TEMP CHECK 2 | Increasing Community Pool delegation fee to reSDL stakers

Meta Discussion
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Abstract

This temperature check seeks Community and Node Operator input on increasing the Community Pool delegation fee to reSDL stakers from 5% to one of the following percentages: 10%, 15% or 20%. My recent temperature check on increasing the fee was well received by the Community and was endorsed by the Core Contributors of the protocol. The next step is to discuss which specific percentage increase to move forward with.

This second temperature check has been created in co-ordination with the Core Contributors. Thank you to @LPM for his help on this.

The impact of changing the delegation fee will be an increase of stLINK rewards to reSDL holders, while decreasing the stLINK reward rate.

Included in this second temperature check are updated calculations for increases to 10%, 15% and 20%. The purpose of this discussion to find which percentage we will move forward with and be formalized as a SLURP and voted on by the stake.link Governance Council.

Rationale

By increasing the fee distribution, reSDL stakers will gain higher stLINK rewards, which should drive greater value for the SDL token. An increased value of SDL can also have secondary benefits such as:

  • Increased attention for the protocol
  • Less distribution of SDL from the Treasury for payments denominated in USD

Given that the stLINK reward rate is already considerably higher than the standard Chainlink Community Pool rate (~6.92% compared to 4.32%), then the expected decreases will be unlikely to reduce demand for staking LINK through the protocol. By way of comparison, staking ETH natively yields 3.34%, while Lido’s stETH yields 3%.

In addition, as stLINK is a liquid staking token, this provides a further point of difference and advantage compared to standard Community Pool staking.

It should also be noted that node operators can benefit from this change as they hold and can stake SDL (each node operator has been allocated 1m SDL, which is vested over four years). As per SLURP-8, 2m SDL of the 20m SDL Core Contributor Allocation may also be staked by the end of 2025.

Specification

The reward rates for the two pools are currently:

fees
fees792Ă—573 29.7 KB

The stLINK calculator provides a helpful tool for showing the impact of the proposed change.

The current fee shows:

image
image940Ă—561 97.5 KB

By increasing the Community fee to 10% we get:

image
image940Ă—585 102 KB

Table of alternative fees:

image
image716Ă—140 5.25 KB

Therefore, for each 5% increase, someone staking 10,000 SDL for four years (90,000 reSDL) will get an additional ~1.5 stLINK. Rewards will increase with more protocol LINK is staked in the Community Pool. Note that this may be offset by more SDL being staked.

The calculation assumes the current reSDL amount of 135,471,693.27. For example:

23,785.65 / 135,471,693.27 = 0.00017557653
90,000 * 0.00017557653 = 15.80188782

Risks

  • If there was a significant increase to the amount of SDL staked as reSDL then this would place downward pressure on the reSDL reward rate.
  • As more LINK is staked in the Community Pool, there is downward pressure on the stLINK reward rate and a higher delegation fee adds to this.

In both situations, the delegation fee can be adjusted again through a further SLURP.

Implementation

The implementation of this fee change should be straightforward by using “updateFee” in the Community VCS contract.

Conclusion

Looking forward to everyone’s comments on the proposal. The objective is to find the exact reward rate that will be presented to the stake.link Governance Council which will then be voted on as a formal SLURP.

Alongside this general discussion, a Community Snapshot vote will take place in around four days from the posting of this temperature check to gauge what percentage fee increase the Community would like to move forward with. This will allow a broader range of community input in addition to this discussion. The vote has been co-ordinated with the Core Contributors and will be open for three days. The proposal will then move forward to a vote at the Governance Council.

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I am for 20% for the reasons I listed in the original discussion of this slurp:

Well done on the write up! Sounds like implementation and risk assessment were easy, this proposal seems like a no brainer! I would like to echo some of the other comments saying that a 20% yield rate would be better, and it will only be harder to pass in future slurps. It will also help insulate resdl stakers from future drops in yield as newcomers stake their sdl. Send it!

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For it still. If all parties are good with an increase, might as well go for the 20% imo.

Seems reasonable to me!

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As mentioned in the first Tempcheck, I am in favor to increase the delegation fee, but I want to remain cautious. 1 step at the time and doubling the fees is already huge from 5% to 10%. For the minimal impact it brings, Im in favor of keeping it slow and slowly increasing it with time if needed.
Cheers

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Still for this amendment. I would support the fee increase to 20%.

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While a 0.4%~ decrease in stLINK reward rate is not substantial, I think we should also acknowledge the matter of optics and diplomacy and not steer to hard to either side. So with all that said I think 10-15% is reasonable. Also keep in mind stLINK holders might not have a say in governance per se but it doesn’t mean we shouldn’t account for their (non vocal) opinion when governing and considering to change the protocol’s structure.

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I was hoping to have some node operator input on this but at this time I will vote for 15%.

While the proposed delegation fee increases are of minimal impact to the current overall rate, my broader concern is the general decline in the stLINK rate as more LINK is staked into the Community Pool. Somewhat counterintuitively, the best way to sustain the stLINK rate would be stop staking into the Community Pool as space opens!

If we double the amount of LINK staked in the Community Pool (from ~1m to ~2m) with the current fees then it the stLINK rate would drop to around 6%. Note that this may be offset by future expansions to node operator allocations which really are at the core of the protocol and the reward rate.

At 2m staked in the Community Pool:

5% (current): 6.06%
10%: 5.93%
15%: 5.79%
20%: 5.65%

So while downward pressure on the stLINK rate is far broader than this fee change, I do think it’s important to try to preserve the rate and that a 20% fee is too high.

Also note that at 1m staked, the decrease to the stLINK rate for each 5% is ~0.1% but at 2m, the decrease has increased to ~0.15%.

A rate of 5.79% (given a 15% delegation fee) would still be well above the standard LINK staking reward rate of 4.32% and with the added benefit of being an LST. Setting the fee at 15% would also align it with the Community delegation fee for the Node Operator pool.

I’m glad to have sparked this discussion around fees and I would assume that we will see further changes and tweaks in the future as staking evolves and competing Chainlink LSTs emerge. It’s good for the community to be aware of the trade-offs and incentives in this area, and to consider the balance between stLINK and SDL.

In any case, from here it is now for the Governance Council to assess options and come to an agreement about the increase after taking in this community input and from the forthcoming Snapshot vote.

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Just a quick update: a community vote on Snapshot will be coming soon but LPM has been very busy so timelines have been pushed back a bit.

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Honestly I am 100% behind the node operators.

Sad to see none of them have voiced their opinions on this.

In absence of their voices, and due to the argument that the NOPs would be incentivised to stake and hold their SDL rather than sell it, I can’t see why 20% isn’t in everyones best interest.

20%, until NOPs say otherwise.

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any updates on this?

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We’ve decided to push the community Snapshot vote to 2 August to provide a further opportunity for node operators to give input.

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Great to see the discussion!

At Stakin, as a node operator, we have internally discussed the Community Pool delegation fee to reSDL stakers and believe that an increase from 5% to 10% is justified at this stage.

For now, this adjustment should provide a decent economic utility increase to reSDL stakers without negatively impacting LINK. An increase to 15% or 20% might be too significant a change to implement all at once. Further adjustments can be considered in the future.

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Hi everyone,

Kubilay from MatrixedLink here. I appreciate the engaging discussion on incentivizing ReSDL stakers.

After thorough internal deliberation, we believe a modest increase to 10% is warranted, rather than implementing a substantial hike all at once. Once we’ve gathered sufficient data from this incremental adjustment, we can revisit and reassess this matter in the future.

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Happy to see some participation from our node operators regarding this proposal. When we attempt to change core protocol decision like protocol fees, it’s important all of the network aligned participants be equally heard and taken into account. I also believe a 5% increase from 5% to 10% is what we should go for, considering every side is winning that way.

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Thankful for the nop feedback, would like to update my vote for a 5% increase for a total of 10% as well.

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Great to see the node operators making their voices heard. I also wish to update my vote to align with NOPs; increasing the fee by 5%, to the total of 10%.

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It’s great to have node operator feedback on this proposal and I hope that this continues into the future on other proposals and SLURPs in the Discourse Forum.

Given the NOP feedback, the Core Contributors’ views, and the pace at which LINK continues to be staked into the Community Pool, I will vote for a 10% increase.

Just wanted to say that this has been an excellent process. Proposal went up, we got a variety of views, and then reached consensus on an outcome that everyone is happy with. There’s always going to be different perspectives and drivers from ecosystem participants and it’s good to have them voiced, debated and then move towards a conclusion. What a DAO should be :slight_smile:

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