Discussion: Staking v2

Lots of good input. I’ll start with two mechanism that were proposed and I’ve liked and then touch on personal view on platform and pairing asset.

Mechanisms
Exponential rewards consideration is interesting. Instead of a linear bonus multiplier.

Early exit penalty is another thing we could consider. Like a cash-out with a bookmaker there should be a house (DAO) advantage. So the relative costs should exceed the time value that is unlocked.

ETH > USDC
I see most people favor USDC. Let me try and make the case for ETH. My argument for ETH (or WBTC) over USDC would be that with USDC you incur at least 2%, but more likely 5-10% inflation per year in the next years. Higher in a worst-case scenario. And that is on an understated CPI basis.

You would force everyone in the LP pool to take on this inflation. All fiat currencies trend to zero with almost 100% probability over a long timeframe. I think the probabilities and trajectory for WBTC and ETH are opposite. Obviously, all have risks.

Also, the correlation of WBTC and ETH to MC should on average be better, means less implied future IL. Lastly, people with staked MC LPs choose for crypto exposure. They chose for crypto risk with crypto upsides. They can have USD or non-crypto exposure in different buckets that are not affecting each other. And hedge this way, if they feel that need. In a USD-crypto LP setup you force LPs to mix risks of two assets with completely different risks. Totalling a higher risk-profile for the total position.

Of course both scenarios (IL and relative inflation loss) would be severely mitigated with a uneven pool in favor of MC.

An inflation protected, CPI adjusted, stablecoin might be best, but there are no good options for that yet.

Single pool
I do think we need to keep a single pool, but further adjust the split in favor of the LP pool. By having a single pool you ensure that the “laziest” people can still make their asset productive. People like to feel productive. The difference between 20% APR and 10% APR on a risk asset is minimal in terms of user behaviour. The difference between nothing 0% and 5% is huge. They will feel like their asset is unproductive if they cannot stake it. Some people will simply never be bothered with LPing, even in a favorable pool or when most difficulty is abstracted away.

It will also accommodate for the people that don’t want to incur any IL or don’t want any exposure to the pairing asset. USDC, ETH or WBTC.

Platform
Aside of chain, I think the inquiry is also about DEX. 1inch, Sushi etc.

I would favor Uniswap v3 at this point.

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Henlo frens

Great to see DAO active on future proposals again. Thanks team for bringing critical discussion.

  • Would you like to see a single-sided MC staking pool next to the LP pool?
    yes single side with lower APY though, 1 year is enough giving almost 100% APY, that’s just insane for doing completely nothing with just risk of price decrease while LProviders takes the biggest risks + eat all “potential” dumps from early backers and investors.
  • What asset would you prefer as an LP pairing asset next to MC; ETH, WBTC, USDC or something else?
    USDC
  • What weights should the LP pool have?
    10-15 SS 85-90 LP
  • What is the preferred platform for LP tokens? (currently uniswap v2 50/50 LP tokens)
    **If there are smart people who can manage Uniswap V3, I think it should be considered. If not UNI V2 is just fine :slight_smile: **
  • How long would you want the locking periods to be?
    from 0 to 12 months flexible, perhaps 24months at max but with exponential weight on voting power
  • Should the staking subsidy be fixed or partly variable?
    Fixed
  • What % of DAO revenue should go to staking rewards? (currently everything used to build treasury, re-invest and buy back and burn $MC)
    If this is going to be the case it would make sense to reward the most loyal and long term supporters. Perhaps with the weights considered either. Additional rewards can go from proposed by @SirDutchie as spagetti-exit. I totally agree with such flexible function. Lets say person wants his liquidity asap, penalty goes through formula of long was lock period committed and how many time remains. Starting from 10-20% at minimum imo.
  • Should the DAO, outside of locked MC, also distribute ETH, WTBC or USDC from revenue to stakers with longer locks?
    This is good idea. My concern is still VCs in this case with massive bags at cheap price. I think we should revise this later on based on the VCs activity perhaps.
  • How long should staking rewards be locked for?
    12months

Cheers

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Henlo,

ETH isn’t welcome here.

Most of our destruction of price is due to whoever decided that early on (on top of Binance distros).

Warnings were given ahead of time, none were listened to.

So no, you are not getting your ETH.

It’s time to undo that failure.

Honey

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Is there a ways to outperform ETH really? As far as Im aware there not a single token that outperformed ETH YTD. TradingView Chart

That chart is an argument for ETH.

Remember, you are forced to take exposure in a secondary token. You would prefer that asset to outperform, not underperform.

Exhibits against USD.
image

image

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http://www.shadowstats.com/alternate_data/inflation-charts

I don’t have input for all questions but below are thoughts on some:

That said, have some thoughts on below questions.

  • What asset would you prefer as an LP pairing asset next to MC; ETH, WBTC, USDC or something else?

I think the comments about a USDC/ETH LP pool are good and I would like to see one. However, I think we can easily have two pools (an ETH/MC pool and a USDC/MC pool). The manner in which they could operate is that the the awards attributed to the LP pool (in the current system the 80% of the 100% that goes to the LP stakers) would be rebalanced daily to the stakers pro rata share of the total LP.

As an example let’s say there is $10M worth of ETH/MC + $10M of USDC/MC = $20M of total LP staking. From the perspective of the staking site, it symply sees $20M staking that awards need to be distributed pro rata between according to the $ value that is staked. In this scenario, the ETH/MC and USDC/MC would each get 50% of the 80%. This would rebalance daily (or you could have it rebalance every minute even in theory). The point is regardless if you so ETH/MC or USDC/MC you are sre still getting your pro rate share of the total LP staking rewards based on your pro rata size of the total LP $'s staked.

This would allow individuals to chose for them selves if they want to take a position on the relative value of ETH or USDC and prevent the DAO from self-selecting out individuals that would have otherwise been interested in LP staking. If ETH rises dramatically, that share of the total pool will rise as well and increase the liquidity. Visa versa, if ETH drops dramatically in value, the USDC relative size of the LP pool will become larger and the total liquidity the DAO has will not be as impaired. From my perspective it seems like a win-win for the DAO and the staker to allow both types of LP to co-exist.

What is the preferred platform for LP tokens? (currently uniswap v2 50/50 LP tokens)

I think we should continue with what is already in place (uniswap v2)

Should the staking subsidy be fixed or partly variable?
I don’t feel I have proper experience to have a strong opinion here. I guess I would say if the rewards are all $MC come out of the tresury or community incentives etc. then fixed is ok.

However, over the longer period, I would assume it makes the most sense for staking subsidies to be variable accoring the the DAO’s performance. For eampple, many public companies (especially ones that have investments and therefor revenues are lumpy and inconsistent year-to-year will target dividends as being x% of net earnings. This keeps the business from not becoming over committed if they have a rough patch and everyone remains happy when the business is performing well.

Should the DAO, outside of locked MC, also distribute ETH, WTBC or USDC from revenue to stakers with longer locks?
I think it would likely detract from the DAO’s value to distribute ETH, WTBC, or USDC. If the DAO reports treasury vale of non-native tokens only, then you are are directly impeading the hard floor asset value of the DAO.

How long should staking rewards be locked for?
I wish I understood all the U.S. tax implications for these. I believe these technically become income at the time of the unlock. As such, if I believe $MC’s token value will appreciate, I would prefer an unlock earlier even if I have no intention in selling.

Something I think would be interesting is to do is make the unlock/vesting period run inverse to the staking period. For example, if I stake for 12 months, my vesting is only 6 months from time of claim vs. if I’m doig flexible staking then vesting is 12 months. I think this would create a vey interesting dynamic where it the long term stakers likely are already committed to holding $MC so the shorter vesting may not lead to sell-offs, makes the choice of which staking option is better skew to the long-term liquidity staking, and in tandum, if the $MC appreciates during the longer vesting period, might convert some of these less committed stakers to actually become long term holders of the token.

Thanks

Hi all

Very similar views to a lot of the posts already made on this topic but thoughts as follows:

  • Would you like to see a single-sided MC staking pool next to the LP pool?
    Yes happy to keep a single sided MC staking pool but the weights should be similar to the current 20/80 split with the LP pair.

  • What asset would you prefer as an LP pairing asset next to MC; ETH, WBTC, USDC or something else?
    I do understand the original reasoning for chosing ETH over USDC but I think the last 6 months have shown that we end up trading as a higher Beta ETH, which clearly has not been a good thing with the market conditions since November. The reverse of this is that if we do go through another positive price movement with ETH then we should also perform well. However, I would prefer to see USDC as the LP pair, it will be interesting to see the performance of MC when we are not tied to ETH.

I appreciate that inflation is high at the moment and this will reduce the value of USDC but we can always move back to ETH again in the future. Also, I don’t think you can compare ETH as a store of value, it is quite clearly a high beta asset.

  • What weights should the LP pool have?
    As above, 80/20

  • What is the preferred platform for LP tokens? (currently uniswap v2 50/50 LP tokens)
    Current platform works well.

  • How long would you want the locking periods to be?
    12 months

  • What % of DAO revenue should go to staking rewards? (currently everything used to build treasury, re-invest and buy back and burn $MC)
    Does a percentage of the revenue need to be used for staking rewards? Not something that can be answered without further information being provided.

  • Should the DAO, outside of locked MC, also distribute ETH, WTBC or USDC from revenue to stakers with longer locks?
    I would prefer the DAO retain revenue and use it to continue to grow the treasury. Maybe in future this could be an option but I still think it is too early for the DAO to go down this route at the moment.

  • How long should staking rewards be locked for?
    12 months - like the current system

I think it is important to ensure that current LP stakers who are locked for 12 months are not disadvantaged if we move from ETH to USDC.

Thank you to the core contributors for raising this topic and I look forward to a few of the points going to a vote.

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I have some thoughts on the other points of discussion but specifically want to comment on the MC counterpair question.

I strongly prefer ETH and think choosing USDC or any another USD stablecoin as the LP counterpair would be a significant mistake.

There’s 2 key, somewhat interrelated points here:

  1. By LPing you’re forced to take a position in the MC counterpair and I think it’s pretty hard to argue for a position in USD vs ETH longterm, especially while simultaneously being bullish MC. @tommyq has already addressed the first part of this and I agree with his comments.

  2. IL comes from directional movement of 1 asset against the other in an LP pair. Broadly speaking it is advantageous to provide liquidiity for correlated assets and MC will almost certainly be more correlated with ETH than a stablecoin. Although pairing with ETH will lead to higher volatility, even assuming we can’t know taking a position in ETH has an overall higher EV than USDC we can still say having it as a counter-pair is advantageous due to higher correlation.

To elaborate a bit further:

As I mentioned @tommyq has already made a strong case against USD broadly. USD is not actually “stable”, it is a moderately -EV position that has become more -EV with the recent increase in inflation.

I suppose you could prefer USDC if you’re bearish on ETH long term but this seems a pretty bizarre stance given the nature of MC. We’re a crypto-gaming DAO. While not impossible, it’s a somewhat strange position to be bullish on crypto gaming and bearish on one of the biggest underlying platforms for those games.

I think the objections of “risk” are short-term thinking driven by a mostly bearish last few months. If Merit Circle had launched 6 months earlier and instead we were having this conversation last November I doubt we’d be hearing too many objections to an ETH counter pair. While I understand the sentiment and know these last 5 months or so have been very trying at times, this is all still very results oriented thinking and shouldn’t guide our long-term decision making.

We can illustrate the second point, that it’s advantageous to LP with correlated assets with some simple math.

MC is currently trading near $2. For whatever staking period we’re considering let’s say there’s a 50% chance MC increases or decreases by $1. In this case the EV of holding MC by itself is 0, however the EV of LPing varies depending on MC’s correlation with it’s counterpair.

First let’s consider LPing with a stablecoin counterpair. In this case when MC goes up to $3 the value of a $1000 LP position increases to $1224.74 and when MC goes to $1 the value of the position declines to $707.11. The overall EV of this position is -$34.07. This is due to the relatively high rate of impermanent loss due to 0 correlation between MC and USDC.

Now let’s consider an ETH counterpair position and assume a 0.5 correlation between MC and ETH with a starting ETH price of $3000. In this case when MC increases to $3 ETH increases to $3750 and the value of the LP position increases to $1369.31. When MC decreases to $1 we assume ETH declines to $2250 and the value of the LP position declines to $612.37. The overall EV of this position is -$9.16, significantly better than the -$34.07 EV of the stablecoin LP position strictly due to the the higher correlation between the paired assets and thus less IL.

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I’d just like to reiterate that for me not having a MC-USDC LP is full on a break point, and that includes exclusion of another MC-ETH LP.

the prizes deriving from staking must absolutely be released immediately, otherwise someone could think of a scam, and we do not attract new investors, and the price always falls, wake up and take action immediately, put to the vote immediately.

Spot on, very good points. For long-term holding ETH and MC is clearly a superior investment.

It´s beyond ironic to have some many people in crypto favoring a centralized stablecoin pegged to fiat money.

2 Likes

Hello,

A great man once said I must stop thinking like dev, so I read this thread twice: once reading as dev, once reading as cat. I think there were some interesting points raised, but both cat and dev me agree that we need an USDC LP. I think impermanent loss is a meme with staking rewards implemented. Profit made from MC rewards will far outperform any impermanent loss made or fees earned.

Long term, Tommy might be right about the inflation risk of USDC, but right now we’re in uncertain times and being tied to a highly volatile assets seems very risky. I think the ETH-MC LP decision was made with the expectation that ETH would keep on climbing against the USD, but that didn’t happen, so it might be justified to call that a mistake.

The opinions seem very divided about this topic and waiting till November is silly. Even if Tommy is right long-term, we can still profit from USD non-volatility short-term. I say we put it to a vote to add a USDC-MC LP Pool to the staking contract and adjust the weights of the current pools. Currently, the single-sided staking is 20% and ETH-LP is at 80%. Perhaps for the rest of the staking period we can adjust the weight to:

  • Single-side: 15%
  • USDC-LP: 40%
  • ETH-LP: 45%

If the ETH-LP lockoooors feel rugged because of the decrease in weight, perhaps it might be an idea to provide additional MC to the rewards pool? I am too clueless about current available MC balance for this, so it might be a low IQ suggestion.

Anywho, counter my suggestions and let’s make a proposal for a real solution. USDC LP can not be ignored.

Kusjes,

Electric Dick Dev

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My 5 cents: I don’t think single side MC staking makes any sense - just paying people for not selling (here I agree with Cobie’s article).
LP pools are useful (provide liquidity) and should be with max priority to ETH - just because whatever the liquidity is the pair MC/ETH would be much more popular on Uniswap than any other with MC. So - we can do something like 70%(ETH)/10%(WBTC)/20%(USDC) or just leave ETH alone.

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What do you think the weight for MC should be within the LP position? 70%? And 30% the other pairing asset(s)? Or you mean something else? 50/50… 80/20… 75/25?

Also in a 80/20, 75/25 or 70/30 LP pool scenario?

The pairing asset would matter less in such a scenario, I think this would also greatly improve the average liquidity depth. Since a lot of single staking will be comfortable with such ratios.

The liquidity efficiency of the pool will be lower, but the total pool will have a much larger size. Moreover, the people in the LP pool will suffer much less IL and can maintain more relative $MC exposure per $ in the pool.

A poll is now live to gauge which LP pairing asset is preffered by the DAO community. This is the first Official Merit Poll (MP-1).

Read here:

Vote here:
https://vote.meritcircle.io/#/proposal/0xbd4b35e7ef4fa6aa3d354084a6c6cde2db9f4f029554169357faf3690c3bdef4

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Uniswap allows only 50/50 - am I wrong? Or do you consider switching to another platform? 50/50 seems to be most natural, although I’m not a great theorist in this domain.

Uniswap v2 only allows 50/50

Uniswap v3 allows custom ratios. Like 75/25 (random example). Other platforms like Balancer also allow for this.

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Not sure if its been discussed yet but what happens with the current pools?
Will they be migrated or will they stay in place?

They will be phased out.

Locked v1 stakers do not have to worry. Rewards will not stop until the very last staker is unlocked. Every v1 staker will get their proportional share of rewards, regardless if you lock tomorrow for 1 day before v2 for another 12 months.

Once v2 is live, people can no longer add stake to v1 staking. They will only be able to withdraw their LP and rewards, while rewards will continue for another 12 months.