coming from the treasury.

We canā€™t decide for them within this proposal, the choice of whether theyā€™re staked & locked is up to them.

Thanks again for the comments. Ultimately if thereā€™s problems in the design, then itā€™s better to pivot and fix any issues to boost value props rather than not accepting change is needed. I think the reward boosting model while solidifying token supply is the long-term model for the platform, it scales well and also can be applied to any LSD options outside of the Chainlink network.

1 Like
13

Itā€™s good to see your feedback on this proposal @Fox.

Can confirm this is an option. So any reSDL position can be updated with a longer lock, unless already locked at maximum.

The NFT wonā€™t need to be staked, we wanted to avoid users needing to make any further transactions to give allocation in the queue. The NFT needs to be in the same wallet to which the LINK is staked into the queue. When the pool opens and the staking queue starts to make deposits, it references the NFT at time of deposit.

Not directly in the NFT, this will be managed and tracked within the queue.

Itā€™ll always be transferable, the NFT just needs to be in the wallet at the time when space in the pool opens.

This is subject to change as the queue is in active development, but at time of deposit the staking queue will deposit the maximum amount of LINK it can in one deposit. The distribution of stLINK will then be done via a merkle tree and airdrop, so users will be able to claim their stLINK once the deposit and merkle distribution is added.

The amounts of stLINK each wallet gets is based on the reSDL amount at the time of deposit. If reSDL holders donā€™t have enough LINK deposited to cover the amount of LINK that needs to be deposited, then remaining access will be given first-come-first-serve to non reSDL holders.

1 Like
14

Core contributors would not be reSDL/not available for rewards? Is there an unlocking schedule for this 20m or it fully accessible? To be clear, I understand and agree to the need for it, Iā€™m just looking for clarity on the potential impact of rewards and liquidity if this is approved.

Also, is the treasury currently providing any of the sdl/link liquidity in the sushi pool, or is all that community? I know the rewards are coming from the treasury. Given the stagnant price action, but expecting quite a uptick in that, Iā€™d love to see us launch this with a POL plan to capture a lot of those trading fees, but thats probably a separate conversation.

2 Likes
15

Alright, so correct me if Iā€™m wrong, but it sounds like the NFT in effect will be a reusable pass into the pool, allowing the holder to stake x LINK every time space opens up. Every time the pool opens up is an opportunity to add x more LINK. The NFT is never ā€œused upā€ and its allocation is usable whenever a ā€œstaking eventā€ occurs. How will the queue order entry into the pool in the event that the amount of pending LINK held by reSDL stakers exceeds the available space?

As for the other side of the problem, where pool space exceeds the amount of pending LINK, what if instead of renting we had three distinct phases:

  1. the queue phase (which operates as youā€™ve described),

  2. the fee phase,

  3. the open phase (first come first serve, anyone can stake LINK)

The fee phase is simple, for a period of time anyone can stake their LINK, but they must pay a small fee for access (say 0.1%-0.25%, open to discussion on this point). The object here is not to be prohibitive, but to give people time to pay for priority access instead of going straight to free and open access, where in times of high demand they would likely be immediately frontrun at no cost to the frontrunner. Or, if someone does want to frontrun, they at least have to pay for the privilege.

We could also use a ā€œdutch auctionā€ style decaying fee for this purpose, starting somewhat higher and declining over the course of the fee phase until it hits 0. But that may be overly complex.

The fees paid would be distributed to reSDL stakers proportionate to their multiplier. They would not be distributed immediately, but rather would go into the rewards pool to be released gradually over time, on top of the usual platform fees.

16

Thanks for the really good engagement from the team and everyoneā€™s thoughts.

Good to hear that the node operators are happy with this new approach. Understand that with the 5% fee and then their SDL holding that they may be comfortable with the new approach. However, without any engagement here from the node operators then we have to take the teamā€™s word for it though.

Chainlink Allocation

Chainlinkā€™s ownership reflects their role as a strategic partner in our ecosystem. Their involvement enhances our platformā€™s credibility and potential for future collaborations.

So what has their involvement been precisely? Have their been collaborations in the past? Or ongoing?

I could understand if we had someone like Johann Eid contributing here regularly and public acknowledgement from the team but 7.69m SDL is a very large holding, particularly when you compare it to the node operator allocations.

If they choose to stake their SDL allocation then it would also be a bit odd as they would just be regaining some of the staking rewards from their own Treasury (at least in v0.1 and 0.2).

Core Contributors

Just to confirm that the full 20m SDL will be transferred to LinkPool immediately? Are these tokens vested? Will they be staked? Would the LinkPool team look at disposing some or all of this SDL in the future?

I see that Jonny says that they wonā€™t be considered circulating but would be good to confirm their exact status.

Community Fee

Can I just confirm which SDL would be eligible for this 15% fee?

Community: 30,000,000 SDL (30%) - Yes
Core Contributors: 20,000,000 SDL (20%) - Any SDL that enters the circulating supply after being disposed by the LinkPool team? Or this is locked? Or does LinkPool want to get rewards from this SDL on top of the 3% fee?
Treasury: 40,910,000 SDL (40.91%) - Any SDL that enters the circulating supply after being disposed by DAO decisions?
Ecosystem Partners: 7,690,000 SDL (7.69%) - Yes?
Current Node Operators: 1,400,000 SDL (1.4%) - Yes

1 Like
17

@SethVdL and @EqS ,

Iā€™d like to tackle both your questions in one go, as thereā€™s a bit of crossover.

tl;dr;

Before I get into the details, I gather some of the questions below may be fundamentally trying to understand (a) circulating supply and (b) staked supply, which ultimately informs reward rate. Today, 50% of the community pool (30M) is staked (15M). Weā€™ve therefore modeled 20-25M SDL staked over the next ~2 years as our ā€œmost likelyā€ scenario in the various models weā€™ve performed. That said, this is our best estimate, and you should draw your own conclusions based on all the information provided as this is not a commitment or guarantee of any kind.

1. Core Contributor Allocation

Confirmed, Core Contributor allocation is unlocked and available for usage by LinkPool for purposes commensurate with core contributor motivations outlined in the article.

We envision the Core Contributor allocation distributed as follows:

  • 10M Founders Allocation (not staked)
  • 2M Staff incentives by 2025 year-end (optionally staked)
  • 8M unallocated (not staked)

Release schedule into circulating supply could be roughly as follows over the next 30 months:

  • 1M year-end 2024
  • 1M year-end 2025

2. Liquidity Provision and Treasury

  • Confirmed, liquidity incentives come from Treasury
  • Initial liquidity of USD 250k (SDL) and USD 250k (LINK) provisioned by LinkPool
  • Rest of the liquidity has been provisioned from community
  • POL plan: letā€™s followup on this idea after this proposal, curious to learn more about your thoughts

3. Nop Sentiment

However, without any engagement here from the node operators then we have to take the teamā€™s word for it though.

Iā€™d like to reiterate that I have shared my own personal sentiment, but am also eager to see dialogue between nops and community.

4. Chainlink

Thereā€™s not much more to share here. We view the partnership with Chainlink as a strategic and valuable long-term relationship. Nop incentives were changed as a result of this proposal such that they now receive a fee for services performed instead of receiving it via SDL. This is why their SDL percent ownership changed. No such tokenomic changes were implemented for Chainlink to justify a change to percent ownership, hence their SDL allocation remains at the same percent ownership as is currently.

5. Community Fee

Staked SDL is eligible for the community fee. Consider the following:

  • 750,000 LINK staked
  • 7% Reward Rate
  • 52,500 annual rewards
  • 15% == 7,875 annual rewards
  • Distributed to staked SDL

Currently, about half of the community SDL is staked (~15M). This could increase potentially from: liquidity incentives, treasury usage, core contributor usage, nop usage, air drop claims from SLURP-3, currently held community SDL that becomes staked)

3 Likes
18

Thatā€™s a good way of summarising it, yeah.

This isnā€™t fully finalised yet, but it will distribute LINK staking space based on how much reSDL that is staked, vs the amount of open space.

To your latter point regarding the phases, weā€™ve thought of and discussed the fee phase like youā€™ve described there. Idea being itā€™d create some ā€œallocation lendingā€ style dynamic that we had previously. To be honest, Iā€™m not sure how much value that would add and for how long while the potential complexity and cost itā€™d add to the user is large. Iā€™m still very open to the idea, but for me I think itā€™d be best implemented post v0.2 of Staking when we know itā€™d continue to add value.

1 Like
19

Thanks again for the reply here. I would just say though that the circulating supply is really the potential staked supply. If the platform performs well and gains trust then we can expect the vast majority to be staked.

  • 10M Founders Allocation (not staked)
  • 2M Staff incentives by 2025 year-end (optionally staked)
  • 8M unallocated (not staked)
    Release schedule into circulating supply could be roughly as follows over the next 30 months:
  • 1M year-end 2024
  • 1M year-end 2025

So this would be for the next 30 months. But what about afterwards? That 18m SDL has no real use other than being disposed by the team over time as it doesnā€™t provide voting power or access to the 3% core contributor fee. I donā€™t see that as a bad thing necessarily but it would be nice to have some sort of timeline and clear communication on this topic.

This feeds into a concern that community stakers could see their rewards substantially diluted in the next 30 months by:

  • Chainlink deciding to stake their 7.69m SDL
  • LinkPool staff staking 2m SDL
  • Treasury disposals to fund initiatives

That alone could very easily add 10m-15m to the staked supply and then the community has 15m unstaked too. Then there are longer term dilution concerns too.

20

Thatā€™s fair, itā€™s reasonable to wait and see how things develop. Sounds like you all are considering these problems thoroughly and leaving room for adaptation. Itā€™s hard to know exactly how things will take shape, and at what pace. I think itā€™s safe to say that a lot of LINK will be looking for places to stake, and itā€™s better early on to attract it with few barriers. The exact parameters necessary for the queue will probably be more clear once we have a broader idea of what staking will be like beyond the current test.

2 Likes
21

"Under this revised model, existing Node Operatorsā€™ current SDL holdings will be burned. In replacement, they will be awarded a vesting schedule of 1,000,000 SDL over a four-year (48-month) tenure "

What this doesnā€™t state is where that comes from. Iā€™m assuming from the Treasury allocation, but itā€™d be good to spell that out

Itā€™s implied by ā€œclaw back to treasuryā€ and supported by new node operators receiving from treasury, and still - being explicit sounds good

1 Like