[RFC] Incentivizing DOUGH Holding, Staking & Revenues

[RFC] Incentivizing DOUGH Holding, Staking & Revenues

Note: This is a Request for Comments (RFC) proposal.

Intro

Lately, the community has expressed interest in moving forward on cash flow generation from pies to the benefit of DOUGH holders, which will give an additional reason to hold DOUGH besides participating in governance.

Based on the discussion done in Discord and according to the original vision presented in Introducing PieDAO, I would like to present a preliminary proposal to move this forward.

Goals

The proposal has 3 main goals.

  1. Give Governors of the DAO economic incentives to do a good job.
  2. Encourage active participation within the DAO.
  3. Incentivize long term holding of DOUGH with fees redemption.

Status Quo

There currently no fees on pies of any sort on pies.

At this stage the usage of DOUGH is only to participate in governance, there are no economic incentives to do so, it all comes to the will of DOUGH holders in making the project succeed.

A common issue with governance in DAOs is low participation, it takes time and resources to consider proposals, voting on-chain comes with a cost as well which might be a deterrent for some.

Proposal

Stimulating participation in governance is a combination of reducing friction from a user perspective, ensuring the distribution of information about governance proposals to the involved token holder, and incentives.

1. Staking and rewards for voting

Introduce a Staking App in PieDAO, holders of DOUGHv2 can stake their tokens for a minimum of 1 week and up to any time they desire.

This is would come with a Governance reform where:

  1. Only Staked DOUGHv2+DOUGHv1 tokens are allowed to vote.
  2. Voting happens in epochs of 2 weeks.
  3. Staked DOUGHv2 receive interest to participate in governance.

While at stake, DOUGHv2 tokens will mature an overall 75% interest over two years.

50% interest is give for staking in the first year.
25% interest is given for staking in the second year.

The interest is matured based on the tokens at stake and makes the rewards higher for those
members who are more invested, and is distributed to members actively participating in DAO voting mechanisms.

The reward is calculated as the minimum balance between the end of an epoch (now) and the balance at the first vote in an epoch (in percentage) for each vote that happened within the epoch.

There is some tolerance for misconduct, the missed vote threshold will be set to 1 vote per epoch as it’s likely to happen eventually to most participants.

The rules are simple

  1. Users have to vote in the epoch to accrue the rewards.
  2. If the member skips more than 1 vote in the epoch he won’t get any interest.

Additionally, the lockup period for participating in governance makes the system more resilient to governance attacks via lending. Lending protocols expose an attack vector to governance tokens like MKR where voting is allowed to any token holders. Actors with access to significant liquidity can borrow enough tokens to reach quorum, assuming there is enough liquidity in the market.
See recent flash-loan drama on MakerDAO & Attacking the DeFi Ecosystem with Flash Loans
for Fun and Profit
.

2. Pie Fees

Introduce a fee structure for current pies and future pies including ExperiPies, Personal Pies, RoboPies, ManagedPies, and any possible future flavor of pies.

Fees structure:

0.5% Streaming fees
0.5% Redemption fee with 50/50 split between remaining pie holder & treasury.

Why redemption fees?

Because they create positive conditions by growing the Pie TVL since it discourages redemption and it’s also aligned to the idea that index investing is designed for long term holding.
The 50% split of the redemption fees to remaining pie holders in fact will reward those who hold for longer, effectively compounding the returns of holding the Pie and it’s an additional reason to stay invested in the Pie.

3. Distribution of fees to DOUGH holders.

Fees are distributed to DOUGH holders with a long-term vision in the project and active interest in governing the protocol, in other words, holders who stake & lock-up for at least 6 months.

The longer the lock-up, the more revenues of the DAO the staker is entitled to when a fee distribution event occurs.

  • 0.8x multiplier for 6 months lock-up.
  • 1.2x multiplier for 12 months lock-up.
  • 2.0x multiplier for 24 months lock-up.

When a fee distribution event happens, the distribution formula takes into consideration for every staker the following values:

a) The lock-up duration until now.
b) The timelock selected (6m/12m/24m)
c) The share of the pool of locked DOUGH.

Example 1: In this simulation there are 4 users, locking their tokens into the staking contract: Alice, Tom, Ray, and Julie; They have staked the same amounts, at the same times, with different lock-ups for a total number of tokens locked of 100,000 DOUGH;
A total of $1,000,000 worth of fees would be divided between the four of them as follow.

We can see how Ray, having locked his tokens for 24 months, is earning 2.5x more compared to Julie who chooses to lock her tokens for only 6 months.

Example 2: In this simulation there are 4 users, locking their tokens into the staking contract: Alice, Tom, Ray, and Julie; They have staked different amounts, at different times, with different lock-ups for a total number of tokens locked of 100,000 DOUGH;
A total of $1,000,000 worth of fees would be divided between the four of them as follow.

Pool
  • Make it happen
  • Don’t do it

0 voters

4 Likes

this spreadsheet can be used to play with different lock-up scenarios and compute the correspondent % share distribution of revenues

There is a lot in this proposal. Maybe too much for a simple “Yes/No” vote :slight_smile:

Generally I think this is going to the right direction. Some thoughts/questions:

  1. With 25% interest in the second year, why wouldn’t I just stake for 1 year and then again in 1 year to get 50% both years?

  2. Please consider smaller DOUGH holders by moving to an L2 voting scheme. There has been several implementations I think.

  3. I like the fee structure. There even might be the situation where the half of the redemption fee is greater than the streaming fee. So in addition to the LP rebalance earnings, the pie holder might in the end actually hold a part of a bigger pie instead of paying any fees.

3 Likes

Fair point @coinyon, there is a lot to unpack.
I decided to put them together as I think they are highly connected between each other, the pool itself it’s mostly to gather sentiment, if moved to an actual PIP it would require more granular on-chain voting.

Depends on the desired outcome, if it’s only about the interest, then no reason, if you want to maximize your share of the fees then staking for 2y would be best.

I’m not aware of any L2 solution to date, snapshot enables offchain voting but not L2. For now it only for multisigs masked as a DAO, it cannot work for real Daos as they require on-chain voting.
Aragon2 aim to change that and we are in close contact about it.

It could indeed be the case, regardless the best positioned players in this game are long term stakers.

I think this is a well thought out proposal that addresses current issues and paves the way for an engaged, economically invested and robust DAO community.

To address Coinyon’s point, you would lose out economically, as that second year is an additional 25% giving a total 75% if I understand correctly.

I’d like to confirm that the first year 50% is achieved immediately, rather than scaling?

I think maximising and incentivizing DAO engagement is fantastic, but I also like that fees can be gathered passively, reducing the total workload necessary for each member.
Being immune to the recent flashloan attack on Maker is an excellent addition.

In summary, I agree with the direction this proposal takes us, and the initial proposals for fees seems competitive with other decentralised services.

The proposal:
-maximises DAO engagement
-rewards long-term pie holding
-addresses DOUGH issuance

3 Likes

I think we should consider having x amount of tokens which are used for staking rewards and distribute these proportionally among stakers. If the amount staked drops this would result in a higher reward which should then raise the amount staked again. This is a system used in almost all proof of stake and dpos blockchains and is proven to be working.

How long is an epoch and what happens when a staker unstakes in the middle of an epoch and then later returns again? Perhaps unstaking in an epoch should forfeit all rewards and when staking you only get the reward starting from the next epoch.

Although I agree most Pies need fees I don’t think all Pies should have the same fees. Fees should be priced in a way which is competitive. Simple products which need less management by the DAO and are easy to implement should also have lower fees imo. Also the fee split can differentiate among Pies.

I think we need to dive deeper in how to implement this. Possibly this can be quite complex to implement and not be worth the extra hassle.

I also agree with @coinyon that when this turns into a more formal proposal we need to split it up and maybe create a meta proposal to keep track. Some things proposed might make the cut while others do not.

2 Likes

I also agree that this should be taken in smaller steps. Not only is there a lot to unpack, but there are potential psychological side effects that I’m not sure we’ve fully thought through. For instance, it seems very possible that the reason the price tanked 2 days ago had to do with the change in yield farming this week. I know a lot of people that don’t like the idea of locking their tokens for an extended period of time, so I could foresee this change resulting in another price dump.

A few questions:

Does participating in staking prevent participating in yield farming?
If so, will yield farming for DOUGH/ETH be going away?
Why the decrease from 50% to 25% in year 2?
Aren’t we already protected from flash loan voting attacks by using the Aragon voting app? (https://github.com/aragon/aragon-apps/blob/master/apps/voting/contracts/Voting.sol#L285)

In general, I like what this is trying to accomplish, splitting fees between staked voters and providing another reason to have and hodl $DOUGH. I think the approach may be too complicated. I’d suggest starting with something a bit simpler, like providing fees to the stakers in a linear fashion when they vote and sending unclaimed fees to the DAO vault without requiring a long term lockup.

2 Likes

I believe this is an excellent step in the right direction. I’m concerned our proposed fee structure is too high. PieDao is still proving and building in a highly competitive landscape. Assessing that type of fee would place us on the higher end relative to the traditional investment industry. Providing a low-cost fee structure dramatically enhances our ability to outperform our peers. Performance, Community, and Governance will be our Tri-Force. If, after a long track record, we could re-evaluate our fee model. Until that time comes, we need to grow and accumulate assets.

My proposed fee structure as follows:

.30% Streaming Fees
.30% Redemption Fees with 50/50 split between remaining pie holder & treasury.

We need to focus on growth and adoption.

Examples of other expense ratios in the traditional investment industry.

-American Funds (actively managed) = .40% - 1.42% expense ratio

-Vanguard (index Driven model) = average expense ratio: 0.10%

-Blackrock iShares ETF = .25%

-Betterment (robo advisor) = .25% to .40%

1 Like

I agree that moving forwards in iterations might be a wise option, and we should definitely take time to think through and discuss the full implications.

Perhaps I can have a go at answering a couple of your questions.

  1. My understanding is that this will replace the DOUGH / ETH pool.
  2. The 2nd year is an additional 25%, giving 75%, perhaps we can better incentivise here, two years is a long commitment after all.

Definitely keen to see more discussion around this proposal, but I’m confident we can find a winning formula working around this design.

@MoolaManX I think there is a lot of sense in what you say here, TVL and DOUGH’s value proposition are both highly important, but it may be better to focus on TVL initially as we break into this market.

From a marketing perspective being able to be highly competitive on fees is extremely valuable, and we need to come to a consensus around balancing attracting TVL and being sustainable.

We need to understand what users perceive as a significantly attractive competitive fee that they would choose us as an underdog, and work around this range imo.

1 Like

The reasoning for having fixed rates is to give predictability to stakers, the fixed amount shared among all re-creates the loop of not knowing which interest are you getting in a given moment of time.

This is in line with the idea that stakers are doing so with the intention to frequently participate in governance.

Basically, if someone is committing to do something for the medium/long term it’s good for them to know they will get a fixed amount out of it.

I propose two weeks’ epochs.

I agree with this.

Yes it does.

Unclear, I’d say no however. This proposal is addressed for the ones who bring value by governing the system.
LPs is extremely valuable but it’s another story.

To incentivize people to stake now rather then later.

Flash loans yes, lending in general not necessarily.
To mitigate that, ideally you would have a lock-up period long enough so that the price of borrowing makes it economically unfeasable to borrow in order to vote.

@MoolaManX think this is a fair point, I don’t see anything bad with .30%, I would say that during a phase of price discovery in any product it’s a lot easier to start high a lower the fees than to do the opposite.

Something to think about.

What are you thinking for timelines for rolling these upgrades out?

I think the topmost priority should be building great products and only after that thinking about improving the DAO because the DAO as it is now is sufficient for the current stage imo.

When looking at Compound, Balancer, Uniswap, Curve, Aave, Kyber, Synthetix and others I see a trend where building a great product was the top priority and only afterwards was the governance system improved.

If there are no substantial revenues to share there is nothing to disperse to DOUGH holders anyway. Putting systems in place to do so looks premature to me.

To incentivize people to stake now rather then later.

Seems I misunderstood this completely. Would you mind expanding on the rationale here? That doesn’t make sense to me if I am understanding correctly.

I agree with Mick that growth should be the first priority, in which case it might also be better to hold off on withdrawal fees for a while too (I think there’s a case to be made that they push people away from depositing, as well as withdrawing).

1 Like

Following the suggestion to break down the proposal in smaller actionable steps, I made a proposal to
harvest the low hanging fruit, introduction of fees.

3 Likes

active voting is a good idea, but it should be done via snapshot, to save gas and give holders and easy way in.
on-chain is a pain and costly, if you ask KNC holders :slight_smile: