TEMP CHECK | Increasing Community Pool delegation fee to reSDL stakers

[EqS]

Abstract

This temperature check proposes increasing the Community Pool delegation fee to reSDL stakers from 5% to 10%. This will increase stLINK rewards to reSDL holders, while decreasing the stLINK reward rate.

I have also included calculations for increases to 15% and 20%. Discussion could take us in this direction but I think 10% is reasonable.

Rationale

By increasing the fee distribution from 5% to 10%, reSDL stakers will gain higher stLINK rewards, which should drive greater value for the 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 significantly higher the standard Chainlink Community Pool rate (~7.33% compared to 4.32%) then the expected decrease of ~0.1% will be unlikely to reduce demand for staking LINK through the protocol.

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. 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:

The stLINK calculator provides a helpful tool for showing the impact of the proposed change. The current fee shows:

By increasing the Community fee to 10% we get:

Table of alternative fees:

	stLINK rate	stLINK amount to reSDL stakers p.a.	stLINK per 10,000 SDL (4 year lock) p.a.
5% fees (current)	7.33%	23,200.29	15.70839425
10%	7.24%	24,969.33	16.90617142
15%	7.15%	26,738.37	18.10394859
20%	7.06%	28,507.41	19.30172576

Therefore, for each 5% increase, someone staking 10,000 SDL for four years (90,000 reSDL) will get an additional ~1.2 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 132,924,223.02. For example:

23,200.29 / 132,924,223.02 = 0.00017453771

90,000 * 0.00017453771 = 15.70839425

Note: This calculation was updated on 18/5 as the initial calculation included a node operator delegation fee

Risks

If there was a significant increase to the amount of SDL staked as reSDL then this would place additional downward pressure on the reward rate. However, in such a situation, the reward rate 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.

It should also be noted that a change to the rates would also likely impact SLURP-17 which concerns the distribution of BUILD rewards. Jonny has mentioned that it is optimal to align Pool fees and BUILD rewards and therefore this would also increase BUILD rewards from the Community Pool to reSDL stakers.

Conclusion

Looking forward to everyone’s comments on this proposal. Even if we don’t choose to progress it, it can provide good insight into the trade-offs around the reward rates and the mechanisms underlying it.

[Tokenized2027]

Hi EqS, thank you for writing this detailed proposal!

I believe that updating the delegation fee from 5% to 10% specifically for the community pool is a step towards a healthier equilibrium between reSDL, stLINK holders, the core team and the node operators.

I think this proposal is somewhat time sensitive: the difference between native staking and stLINK currently is very high. We know that as time progress this will organically trend towards lower reward rate, as more stLINK is minted. This is why I think we’re at a stage where adjusting the fee could be a net positive to growing SDL/reSDL utility and increase stakedotlink’s brand recognition.

For comparison, staking ETH natively yields 3.33%, while Lido’s stETH only yields 3.0%.. As EqS mentioned, the utility of staying liquid, and the potential of DeFi composability such as lending is already a superior offerings - and stETH shows that exactly.

I support this proposal, but I would love to hear more feedback from the community and the core contributors.

[Sinbua]

This measure greatly rewards a wide range of users who decided to either hold a symmetric ratio of SDL:LINK or an asymmetric ratio of SDL:LINK in favor of SDL. The loss for stLINK is minimal, and the benefit for SDL holders can be significant. I am a bit obsessed with looking at things from a risk-reward perspective, and this measure has a large reward upside with minimal risks.

I support this in case it becomes a formal SLURP.

[mayormcstinky]

I agree with Sinbua. I think it’s most important to establish the tokenomic incentives for the protocol early. Ultimately the end user wants secure reliable liquid staking first and enhanced yield second. By increasing allocation of fees towards SDL stakers we incentivize longer lock periods and maximal participation in staking among SDL holders. By maximizing fees directed to SDL stakers another strategy becomes attractive, where a 100% SDL position becomes a progressively larger SDL:LINK position over time via reward auto-compounding as the broader network effects scale. As such, I’m in strong favor of the 20% rake to reSDL holders. I think it sends a strong message about the protocol being mindful to the interests of the protocol token holders. This move also comports with the expectation that any other liquid staking derivative offering developed in the future should have a sizeable percentage of the fees allocated to reSDL stakers.

[smartcondrums]

I’m all for driving value to reSDL stakers. As someone who has both max locked SDL and staked link as stLINK, it has always felt like there was an imbalance towards rewarding stLINK. This made sense because a primary benefit of reSDL was the gateway to getting stLINK.

We staked so quickly that we realized (and then subsequently “lost” if you can call it that) that benefit. So unless you have extra link to stake in the PP, our reSDL benefits now feel imbalanced to stLINK again.

If we can slightly nudge the scale in reSDL’s favor without majorly disrupting stLINK rewards, that’s a win.

[hboss]

For all the points you have mentioned, I fully support this slurp.

Would also like to propose a reduction of the incentives towards the $SDL pools and an increase in the incentives towards $Stlink and wStlink pools when the current incentives come to expiration.
Stlink is our star right now, need to put more light to it.
As always, I appreciate the high level of thinking this community has.
Cheers

[Genghis]

Thanks for putting this together EqS.

I am in favor of this given the low impact that it will have on the stLINK reward rate. I’d like to highlight what @Tokenized2027 has said as well

@Tokenized2027

For comparison, staking ETH natively yields 3.33%, while Lido’s stETH only yields 3.0%

Lido’s stETH rewards less than native ETH staking, and users are okay with this because of the other advantages that liquid staking offers. As mentioned, stLINK will naturally trend towards the native staking reward rate and as such we have an opportunity to take advantage of this significantly larger reward rate for the time being by redirecting a larger share to reSDL stakers.

I believe this can have the effect of garnering more attention towards the SDL token and therefore the stakedotlink protocol in general. From a game theory perspective, the more users that we can get interested in SDL/stakedotlink - the more users that will be actively educating and spreading awareness about the protocol. If somebody decides to purchase and stake SDL because of the reward rate, it is in their best interest to help grow the protocol.

[Ari]

I’d like to humbly share some thoughts on the proposal because it’s worth considering the broader implications on the protocol. So I’ll try to break them down to understand the consequences if this temp-check moves forward.

reSDL APY is mainly market-driven and depends on 4 factors:

• Total reSDL: if it goes up, APY goes down
• SDL Price: if it goes up, APY goes down
• stLINK Rewards: if they go up, APY goes up
• LINK Price: if it goes up, APY goes up

An increase in stLINK rewards for SDL stakers will likely result in more SDL being staked until the APY adjusts back to equilibrium. It’s important to note that an increase in stLINK rewards will happen organically as more LINK gets staked in the Chainlink Community Pool.

Following SDL’s ecosystem game theory, any of the reward parameters shown in this proposal should temporarily increase demand for SDL, which could lead to a boost in its price until equilibrium is met. It’s worth noting that increases in both: SDL Price and Total reSDL, contribute to making APY for new stakers go down.

This cycle suggests that simply adding rewards won’t sustainably enhance reSDL returns, as market forces will naturally balance the APY over time. The major effect it would eventually bring is a temporary spike in SDL price.

You might have heard this from me before, but I believe it’s important to emphasize that many community members are time-locked for four years; this is not a sprint but rather a marathon. Beyond the growth derived from stLINK itself, I’m keen to see how SDL could fit into new endeavors, such as making reSDL reward claims available on Arbitrum and others… cough sdlMetis cough

Additionally, you might have noticed that while a decent amount of SDL has been staked recently, the reSDL reward rate has increased and is now over 6%.

Changing the parameters to increase rewards for SDL stakers while decreasing stLINK rewards could set a precedent that prioritizes governance token holders over core protocol product stakeholders. While SDL is a governance token and earning rewards by staking it is a nice bonus, its adoption should primarily be driven by the growth and success of stLINK and other stake.link projects. You might recall that I was already concerned about maintaining a strong APY for stLINK and suggested front-running the Priority Pool to maximize the compounding effect. It’s my understanding that doing so ensures the protocol’s growth and stability, fostering a healthy ecosystem that benefits all participants.

As you might be aware, the ‘tragedy of the commons’ is crucial when considering game theory and long-term incentive alignment. While the proposal mentions benefits for node operators, I recall advocating for decoupling SDL tokenomics from node operators’ revenue, ensuring they receive direct protocol rewards. This should remain the case, with adjustments to node operator fees if necessary. Once node operators can switch/add new staking addresses, two outcomes are possible: satisfaction and ecosystem growth (with more of them joining stake.link), or dissatisfaction leading to a protocol fork to address any issues. Maintaining balance is essential to prevent the latter. If any of you can gather positive feedback from any Node Operator about this proposal, I believe it could be very helpful.

For all those backing this proposal, I’m very curious to get a better understanding of the main drivers. How do you think this move brings value to the stake.link protocol?

Perhaps I’m missing something, but looking at the pros and cons, I’m still not convinced it’s worth it.

[Tokenized2027]

Hi Ari, thanks for the detailed response - much appreciated.

An increase in stLINK rewards for SDL stakers will likely result in more SDL being staked until the APY adjusts back to equilibrium. It’s important to note that an increase in stLINK rewards will happen organically as more LINK gets staked in the Chainlink Community Pool.

This is true if we assume that stakedotlink brand and LST is known among Chainlink stakers and the broader DeFi community, which I don’t belive is the case for now. I also disagree that the benefit is only a temporary increase for demand, because you are missing the organic growth that is followed by a token’s positive price action. One happy profitable reSDLer can lead to other 10 individuals learning about stakedotlink. This is how communities are formed, and we are at the early stages exactly for that.

Right now stLINK reward rate is very attractive, almost double the native staking, yet we are not getting many Priority pool deposits. Furthermore, I’ve been surfing X for the last months and there’s plenty of people who want to stake but don’t know how / about stakedotlink. So I think this change is not an action for a short term benefit, even if it benefits the current reSDLers over those who come afterwards.

I can also argue that the equilibrium you refer to can be reached by having the stakedotlink treasury mint their own reSDL and funnel the stLINK rewards directly to liquidity pools, resulting in a feedback loop that benefits the protocol directly.

Doing R&D on providing more utility for SDL is necessary, but I don’t belive we should sit back and chill while we wait for possible integrations like Metis.

Changing the parameters to increase rewards for SDL stakers while decreasing stLINK rewards could set a precedent that prioritizes governance token holders over core protocol product stakeholders.

As mentioned above I think increasing reSDL utlity is a net positive to stLINK in the long run, especially when we have a huge gap between the protocol’s market cap and it’s TVL (6.5M to 37M~).

RE:Nodes

NOPs are free to do what they want with their SDL, but it really paints a specific picture when some sold the tokens, and the majority didn’t consider to stake them at all. If they aren’t staking, what does it signal to the broader market?

[Jonny]

Thanks again @EqS for the very well thought out and written proposal.

I will happily side with the overall opinion of the community for this proposal. The original fee structure was decided to not lower the stLINK reward rate too much for if there was a large amount of LINK staked during early access, which didn’t turn out to be the case.

I see no issue with increasing the SDL fee to 10% for the community pool, my only hesitation is that changes to fee structures can set bad precedent for those that are just stLINK holders. Since this change is small and the venn diagram between SDL stakers & stLINK holders is pretty much one big circle I don’t have much concern.

As mentioned in TEMP CHECK | Explore avenues for Protocol Owned Liquidity - #2 by Jonny, if both proposals are seen on favourably then I’d argue to bundle them both as a single proposal to change the overall fee structure. If POL is not seen as favourable, then there can be a community Snapshot vote on just this increase alone to which if passes, would go to the council.

[peculiarpearlue]

I think this is fair, SDL buyers are putting skin in the game with the protocol, and have the highest systemic risk considering link is more liquid and established. I think a 20% reward rate for SDL would be fair considering this. Otherwise, agreed.

[resdl.eth]

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!

[Michael]

i support this message and this temp check as well

[EqS]

There have been several comments in both this thread and on snapshot suggesting that we increase the fee from 5% to 20%.

I am cautiously in favour of this as:

• The stLINK reward rate would still remain significantly higher (2.5%+) than the standard Chainlink staking rate. As others have noted, the stETH reward rate is actually lower than standard ETH staking but has demand due to being liquid.
• The pool fee rates would be aligned with both having a 23% fee rate.
• It can drive greater value to SDL.
• The fees can be easily adjusted through a further SLURP in the future if it proves to be too high.

[candide]

I’ve finally taken the time to read this response thoroughly.

It has the most subject matter understanding and balances the possibilities well.

I’m inclined and partial to this approach.