XP-4: Allocate incentive rewards and determine unstake penalty for upcoming xToken Management staking module

TL;DR:

xToken Management is the first standalone staking module in xToken’s Multi-Staking framework, set to be rolled out shortly. The xToken Management module receives the fees generated from current and future xAssets and other related products and converts them to XTK to be made available to stakers. Beyond direct fees, we propose an additional allocation of 4% of XTK supply distributed over 1 year to incentivize participation in xToken Management staking. We also propose an initial unstake penalty of 1.75% to incentivize long term staking. See our tokenomics proposal here for more details on the rationales for XTK incentives and an unstake penalty.

Proposal:

The core xToken team published the initial tokenomics document in April, in which we also laid out a product roadmap and proposed a novel approach to community profit sharing known as Multi-Staking.

The Multi-Staking concept reflects a long term vision for an ecosystem that spans multiple verticals and risk/reward profiles. We believe XTK holders should have optionality with respect to how they activate their protocol ownership and participate in the profits of the system.

The core value proposition of the xToken ecosystem revolves around offering highly simplified wrappers for complicated staking and liquidity strategies. xTokens are tax efficient (jurisdiction dependent), auto-compounding yield machines with active governance participation and seamless composability with the rest of DeFi. Protocol revenue is generated on mint and burn events as well as reward and fee collections. This is the source of value for the first Multi-Staking module: xToken Management.

The staking module – to be released in the coming weeks – will allow community members to stake their XTK, in turn entitling them to the revenue generated in the operation of xToken Management.

While the pace of development for xToken has been quite brisk, we are still very much in the bootstrapping part of the growth curve. In order to support active, long term, mission aligned participation in the xToken Management staking module, we propose allocating 4% of XTK supply to community incentive reward programs over one year. This will allow us to strike a balance of distributing more XTK to the core supporters of the protocol at a high enough rate over a long enough period to bootstrap the protocol in its nascent stage.

We’ve received several suggestions from our community to explore a token model similar to Curve, which uses incentivized lockups to absorb circulating token supply. While we agree with the design objective, we discussed a simpler alternative in our tokenomics proposal - an “unstake penalty” - designed to incentivize and advantage long term holding

By setting a small fee on exit – a fee that is redistributed to the rest of the stakers in the pool – long term holders can accumulate a greater share of the network, without the high complexity of incentivized lockups. We propose that this fee be set at 1.75% initially, with an expectation to lower it over time based on community input and discussion.

We’ve provided an exhibit below with expected APR based on XTK circulating supply and share of supply staked in the Management module.

APR Projections based on circ supply and staked percent:

Note/Addendum:

In the coming weeks, we will be actively updating the community as we roll out the first XTK staking module, release the next wave of xU3LP products, re-architect our LP model, continue exploring partnerships with other communities, and finalize xToken Lending. While there are many exciting developments in each of these areas, things do tend to change fast (this is DeFi!) so we will also work on a more formal update and roadmap as well.

We sincerely appreciate the incredible outpouring of support from our community, but we also want to emphasize just how impressed we are with the constant creativity and dedication of our collective too. Engaging holistically with the community on initiatives like the Xavier NFT contest will continue to be central to our DNA as a protocol that along with the vision of a comprehensively simple, integrated platform are what set us apart as the xToken Collective. We are increasingly excited to roll out the very first of what will be many opportunities to participate in the xToken ecosystem and look forward to engaging on more active developments soon.

4 Likes

Great proposal and excited for single sided staking and being able to earn a bigger share of the protocol by simply HODLing away for a year. I have been here at the ATH and at the ATL, but still feel that this team has more to give and the initial hiccup was just something to be learnt from.

So do we have a governance and how are some of these initiatives being decided on. i.e 4% of the supply for the single sided staking, 1.75% exit penalty? Is this by governance vote or is it mostly led by the team at this stage? Also I thought the total supply was 1Billion has that been changed?

2 Likes

we’re working on our governance model but right now governance is centered around the Discord

max supply is 1 billion but circulating supply won’t be close to that for a long time

1 Like

I like the proposal so far, but would like to go over the tokenomics a little bit:

  1. Not that I have any specific disagreement with 4%/1.75%/1year, but am just curious as to the general process with how these values are determined by the team?
  2. I would be more of a fan of committing emissions on a shorter window (i.e. 1%/3months, instead of 4%/12mo) and then be able to reevaluate the effectiveness of the emissions without being boxed in longer term.
  3. Will the staked position be tokenized and/or tradable? If so, it probably will end up that a secondary market like Uniswap will become the exit liquidity as opposed to burning the exit fee.
  4. Also would like to see rXTK holders somehow be able to stake in this system (and be able to do anything governance-related), as they are part of the long term community and shouldn’t be punished for not having access to their physical XTK.
  5. Personally, I would like to see a vesting period for the staking returns, especially early on for the highest APR portion of the distribution. The rXTK holders are being asked to have a 1 year horizon, I don’t think it’s too much to ask new stakers to at least commit until the rXTK unlock day. Not gonna die on this hill, but I at least want to throw in some advocacy for fairness.
4 Likes

Agree with all points from psybull, except #5, which, I understand why they are suggesting it, but a commitment has already been done, our XTK “locked” for 1 year. So, no, personally, I’d prefer my rewards to not be in any kind of lockdown or vesting.

Point #1 (“process with how these values are determined”) has been coming up again and again. There is nothing against having a top-down government at this point, but justification and elaboration are key to an audience used to bottom-up schemes.

I’ve created another topic related to the roadmap for 2021 which it would really help everyone if a broad roadmap was laid out as to what we can pragmatically expect in 2021, from all the things mentioned in the tokenomics article.

This will be particular useful to determine how we will deploy our XTK bags… will it be 30% staking and 20% lending? Is this an option for 2021? Not? What can we expect?

In regards to the staking module, I’d also like to see longer commitments with even higher yields (i.e. 2, 3, 4 years).

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There’s room to be more aggressive with how much of the supply goes to the staking module, say 8%.

One of the powerful token designs seems to be transferring ownership of the protocol from those who are less active in the protocol growth to those who are more active over time.

One benefit of a higher amount of staking is that more supply enters circulation sooner, which reduces uncertainty about remaining supply to hit the market.

A second benefit of increasing the allocation for staking rewards is that more tokens will be in community members’ hands faster, which could support a decentralized governance mechanism where token holders vote on protocol choices, in some way right, there’s probably a few different ways to do this. I don’t intend to propose a specific governance framework but there definitely seems to me there’d be some advantages of having token-holder driven governance sooner than later.

2 Likes

thanks psy. point-by-point:

  1. We narrowed in on these numbers by backing out what inflation amounts would represent a high enough return to incentivize token holders to participate in the network, without injecting too much supply into the market. Of course, this is ultimately a subjective measurement, so we wrote this proposal to gauge community sentiment.

  2. I think this makes sense to me. I’d definitely be open to a shorter timeline at first as we get a feel for the new staking module. 1% for 3 months seems like a reasonable starting point, though in the future, I’d advocate for longer rewards periods, so that we don’t get stuck in monetary policy discussions every couple months

  3. This is a good question. It may make sense to restrict transfers early on. I’d like to hear more people’s opinions on this

  4. We’d have to do a non-trivial migration to make rXTK work for staking. If we introduce a Snapshot-like system for voting/signaling, we can likely incorporate rXTK voting power without a migration

  5. We discussed this briefly in the tokenomics proposal…the challenge here is that we’ve designed the staking module to be auto-compounding/auto-claiming, meaning there’s no expectation on stakers to claim rewards, which means there’s no “pull” functionality to initiate vesting periods. As discussed in the tokenomics doc, this is something of a downside of designing the staking module this way, but we thought that the benefits outweighed the disadvantages

3 Likes

One other thought on restricting transfers of “xXTK”…part of me thinks we don’t need to. Even if people create a DEX or OTC market for circumventing the unstake penalty, there’s still no unlocking of XTK from the staking contract, which is mostly what we care about. To unlock XTK, somehow still has to take the penalty

I’d like to share my understanding of the proposal, as my smol brain got challenged grasping it, and I hope it’ll help others when they read this.

  • XTK Staking will reward 4% of the Max Supply (1 billion tokens) over 1 year, starting from when staking becomes publicly available.
  • 4% of a billion is 40million.
  • Today’s XTK circulation is ~80m XTK tokens.
  • If 50% of today’s tokens were to be staked (80m * 50% = 40m) - without any other staking happening - at the end of the year, those 40m XTK, would be 40m staked + 40m rewarded = 80m. Thus the “100%” rate on the matrix 80m-50% cell of the matrix in the proposal.

With this understanding, some questions / suggestions…

Following up on Psy’s 1st question and MJC’s response:

Why is it “subjective”? As this being a math problem, I find it quite objective… The problem is, that we don’t have the entire picture, not in a single spot at least. And by “picture”, I am referring to:

  • what % of supply are other rewards currently giving out for the next year?
  • Is there a defined quota of supply percentage that needs to be given for the next year? What about the quotas of year 2, 3, 4?

With all of the above information, we can have an informed opinion on what that 4% is and represents in relation to the big picture…

The flat penalty fee and a vague promise of consideration to reduce it in the future, is not very appealing imho. I’d be happy with a high penalty that gradually reduces to zero after a considerable time. This needs to be explicit and clear - which steams out of what exactly are we incentivising for?

1 Like

I echo @thanpolas comments here about the calculations not really being subjective at all.

Is there a sheet with all the variations where we can plug in different values and see what it looks like?

What is the project trying to optimise for here?

The subjective question is: what rate of return do we need to properly incentivize participation in the network without needlessly diluting circulating supply? This is the first unknown. The second unknown is what share of XTK supply will participate, which is a direct input for APR.

This is quite a similar conversation to other projects who have discussed early inflation schedules. And the unstake penalty component is a simplified replacement for vesting, incentivized lockups and other mechanisms other protocols use to influence staker behavior.

I absolutely would not say that we’ve made a “vague promise” to reduce it in the future. The penalty absolutely must be reduced as APR declines (APR will decline as more supply hits the market and more tokens are staked). We would love some community leadership on when exactly these reductions should be implemented.

4 Likes

Just putting this here for future reference: Variable APY based on the time locked.

I find this as the most fair deal / tradeoff.

Source: Illuvium | Staking

Screen Capture on 2021-07-11 at 15-02-49

yes it’s a very nice option. Or something like CURVE