[PIP-60] DOUGH Staking & Governance Mining

PIP: [to be assigned]
Title: DOUGH Staking & Governance Mining
Status: Discussion
Author(s): @alexintosh
Created: Aug 10, 2021

Summary

DOUGH Staking creates a value accrual mechanism for token holders by promoting long-term alignment in which active participation is rewarded with regular cashflow-incentives.

Motivation

The PieDAO community has long discussed implementing single asset staking for DOUGH, as well as a mechanism for fee distribution.

[See PIP 12: Staking and Delegation Request for comments / [RFC] Incentivizing DOUGH Holding, Staking & Revenues / PieDAO Roadmap 2021 - Q2 /
DAO’s Departments with delegated governance / Vote #205]

The DOUGH staking design is shaped to add valuable utility, promote long-term alignment, and encourage participation in the decision-making process.

The proposed staking framework serves as a mechanism to distribute protocol fees as well as other revenues generated by the DAO.

Specification

The following paragraphs go into detail about the different components and how they work. The high-level concept can be summarized as such:

  • Governance Mining means revenues are shared with DOUGH stakers actively participating in governance.
  • Long-term committed capital is more valuable than short-term committed capital, for this reason, long commitments are granted with extra incentives such as more voting power and a higher portion of rewards.
  • veDOUGH holders (aka DOUGH Stakers) receive cash flow in a diverse basket of tokens knows as “Reward Pie”.

How veDOUGH works

veDOUGH uses a lock-up weight system. The number of veDOUGH obtained by staking DOUGH is determined by two elements: The stakedAmount of DOUGH and the timeCommitment.

Locking DOUGH is allowed for a minimum of 6 months and a maximum of 36 months. The multiplier follows the curve: y=x/k*log(x)

Example:

Ray locks 10,000 DOUGH for 36 months, gets 10,000 veDOUGH.
Alice locks 10,000 DOUGH for 24 months, gets 5912.35 veDOUGH.
Tom wants to lock 10,000 DOUGH for 12 months, gets 2311.42 veDOUGH.

After the lockup expires, the user can withdraw their stake and will not be able to vote anymore.

Anyone can call the eject function to push out an expired lockup and force-unstake the tokens for that address, as such anyone can make sure free riding is prevented.

The Reward Pie

From a technical perspective, the Reward Pie is a regular PieVault with the only difference that the function joinPool is disabled.

The RewardsPie might contain DOUGH, Pies such as PLAY and BCP from protocol revenues currently held in the Fee Pot, as well as farmed tokens such as BAL, CRV, SUSHI, etc. coming from the Treasury Farming Committee.

Farmed tokens are harvested every 30 days and included in the Reward Pie.

The underlying assets inside the RewardsPie will not be used productively and are therefore enabled for meta-governance at any time.

Compared to dumping the farmed tokens, this approach promotes cooperation with other protocols by encouraging non-parasitic farming, as such PieDAO becomes a valuable ally to other DeFi protocols acting as a liquidity provider and as a distribution venue for the project governance token.

How Governance Mining works

Governace Mining is a fancy name to say: you cannot pretend to get paid for a job just for showing up.

It represents our solution to the free-riding problem in DAO governance and it’s designed to be flexible enough to evolve over time.

The veDOUGH contract had an embedded system to gate the claim of rewards. It does that by using a merkle root to verify that the address claiming is eligible to do so.

This system allows for participation to be tracked offchain and therefore easily evolve over time.

At the current stage, the definition of “Active Participant” is simple as it tracks the participation to Snapshot votes with 2 rules:

  • veDOUGH holders who did at least one vote during the last 30 days are able claim their rewards.
  • veDOUGH holders idle for >90 days have their rewards redistributed to everybody else.

To make an example, governance could create rules for participation like: Needs to have partecipated at least to a community call, needs to have posted on the governance forum once, etc.

Technical specification

Technical development has been completed and pending audits.

Distribution breakdown

  • 60% is directly distributed to veDOUGH holders
  • 25% is used to compound the treasury principle
  • 15% is used to cover operational costs.

Resources

Long-term Alignment in Cryptonetworks & DAOs

16 Likes

This is really exciting! I can’t wait to see it in action. I have two questions:

  1. Can we implement this on an L2 or sidechain so that gas fees don’t create unnecessary friction? For those wanting to claim their rewards regularly, high gas fees can be really damaging. I’d also love to continue to LP and then periodically move my liquid DOUGH over to stake as veDOUGH. So again, additional gas fees each time more veDOUGH is staked would definitely be restricting.

  2. This kind of blends into my next question, will DOUGH in escrow be eligible to be staked as veDOUGH? That would be a nice utility for otherwise locked liquidity.

3 Likes

Thanks for this excellent proposal! A few points I’d like more clarity on:

  1. How do the different existing PieDAO wallet addresses (fee pot, treasury farm, DOUGH reserves, etc.) fit into the diagram in your post? Which ones will be managed by the Treasury Committee and have profits split as proposed?
  2. For the addresses that will feed into the rewards pie, which funds will be allocated there? Farm rewards only, or also gains from trading ETH/DAI and governance tokens?
  3. How would you envision this affecting current DOUGH farming programs, if at all?
2 Likes

Nice work, this seems like an elegant way to encourage governance participation. I would echo what @doomi said though. It would be great to see this on a layer 2 otherwise PieDAO is only for the already wealthy or the very early crypto adopters. Thanks for the work on this and for sharing.

1 Like

Thank you @doomi for your questions, here’s my comments.

I’ve been thinking about it but I don’t see how it would be happening. Rewards are farmed on L1 and as such need to be redeemed on L1. Even if the staking contract would live on L2 you would need to bridge over the DOUGH you intend to stake as veDOUGH which would cost the same or even more. Any technical suggestion is welcome.

It would be possible to do an upgrade to the liquidity mining contract once staking goes live to stake it for the max duration instead of doing the escrow. It would likely happen on a different proposal from this one.

Hey @jnova, good questions, let me clarify:

Both the Fee pot and the Treasury multisig are in scope, it is possible to merge them together and have pies accrue fees directly into the Treasury Multisig for operational simplicity.

This proposal is about Farm rewards only + DOUGH.

Personally, I see the current implementation of the farming program as too costly and not sufficiently satisfying. The distribution of governance tokens via farming serves the purpose of building an audience of future participants in governance, it would be a good idea to distribute veDOUGH only for farming rewards in order to involve new people in the governance game.

I understand the deside of having this implemented on L2 but I reject the premise “not on L2, therefore, is only for the wealthy”, there are limitations of what can be built on L2.

2 Likes

Thanks for the responses. I honestly dont know what the limits of L2s are but your response to @doomi makes sense as PieDAO is structured now. (And maybe always, like I said I don’t know the technical capabilities of L2s) I would push back on you rejecting that L1 isnt becoming a playground for the already wealthy or early crypto adopters. The range of gas costs to unstake from one of the PieDAO DOUGHpamine farms the last 24 hours has been between $63 and $1,100 depending on if there’s an NFT drop going on or not. Correct me if I’m wrong but isn’t part of 1559 supposed to make the cost of gas increase exponentially each block once demand outstrips supply in order to discourage gas demand quicker? So either demand for Ethereum blockspace needs to fall off a cliff to have a reasonable L1 transaction cost for normal people the way the PieDAO contracts are currently set up or transaction costs are going to continue to rise. I would say $63 transaction costs require a rather significant amount of capital to start with to be worth using, especially if the goal is to require people to unstake and restake DOUGH on a semi regular basis.

I do think this proposal is great and I appreciate the work that went in to it. What about finding a way to let people perpetually stake DOUGH without getting booted if there is active governance participation?

Great proposal @alexintosh, I think this would be a great way to align incentives of active + long term committed community members. Fostering a thriving community should be a priority for PieDAO, and a great asset.

I have two questions:

  1. Could making the inflows to the Rewards Pie be a portion of the month’s net treasury value gain make more sense? I think that having the inflows come only from farming rewards makes the cash flows very uncertain, the committee’s KPI is to beat a risk-free rate hurdle, not to generate farming rewards. For example, if the committee thinks that strategically the best move right now is to be 60% stETH 40% USDC for a full year, would there be any income?

  2. Do you know of any solutions that can bring in forum post / discord data into the “Active Participant” onchain? Or how would it work to track participation offchain? I think that adequately incenting this aspect is key, as in these posts is where the real value add occurs, and more effort is required.

Thank your again for the great and innovative proposal.

Edit:

I was curious to see how time locking could affect voting weights, so I used the Treasury Farming Committee Snapshot data and prepared some summary statistics, and here are the results:

Capture

6 Likes

That’s a very good question

1 Like
  1. Do you know of any solutions that can bring in forum post / discord data into the “Active Participant” onchain? Or how would it work to track participation offchain? I think that adequately incenting this aspect is key, as in these posts is where the real value add occurs, and more effort is required.

A possible solution here would be to develop a discord bot that allows folks to

  1. associate a discord account to a wallet account with staked funds
  2. keep discord stats such as comment count or chat interactions such as liking (stamping with emojis) etc.

This could potentially allow for off-chain querying of these stats or perhaps they get committed on-chain in bulk at whatever interval. I don’t know about any off-the-shelf solutions for this so this might be have to be engineered. I might look into this solution (although there might not be interest in this software).

3 Likes

Questions about veDOUGH
Since it is a time-locking token then does its quantity decreases in time?
How does one calculate the lock period of the rewarded veDOUGH?

1 Like

Touching base on some of the open questions discussed during the PieDAO | Community Call - Aug 13th and adding more details.

How would voting power be calculated with veDOUGH?
veDOUGH Holders are the only ones able to vote. The Snapshot strategy gets updated to reflect that.

What is the quorum requirement?
In order to pass a PIP 5% of the total supply of veDOUGH has to vote of which 60% in favor of the proposal.

What is the definition of revenues?

  1. Fees accrued in the fee pot coming from either Pies or DOUGHpamine (~$118k).
  2. Farmed tokens

To @saganaki comment, I’m against using the net treasury value gain for one reason, The treasury committee is not a hedge fund (yet) and the treasury is meant to fund public good and development of the DAO. Personally, if the committee thinks the best move right now is to sit 1 year on 60% stETH 40% USDC I would think the level of sophistication for that working group is not satisfying.

What about eDOUGH?
I propose to give the option to eDOUGH holder to convert to an equal amount of veDOUGH (therefore with 36m timelock).
Also, consider using veDOUGH for incentives moving forward and sunset eDOUGH.

How could we track forum post / discord data into the “Active Participant” onchain?
There are many ways of doing that, the simplest one for the forum is to snapshot the database and make it available on Github for instance. For discord it might be harder, @dopkloofdude proposed a bot and I believe Abridged could help for that.

I don’t believe we need to upload that data on-chain at all, we just need to snapshot the data and agree that the computed data off-chain makes sense. For instance:

  1. Have a set of open-source scripts compute the data and generate a Merkle root.
  2. Snapshot that on a Github repo.
  3. Publish a vote to notarize the data.

Quantity does not decrease over the timelock but expired timelocks can be ejected by anyone.

1 Like

What is the definition of revenues?

  1. Fees accrued in the fee pot coming from either Pies or DOUGHpamine (~$118k).
  2. Farmed tokens
    To @saganaki comment, I’m against using the net treasury value gain for one
    reason, The treasury committee is not a hedge fund (yet) and the treasury is meant to fund public good and development of the DAO. Personally, if the committee thinks the best move right now is to sit 1 year on 60% stETH 40% USDC I would think the level of sophistication for that working group is not satisfying.

Thanks @alexintosh, your breaking down revenues this clearly helps me, as the first component is key. Overall, I think as part of this proposal we should provide as much information as possible regarding what the potential cashflows for veDOUGH holders could be.

Regarding the second revenue component, I want to emphasize that the committee has a KPI to exceed a risk-free rate hurdle, not to generate farmed tokens, and thus we shouldn’t expect that they do so. What if they can meet and even exceed their hurdle without generating farming rewards, through other, non-farm generating protocols? I agree that this isn’t a hedge fund, but I am not sure how this connects to establishing that the treasury’s contributions to governance be limited to a specific portion of returns that are currently popular with some protocols but could fall out of fashion.

1 Like

Thank you @saganaki for your comments.

In regard of the potential cashflow for veDOUGH, my take is that yield from farming should be supported by DOUGH rewards which would make it more predictable. Networks can rarely rely exclusively on fee, it’s even the case for Bitcoin and Ethereum, which makes it natural to have additional yield coming from inflation.

PieDAO would become the first entity out there rewarding network participants with fees, farmed tokens and inflation all together.

2 Likes

Is there a working group (or a single person) who is looking into approaches to capturing community contributions? I am interested in moving this effort forward but obviously moving forward what the core team or the community thinks would be a valuable solution here.

Thanks for the informative response @alexintosh

There is a snapshot vote for contribution leads proposal here. Point of contact is still TBD as far as I can tell. In the meantime best bet is to raise it up to @itsbdell

1 Like

I’m personally looking forward to moving this proposal first from a technical standpoint so that we would have all the necessary infrastructure to iterate the concept of community contributions.

I know @itsbdell is working on it and I imagine he would probably need help from the technical aspects.

After this PIP is completed I’m very happy to join that conversation!

2 Likes

Agree with @alexintosh here that this proposal should probably move forward with the technical specs, and then we can initiate another look at how we capture community activity and contribution.

@dopkloofdude re: capturing community contributions - I’m currently focused on creating more ‘project’ based work for community members than quantifying ‘participation,’ but I could definitely see a path where that becomes a layer to it.

Happy to talk more once the initial contributor proposal moves forward.

2 Likes

Recap
Thank you, everyone, for your feedback so far on the proposal. I will move it forward to a snapshot vote in the next hours. Below a bullet-point list of the next steps to make it happen.

Next Steps

  1. Snapshot Vote for acceptance.
  2. Deployment.
  3. Change current snapshot strategy to veDOUGH only strategy.
  4. (Optional) Separate proposal for DOUGH inflation to veDOUGH Holders.
  5. (Optional) Separate proposal for eDOUGH --> veDOUGH bridge.
  6. (Optional) Working group to expand the definition of “Partecipation”.
4 Likes

:ballot_box: Snapshot Vote is Up!

Start date Aug 27, 2021, 12:00 PM

End date Sep 3, 2021, 12:00 PM

Snapshot 13,106,248

:point_down: VOTE :point_down:

4 Likes