1.1. What is Multi-Staking?
1.2. Why Multi-Staking?
- Products & Services
2.1. xToken Management
2.2. xToken Lending
2.3. Liquidation Medallions
2.4. Incentivized LP
3.1. Community Ledger
3.2. Xavier NFTs
3.3. Community Initiatives
- A Note on Token Supply
- Final Thoughts
We released our protocol’s native token – XTK – at the end of February and since then, we’ve been distributing the token as an incentive for providing liquidity on our xAsset pools. While the token had no specific use case at launch, we’ve enjoyed watching the xToken community engage on potential paths forward for XTK – both in terms of direct value accrual and the larger role of the token in the xToken ecosystem.
With that in mind, we’re excited to propose a new token model for XTK. We’re calling it Multi-Staking. This document will focus exclusively on tokenomics. We will have a separate conversation around governance in the coming months.
We hope the following will serve as a pseudo-roadmap for xToken. Though the main goal of this document is to present our vision for XTK, the following should give a reader a sense for our priorities and goals for the project.
Finally, we want to emphasize that our top priority right now is to launch as many xAssets as we possibly can. We have started to plan and build the contracts required for XTK staking, but we are still primarily focused on generating AUM and fee revenue, as we see these objectives as more important to the long term success of xToken.
Most DeFi protocols have a single use case, whether it be trading, asset management, lending or derivatives. Naturally, most protocol’s tokens accrue value primarily from a single business (examples: Synthetix from synthetic trading, Kyber from DEX trading, 1Inch from DEX aggregation). Thus, by owning and staking a token, token holders are expressing alignment with the risk/reward profile and revenue opportunity of that single service. This is basic staking, and for most protocols, it makes perfect sense.
In contrast, xToken is intent on building an ecosystem of products and services, each with their own risk/reward profile and value proposition. While we’re still in the very early stages of development, we are aiming to build a multi-faceted protocol and we believe that token holders should have optionality with respect to how they deploy their XTK and how they participate in the profits of the xToken ecosystem.
And this is the essence of Multi-Staking. Stake your XTK to a specific xToken product and yield the value associated with that product (or “staking module”) alone, while taking on the risks associated with that product alone. (We want to emphasize that when we say “product”, we don’t mean xSNXa or xKNCa. We mean xToken Management or xToken Lending.)
As we will explore later on, this emphasis on optionality extends to community use cases as well. We see XTK as the currency of the xToken Collective and will be building products to amplify the internal status and utility of the token.
The graphic below is a rough sketch of how we see the Multi-Staking complex developing over the next year. The figures on the left (Products & Services branch) are yield or rewards generating. The figures on the right (Community) are collective use cases.
It might make sense to briefly discuss why we are building our token model around Multi-Staking. Why not just have a single staking module where fees from all products and services are directed and collected? So what if XTK stakers can’t select a specific risk/reward profile?
The answer is that it’s more than just allowing holders to express alignment with a risk/reward profile. It’s about unlocking as much value for the XTK token as possible. We now have the toolset (smart contracts and composability) to explore new efficient and dynamic models of capital, and we intend to experiment.
Here is a quick illustration of the importance of Multi-Staking: say there are 1000 people who would consider staking to xToken Management and 1000 people who would consider staking to xToken Lending, but just 800 people who would stake to both. If we offer just one all-encompassing staking module, we are limiting our capital base by 20%. This is dead value that we should try to unlock at any opportunity. By giving stakers this optionality, we are broadening our token’s use case and augmenting its value.
And beyond financial efficiency, we want to be able to leverage an open design space that allows us to be creative with how our token is used. We’ll discuss this more in the Community section.
xToken Management – our fund offering – has been the primary focus of the project so far and will remain the core offering going forward. For this staking module, the fees earned from mint, burn and claim events will be transferred to a staking/claims contract, and XTK holders will be able to lock their tokens and earn a proportional share of fees.
While the basic idea is straightforward, there are a number of details we need to work out as a community. We’ll outline each Decision Point (“DP”) and our implementation recommendation below.
DP #1: Should we convert fees into a common token or make them all available in their original form?
Although we still only offer a limited number of funds, xToken already charges fees in six different tokens. At time of writing, we charge fees in ETH, SNX, sUSD, KNC, AAVE, and 1Inch. As we continue to add xAssets, the variety of tokens we collect will present a UX challenge. Projects like Airswap collect many different kinds of tokens and allow stakers to collect some share of their preferred tokens via a “points” system. That said, most projects that collect fees in a multitude of tokens have opted to convert them to a common token and then make that common token available to claim.
There are a few voices in our community who like the idea of giving stakers income in the tokens of projects we work with. There’s certainly something to be said for the idea, however, the implementation would be inelegant and the UX challenges would grow with each new xAsset we launch.
Most projects that face a similar design challenge – 1Inch, Sushiswap and StakeDAO come to mind – have opted for a staking model where fees are converted to a single token and then made available to stakers. We ultimately believe that conversion to a common claim token is the superior approach for xToken as well.
DP #2: Given that we are converting fees to a common token, should that target token be XTK, ETH or a stablecoin?
Most projects facing a similar decision have opted for converting fees into their native token - XTK in our case. There may be an argument to provide income to stakers in an uncorrelated or less correlated asset, and we’d be open to hear that case. But for now, converting fees to XTK seems like the most logical and effective approach.
DP #3: Should we build xXTK natively or build an optional xXTK solution on top of our staking contract?
Projects like StakeDAO, Sushiswap and Alpha Finance have opted to build the “x” or equivalent versions natively on their protocol. This is convenient and efficient, allowing stakers to passively hold an auto-claiming and compounding instrument. However, there is a potential downside in a native xXTK. For example, if we want to offer escrowed XTK rewards as an extra staking incentive as we bootstrap protocol fees, it could be problematic to distribute escrowed rewards on the communal level. For those who are familiar with the mechanics of xSNX, we face a similar design constraint surrounding the treatment of vested rewards. (We won’t go into deeply here but tl;dr vesting rewards complicate the calculation of net asset value, i.e., the “mint” and “burn” prices of xTokens)
Although building xXTK natively may complicate vested incentivized rewards, we can still offer unvested XTK incentives accruing directly to investors’ xXTK positions. For this reason – and a few others that we will describe in DP#4 and DP#5, we plan to build xXTK natively, at least for our xToken Management staking offering (staking for lending and other services may follow a different pattern).
Scaling xToken is a bit different than scaling other DeFi protocols. Each of our xAssets (xSNX, xAAVE, etc.) has its own development timeline and requires some custom development work. While we are getting good at adapting old work to new strategies, we are still in the scaling stage of our protocol. As such, we believe it makes sense to incentivize early stakers with XTK rewards as we bootstrap protocol revenue. When our xToken Management staking module goes live, we will likely propose an allocation of 3-5% of total XTK supply to be distributed linearly to stakers over a year. Depending on the circulating supply over the course of the year, this proposal could add 15-30% to staking returns if all circulating XTK are staked and quite a bit more assuming that not all tokens are staked…and potentially even more when you consider that we will be offering other staking modules (including xToken Lending) that will attract XTK as well.
Following in the footsteps of Curve, many projects in DeFi have implemented incentivized lockups in their staking models. The simple idea is that token holders who are willing to lock up their tokens for longer periods of time will receive a greater share of staking rewards.
While we believe that we should reward long-term supporters of the protocol, incentivized lockups add significant complexity on both the UX and contracts levels. We’d like to propose a much simpler alternative. Inspired partially by the DODO token model, we believe that a simple “exit fee” on our staking contracts would optimize for the same incentives at a fraction of the complexity.
Here’s how it would work. We’d have a configurable
exit fee variable. It would start off around 2-4% and through periodic community governance, we would reduce it as the yield from XTK staking incentives declines, eventually settling long-term somewhere between 0.25% and 1%. When a staker wants to unstake their XTK, they would take the exit fee charge of 1% for example and that 1% would be immediately reallocated proportionately to the rest of the stakers in the pool. We believe this would be much easier from an implementation perspective as well as a user education perspective, while largely accomplishing the same goal of rewarding long term believers.
Some holders may be apprehensive about paying an exit fee on their position when they want to unstake. To those investors, we would point out that 1) while you’re staked, you’ll be earning significant incremental yield from others unstaking, 2) the exit fee will continually decline as the project matures, and 3) if you’re unsure about your investment horizon and choose not to stake, it’s appropriate that those with longer term horizon should reap a greater share of the rewards. This is really quite similar to Curve’s model, except in reverse and with much reduced complexity.
As we’ve discussed in our Discord and in our blog posts, xToken Lending is under development and on target to launch in Q2. We’re excited about this launch as holders of xAssets will be able to earn native staking returns while borrowing against their collateral. As it stands now, there are hundreds of millions of dollars of DeFi tokens deposited as collateral on Aave, Compound, Cream and other platforms, sometimes earning near zero in yield. We hope users will use our platform for leverage, while circumventing the opportunity cost of foregone staking returns.
We’ll be deploying xToken Lending initially without XTK staking. However, shortly after launch, we will deploy an upgrade that allows users to stake XTK in exchange for a slice of interest paid. Drawing inspiration from MakerDAO and Aave, stakers will serve as an insurance backstop for the lending protocol. And, just as we intend to bootstrap our xToken Management staking module, we intend to propose an XTK allocation to bootstrap the xToken Lending staking module as well.
As those who follow the space might be aware, liquidations on lending platforms can be highly competitive, often resulting in escalating gas wars that end up benefiting miners more than the liquidators themselves. We are planning a medallion system for liquidators, where medallion owners have exclusive liquidation rights but each owner is only eligible to liquidate a loan on a certain subset of blocks (oversimplified explanation: Medallion #7 can only liquidate loans on blocks divisible by 7).
So how do liquidators buy a medallion? With XTK of course. We’ll be selling (and buying back) medallions on a bonding curve, creating a natural market for liquidation rights.
This is a comparatively niche use case for XTK, but we think it’s a good illustration of the Multi-Staking concept. At any opportunity to add utility to XTK, we will build it.
Since our token launch, we’ve been distributing XTK to liquidity providers on our select incentivized xAsset pools (xSNXa pool on Balancer, xKNCa pool on Uniswap, etc.). We’re doing this because secondary liquidity is an essential building block for xToken’s long term success. To maximize returns and reduce gas costs to users, most of the capital in our xAssets contracts are locked and unavailable for redemption at a given time. We can always unlock more (sometimes immediately, sometimes over a short timeline), but we would like to provide investors with immediate liquidity whenever they require it. In addition, we want liquidators on xToken Lending to be able to immediately cash out the proceeds of liquidated collateral. Finally, buying xAssets on DEXes is a lot cheaper than minting directly and often makes more sense for small holders.
At this early stage of xToken, it makes sense to leverage external infrastructure to build out secondary liquidity. And given the crucial role of secondary liquidity in our plans, we may formalize our liquidity programs on the protocol level, assuming we can find a path to value capture for the XTK token. This could mean incentivizing XTK pairs (like XTK-xSNXa for example). Or it could potentially mean requiring LPs to “bond” some XTK alongside their Balancer or Uniswap liquidity (the xSNXa-ETH-SNX Balancer pool, for example) for a specified period in exchange for XTK payouts.
This all said, these solutions are not particularly capital-efficient. It may make sense long-term for us to build our own exchange framework. This could potentially mean a strict, specialized DEX modeled as a hybrid Bancor/Balancer, where XTK would be the common pair, perhaps making up 10-20% of liquidity and amplified for reduced slippage and greater volume potential. Alternatively, we could pursue a synthetic exchange framework – modeled off Synthetix or similar platforms – with XTK as the collateral asset bridging different pairs.
These ideas are highly speculative at this point, as we would need a lot more scale (likely over $1b in AUM) for these services to be worth building. But we wanted to include it here in order to give our community a sense for our long term vision.
Driving home the theme of a multi-use token, we plan to emphasize XTK as the unit of account and medium of exchange for the xToken ecosystem. Small initiatives like these may not make a dent in the demand for XTK individually, but we believe that a concerted, long-term focus on emphasizing our token as currency in our community will yield benefits for token holders that choose to stick around.
We’ve been really energized by our core community over the first few months of xToken’s existence. We’d like to create a place for our early supporters and community members to enshrine themselves permanently in xToken lore.
We propose creating a Community Ledger – a simple, canonical smart contract where xToken community members can post their name or handle, a short message, and a picture or GIF. These submissions (or “bricks”) will be stored permanently on-chain and displayed for posterity on xToken Cafe.
But there’s a little more to this idea. In order to prevent our Ledger from being spammed by non community members, there needs to be some cost to reserving a brick. And in order to reward and incentivize early adopters, the cost to reserve a brick should increase after every submission.
We propose an initial price per brick of, perhaps, 75 XTK, with a 5% escalator per each submission. By brick #100, the cost to immortalize yourself in xToken mythology would be nearly 10,000 XTK.
What would be do with the XTK inflows? We could burn it. We could leave in the contract for eternity. We could use it to fund some other community initiative. Or we could leave in the contract and decide what to do with it later.
We will discuss this idea further in the coming weeks, but we’re excited about the potential for a permanent xToken Community Ledger. Let us know what you think!
Building on the success of the XTK Launch Challenge (link to all the incredible submissions), we will soon be launching an NFT art contest with our mascot Xavier as the focal point. The winner will earn the right to sell a 4-piece Xavier NFT collection to XTK token holders in exchange for $10,000 in XTK.
Meme by @Alexander
When the winner is chosen and the NFTs are minted, we plan to make them available to our community and the DeFi/NFT ecosystem at large, sold on a bonding curve in exchange for XTK. (The beauty of a bonding curve is that there is always a seller and always a buyer.)
This is part of a larger effort to engender and encourage a creative subculture around the xToken Collective. We expect to continue to sponsor creative contests and contributions going forward.
One of the most exciting elements of this idea that XTK should be the internal currency of the xToken ecosystem is that the core team doesn’t need to spearhead every initiative. XTK is a freely transferable token and anyone can build utility for XTK. We will always be open to new ideas in this realm and we will consider relevant grant proposals as well, but we sincerely hope that community members will build cool stuff centered around XTK without our permission or direct support. Brainstorm with us in the #community-proposals channel in our Discord!
We’ve heard feedback from some members of our community that our 1 billion max XTK supply is “too high” or “needs to be burned.” We understand that the fully diluted supply can be intimidating. However, we feel that a modification to our distribution schedule just weeks after announcing it would send the wrong message to our community and potentially hamstring future efforts. We’re happy to continue this conversation in the #tokenomics channel in our Discord.
To this point, we’ve decided to allocate developer hours towards building new xToken products, focusing less on the token model and governance. However, as we move into Spring and Summer, we’ll be placing a larger emphasis on XTK and its utility in our ecosystem. This post is just the starting point, and we look forward to engaging with our enthusiastic community on the path forward. Thanks for reading!