Staking rewards and treasury revenue - Discussion

Preface

Hello, I’ve been part of the DAO since the airdrop and I felt like the token was a lot stronger when the protocol earnings were used to buy back the 1inch token. The 1inch token should go to those who are interested in the protocol so here's a proposal to change the current mechanics and not impact the treasury from earning. I know this is similar to another discussion going on but I'd like thought on my dream.

Rationale

Those who stake are currently only rewarded with gas and there's no incentivization to participate in governance. If there was a way to incentivize based on participation it would be valuable to the protocol. If an epoch system was put in place like what synthetix uses, rewards can be distributed to those interested in the protocol instead of those who only want to park their tokens without strengthening the DAO. This would mean a monthly poll - maybe on a custom snapshot place or built into the dapp - to understand who voted and what percentages they voted for. Voting on percentages along with a requirement to vote on proposals when they're active will make governance much more attractive.

Proposal

  • Send only 20% of the protocol revenue to the treasury
  • Return the other 80% of the protocol revenue to those who participate in governance
  • Return any un-claimed tokens back to the DAO at the end of every epoch

An extension on this idea could convert 20% of the revenue into earning assets like aave usdc or compound usdc so the treasury can earn passively without needing traders and possibly farmed revenue returned to stakers.

Postscript

I really wanted the token to be deflationary and burning to be added but as round elephant told me there will be 1 billion tokens released across the next 3 years meaning 33 million tokens would have to be burned each year. With the current revenue stream it wouldn't be able to burn even half that amount even if it would reduce the emission speed.
  • Your opinion (comment below)
  • 80% stakers / 20% treasury
  • 70% stakers / 15% treasury / 5% burn
  • 60% stakers / 20% burn / 20% treasury

0 voters

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I think the idea of adopting an epoch system where the DAO awards active participants is very intriguing. We’d definitely have to refine some details before this went to a proper vote (like if people who delegate would count as active participants, the exact % split, would the split be adjustable, the investment aspect you mentioned, etc…), but this thread definitely gives us a good point to further this discussion. All of those details I mentioned would be well suited for the Specification section of the proposal.

Personally, if participation rewards are enacted by the DAO, I’d hope that a larger % of them go the the treasury – I just want to make sure that 1inch Network has a sustainable longterm plan for the coming years/decades. However, I’m just one member of the DAO, so I’d be very interested to hear what everyone else thinks.

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Having a participation incentive might help more people actually buy and hold the token. I want to see more use for the token because right now it just sits there doing nothing if I don’t have a reason to trade. I wouldn’t mind voting every once and a while just to get back some extra token but right now it feels like there’s no utility. I’m sure there are other people around that would be willing to vote to get some extra tokens back too. What are your thoughts on people having to vote on percentages to be eligible for rewards?

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This is a long reply that delves into the gritty details. I’m very open to the idea, I’m trying trying to help fill in any holes/ flesh out details. TL;DR is below.


Value added by 1INCH stakers

…rewards can be distributed to those interested in the protocol instead of those who only want to park their tokens without strengthening the DAO.

I’d argue that people who stake 1INCH, but do not participate in governance, are still strengthening the 1inch Network imo. By staking 1INCH in our governance contract for the non-transferable st1INCH, those individuals are:

  • …taking on an additional level of smart contract risk – yes, the staking contract is heavily audited and has no history of vulnerabilities, but every additional layer of smart contracts does add an additional risk (even if the risk is just that it takes longer to tap into the value of their holdings if the need arises).
  • …choosing to lock up their 1INCH instead of pursuing yields on DeFi – like lending out the token on the secondary market or providing liquidity somewhere.
  • …longterm holders of 1INCH which shows a certain level of commitment to the project if nothing else.
  • … reducing the amount of 1INCH available on the open market commitment which should put an upward pressure on the value of the token. I know that the DAO has a revenue stream that is independent of the 1INCH token price, but the 1inch Foundation pays out grants, network growth distributions, and community incentives out of their 1INCH allotment. Meaning, a higher token price ultimately gives the 1inch Network a bigger war-chest to fund these types of programs.

Voting requirements

What are your thoughts on people having to vote on percentages to be eligible for rewards?

Not entirely sure what you mean here by voting on percentages. Are you talking about the % split between the treasury/stakers/burn? If so, I’d personally prefer those numbers to be relatively rigid – it is easier to plan and budget if income streams aren’t being moved around every month. Or, maybe we could just put hard limits on it and allow people to vote within a range?

Level of effort from voters

My other concern with the voting requirements is that it might be asking too much of people who are participating in many DAOs, or simply do not have the time to actively keep up with the DAO happenings and feel their vote will be uninformed. We support vote delegation, and there seems to be some interest in improving that mechanic in our governance system.

Maybe we could consider people as voters if they just delegate their vote to an active delegate? Delegating is an on-chain event, so it would be easy to trustlessley tell who has delegated.

Level of trustlessness

1inch DAO currently uses Snapshot’s off-chain voting as our method of voting. I know Snapshot works by signing messages on Ethereum, but these are gas-less actions that do not change the state of the Ethereum chain. My point being that I do not know where those signatures (i.e. voting records) are actually stored. We need to find out where that data is, and what level of permanence it has, if we are to integrate it directly into our governance rewards.

This data can be queried through Snapshot’s API, but I don’t know where the data is actually stored (AWS? Graph protocol? etc…?). We should flesh out the logistics of this component if we are to really delve into the impacts of this proposal.

Reward distribution

Does this proposal reward voters proportional to their 1INCH stake? Or will all voters be rewarded equally?

Hybrid idea

What about a hybrid solution where some rewards go to all stakers, an additional amount goes to delegators, and a separate amount goes to active contributors (people like you who are working and writing and brainstorming to make the DAO stronger)?

Just a last minute thought but whould like to hear what you think.


TL;DR – Very cool idea but we need to hammer out the details more before I can give my personal Yay or Nay!


Note: I feel I have to post a disclaimer whenever I give on the topic of token price, burn, rewards, etc… but, these are 100% my own personal views and are not to be conflated as the views of any other 1inch Contributor, or the 1inch Foundation.

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