Thanks for raising this discussion Salome! I have a couple of thoughts I’d like to add:
I had brought this up in the Staking + Tranche Strategies Combined discussion but I think we should implement staking for LP tokens and I recommend providing stronger incentives for an investor willing to stake LP tokens over simply $IDLE tokens.
To reiterate my points in the other thread, I think it’s much more value-adding for IDLE as a whole if we incentivize staking LP tokens, because by focusing on improving liquidity, we’d be able to:
- Improving slippage and overall trading conditions for all market participants
- Improve LP yields for existing liquidity providers as the token price would become more stable, which as a result would also attract new participants to begin providing liquidity
- Investors would be able to earn yield by means of LP and staking at the same time, doubling yield which increases the value prop of $IDLE and attracting a new class of investors onto the protocol
- Bonus: consider opening up our Balancer pool for the LP token staking. This way, investors are earning triple yield (+$BAL tokens for providing liquidity to Balancer) while also solidifying the Balancer pool as the primary trading pool, which would increase trading volumes for the pool and result in higher swap fees for the smart treasury.
I propose having two staking options available - the LP token (I recommend IDLE/WETH which is our current main trading pair) as well as just $IDLE alone.
The UI for staking should make it easy for investors to deposit/withdraw + stake/unstake from the Idle protocol directly. I highly recommend using the Saffron Finance UI for inspiration as their protocol is super intuitive and easy to use when it comes to depositing and staking (see below)
Staking IDLE vs IDLE LP Tokens
In terms of the incentives for staking, I propose allocating greater rewards to staking via LP tokens over simply IDLE tokens because as mentioned above, having higher levels of liquidity adds tremendous value to the protocol and the community as a whole and investors who are willing to take the risk of LPing should be rewarded for it.
A simple structure that makes it easy for everyone to understand is whatever incentives we provide for staking $IDLE tokens, we could provide 2x the benefits for staking LP tokens.
So for example, if staking $IDLE tokens provide (numbers for illustration only):
- 1.2x voting power per token (+20% voting power)
- 40% reduced performance fees
Staking WETH/IDLE LP tokens would provide:
- 1.4x voting power per token (+40% voting power)
- 80% reduced performance fees
Incentives for voting
An additional point I’d like to bring up is that we should also reward investors who play an active role in the protocol. Balancer has a simple incentive mechanism for this called govFactor (govFactor proposal) where liquidity providers receive a 1.1x reward allocation on their weekly liquidity mining rewards if they have voted in the most recent proposal versus liquidity providers who have not voted.
Reallocating 50% of the $IDLE distribution in asset pools over to staking pools
I’d also like to propose reallocating 50% of the $IDLE paid out to the various asset pools to be used for staking instead, allocating it on a 33.33% - 66.67% basis for $IDLE staking vs $IDLE / $WETH LP staking (based on the 1:2x ratio mentioned above for staking $IDLE vs $IDLE/WETH LP)
The token allocation for the two pools above would be distributed based on the amount you have staked in the tokens, prorated to the total amount of tokens staked in each of the pools. With govFactor in play, any investors who are staked and have voted in the most recent proposal will receive a 1.1x multiplier over the others who have not voted.
It might sound like we’re reducing yield and providing less incentives for depositing into the various yield generating pools, but that’s not true. By reallocating 50% of the $IDLE tokens for staking, we are increasing the value proposition and utility of $IDLE, which in turn should theoretically increase the token price of $IDLE. If the price of $IDLE goes up, this would offset the reduced allocation of IDLE tokens for each pool and ultimately bring yields to similar levels, if not higher levels than where we’re currently at with depositing into any one of the asset pools.
Time-locked staking
I really like the idea of time-locked staking raised by others in the thread, and my thought would be to implement time-locked staking in a similar way to how govFactor is explained above. To start, I’d propose giving investors the option to lock for the following periods:
- 6 months: 1.25x multiplier to vote weight + $IDLE distribution
- 1 year: 1.75x multiplier to vote weight + $IDLE distribution
- 2 years: 2.25x multiplier to vote weight + $IDLE distribution
- 4 years: 3.5x multiplier to vote weight + $IDLE distribution
An investor who’s willing to commit to the protocol for 4 years in this case, would receive an almost 3x heavier weighting on their vote + $IDLE distribution compared to someone who’s only willing to commit 6 months. This makes sense IMO and we would be aligning incentives directly with how active they are in the protocol (govFactor) + how much and how long they’re willing to commit to the protocol (time-locked staking).