Temp Check:SLURP-26 | DeFi-PoL delegation fee for stakedotlink's LSTs

[Tokenized2027]

Abstract

This proposal seeks to incorporate a new 3% delegation fee called “DeFi-PoL” onto our existing stLINK LST smart contracts (for stLINK: from both the node operators pool and the native community pool, and once deployed for the stMETIS contracts as well, and any other LSTs we might offer in the future will follow the same delegation fee rake.

The purpose of the DeFi-PoL fee is to create a funnel for the stakedotlink DAO to have an on-chain budget in the form of its LSTs and to automatically LP it (i.e mint stLINK-LINK crv LP tokens) and distribute them as incentives to the Insurance Pool stakers who stake in the stakedotlink Reserve (formerly “Insurance Pool”), in a constant and automated way which scales in direct correlation to the protocol’s LSTs market dominance.

Note: This SLURP is in tandem and reliant on SLURP-15 - Insurance Pool - stakedotlink Reserve, as the LSTs incentives will be offered to those who stake their LP positions (UniV3,Hercules,Curve etc) into the Reserve pool. Furthermore, the initial implementation will focus on the stLINK smart contracts, and if this SLURP is approved after METIS staking is live, the DeFi-PoL fee will be funneled to a smart contract governed by the DAO, until the same implementation done for stLINK can be applied for stMETIS.

Rationale

Following our PoL temp check discussion and the Snapshot vote in favor, we agree that liquidity in secondary markets for our LSTs are a critical factor for the protocol’s success. But do we really need another fee? Our reward rate is significantly higher than native staking and will remain that way even after the DeFi PoL fee is implemented. Currently, it will decrease stLINK reward rate from 6.5% to 6.2%, which is negligible. It’s important to remember these delegation fees are “abstracted away” from the end user, which currently does not have any other existing or let alone competitive alternative.
You can play with the % differences using the calc.

Currently the TVL for the stLINK-LINK pool is $2.7M, or 111k LINK-114K stLINK. If we were to implement this fee with our current Staked Assets Under Management (stAUM) of 2.6M LINK tokens, and distribute stLINK-LINK crv LP tokens to our crv LPers (which staked their own LP tokens in the Reserve pool), they would be getting a yearly reward rate of 2.46% in the form of 50/50 LP position. Keep in mind, this is LINK rewards, not SDL. 2.46% is a considerable reward rate.

Onchain flow
The fee is taken as stLINK from the native pools reward rate, transferred to a smart contract that deposits them to the Curve pool, single sided, receiving stLINK-LINK LP tokens. These LP tokens are then deposited into our future Insurance pool(“stakedotlink Reserve”), and is distributed the same way SDL emission does to that pool’s LPs, all done via our frontend. It’s worth noting that this builds liquidity automatically over time and won’t require LP action. Besides increasing the liquidity in proportion to our stLINK mints, this could help us decrease our reliance on SDL tokens from our treasury as emission, and shift towards reward rate that is based on the protocol’s utility and core products.

As for stMETIS, we will currently accrue the fees into a DAO controlled SC, until we create a similar funnel to stLINK.

This proposal enables stake.link to continue its natural progression towards a sustainable, viable protocol that’s prepared for the long haul.

Looking forward to ongoing discussion of SLURP-26 and encourage the community to join the conversation, ask questions, and provide their candid feedback. We’re all in this together~
Much Love,

-T.

[Michael]

This slurp looks pretty okay to me. Stake.link NEEDS to begin stacking its treasury with not just SDL. Constant downward pressure on SDL price directly affects our treasury value and being able to have tokens with a much higher liquidity depth in our playbook as far as incentives are concerned will be helpful.

@Tokenized2027

The fee is taken as stLINK from the native pools reward rate, transferred to a smart contract that deposits them to the Curve pool, single sided, receiving stLINK-LINK LP tokens.

Depositing one sided on curve will put natural downward pressure on the stLINK peg. If stLINK is stake.link’s main offering then that should be taken seriously. Without the protocol itself arbitraging the priority pool and curve pool peg rate, this can leave us helpless to defend the peg ourselves being fully reliant on mercenary actors (in favor of) stake.link to pick up the slack.

I do acknowledge that long term, our products main offering is and should be attractive to refill the priority pool but currently… Maybe something to think about and consider is taking a % of these fees and arbitraging the difference ourselves (possibly in another slurp)

[EqS]

This proposal looks good. My only comment is if the node operators are on board with this? They could be wary of another fee.

Just also to note that the 3% from the node operator pool will provide 4286.3 stLINK per year, while the 3% from the community pool is 1976.7 stLINK per year.

[Ari]

Thank you for taking the initiative to start and keep pushing the discussion on POL and building deeper liquidity for stLINK (and soon stMETIS). This is a crucial issue, and as someone who has been considering the challenges involved, I want to offer some insights that might help guide this conversation for the wider community.

Key Considerations for LPs in AMMs

LPs are exposed to 50/50 value allocation in AMMs. Consequently, LPs may earn slightly more (via volume x 0.02% trading fees) than half the rewards they would have received by simply holding stLINK. If you think about stLINK as if it was wstLINK, we can consider this as impermanent loss (IL), as wstLINK appreciates over time.

The graph provides a clear illustration of this concept, showing how stLINK, LPs, and pure LINK holders fare over time.

Impermanent Loss (IL) Intuition for LPs

We can model the IL for LPs versus simply holding stLINK, where negative IL could even benefit LPs. This graph captures the impact of utilization rates, showing how higher trading volumes or lower rewards help mitigate impermanent loss.

While we should always aim for the maximum reward rate for stLINK, it’s true that decreasing the rewards will help mitigate IL for LPs, particularly if those rewards flow to LPs.

Building Deeper Liquidity for stLINK

Increasing trading volume and liquidity utilization should trigger additional incentives over time. Also, the amplification coefficient (A) is very likely crucial in shaping liquidity depth. For instance, I beleive the stETH pool’s liquidity has reached an astonishing depth because:

1. Rewards have reduced
2. Trading volume increased
3. The amplification coefficient (A) was substantially increased, boosting the pool’s liquidity depth

The image below gives some insights of how analogous protocols are adjusting A (amplification) and the Offpeg Fee Multiplier

• A ranging from 1 to 5,000: A is an amplification coefficient, which defines the pool’s liquidity depth. The higher the value of A, the deeper the liquidity.
• Offpeg Fee Multiplier from 0 to 12.5: A multiplier that adjusts the Swap Fee based on the pool’s state.

The stLINK/LINK price chart shows increased stability over time, indicating that stLINK is performing as expected. As withdrawals become available, raising A (if not already adjusted) would likely improve liquidity even further. Adding the Offpeg Fee Multiplier (if possible) could also promote greater price stability by discouraging trades in the “wrong” direction when the pool is off-peg.

Final Thoughts

Developing a POL mechanism, combined with the Insurance Pool feature from SLURP-15, offers a more sustainable approach to managing liquidity. This approach should help the protocol efficiently adjust liquidity as needed without relying heavily on the DAO Treasury to continuously fund SDL rewards for liquidity mining over an uncertain period.

Instead, LPs would receive a more stable and uniform type of reward that isn’t dependent on SDL’s price volatility. By reducing the protocol’s reliance on SDL incentives, this strategy ensures that liquidity provision becomes more self-sustaining and less subject to market fluctuations, providing long-term stability for the pool and the broader ecosystem.

Thank you again for bringing this up, and I look forward to continued discussions as we refine the liquidity strategy for stLINK. I’ll be working on modeling the system to gain deeper insights into the proposed 3% fee for both the Operator and Community Pool strategies, although they look pretty good at first glance.