B- Profit/Fee Sharing:

This is the second of four parts of a community drafted proposal that originated from Discord chat and being moved here-

Purpose: The goal of this proposal is to further align the interest of the stakeholders (capital provider, cover buyers, liquidity provider) and the DAO as a whole by encouraging long term stakeholders. We would like to encourage and attract long term capital and liquidity providers as well as provide additional value and utility to long term stakeholders in USF.

A. Profit sharing from Asset Management and premiums: A TBD percentage of Asset management and premium yield goes back to the DAO and then voted on for Distribution. (Likely includes stakers)

B. Fees from short term capital/cover buyers- Liquidity miners that remove their capital before one full epoch will incur a X% fee, in the crypto asset provided (e.g. ETH, DAI, WBTC), that is transferred to the treasury. Capital miners that exit before two full epochs will incur a X% fee, and capital miners who exit before 3 full epochs will incur a X% fee. There will not be any exit fees for capital miners who supply capital longer than 3 full epochs.

C. An option was discussed that mentioned the longer you stake your USF, the higher your % of the fee/proft sharing would be. To reward long term commitment, we could modify the above proposal with an option to lock up your USF and your share of the rewards = staking + lock over a period of time

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As mentioned in the Gdoc, I recommend that this is based on a period (e.g. days, weeks, hours, etc) from the time the capital was deposited and not based on Epochs.

Charging the fee based on Epochs will have 2 negative effects:

  1. Capital providers may want to time their deposit/withdrawals based on the start/end of the Epoch, causing large movements at particular place in time instead of gradual movements of capital
  2. It will even the field and new users won’t feel left out just because they are, for example, 1 day late to the start of the epoch.

In addition to this, if it’s time based it will be easier to implement as there won’t be a need to check for unusual use cases.

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Is there any need for this? If the platform is generating enough fees then that should be enough incentive for all participants to stake their USF holdings. This, coupled with the discounts in getting insured are enough incentives in my opinion.

In general I would like to propose that:

  1. 80%* of all fees generated by the platform go to the “USF treasury” in it’s denominated token (e.g. ETH deposit will generate ETH fees for the treasury)

  2. From that 80%, the treasury will use a large portion of it to buyback USF in the open market (e.g. Uniswap) at regular but random intervals (i.e. 3 times per day at random times) and distribute the USF among the sUSF holders (i.e. USF stakers) according their % staked vs the total staked.
    This point will generate more buying pressure on the USF token and keep the price more stable.

  3. 15%* generated from the fees can be deposited into external yield generating strategies and used as a backup when needed (or regularly)

  4. 5%* generated from the fees will go directly to a development fund to extend the platform’s functionality.

  • The percentages used above are indicative to give an example.
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As mentioned in the Gdoc, I recommend that this is based on a period (e.g. days, weeks, hours, etc) from the time the capital was deposited and not based on Epochs.

An epoch is just a time period. it’s currently defined as 15 days. Ethereums mining epoch is currently something around 4-5 days if I’m not mistaken. So I don’t get your point here.

  1. Capital providers may want to time their deposit/withdrawals based on the start/end of the Epoch, causing large movements at particular place in time instead of gradual movements of capital

Sure there will be large movements at the end of some epochs but you will hopefully discourage short term stakers. My thoughts are reducing the length of the epoch and gradually lower the fee to 0 over many epochs. In my opinion this will remove the large movements as different people will have deposited over different epochs. Also if some of the fees are distributed directly to everyone in the pool at that time i don’t think it will have the effect you are saying as people will deposit before the end of an epoch to try to get fees and people might wait a bit into a epoch to catch fees.

  1. It will even the field and new users won’t feel left out just because they are, for example, 1 day late to the start of the epoch.

I don’t really get this point personally. According to your own logic there will big movments after an epoch so users depositing should be incentives to deposit as apy will be higher.

TLDR: I think we should reduce the epoch and reduce the fee over many epoch(so it will be gradual), this does not have to be linear. Also i think we should give part of that fee to the pool to reward holders and reduce the volatility in my opinion.

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I think it’s more about rewarding long-term governance holders. For example, if you have a lockup a user that truly believes in the platform will be more likely to lock up their tokens. If someone locks their tokens they will be more likely to care about the long term of a project instead of short-term profits takers. There is plenty of companies that have had investors who only had short-term profits in mind because they were going to sell soon.

Ok, I get why you don’t get my comment. You are assuming that profits MUST be distributed per Epoch.

This is the part I don’t agree with, as it constraints the “free flow” of capital. My point is that profits should be distributed every day (several times per day as per my explanation on buybacks), therefore nobody can “time the entry” based on the epoch to get rewards.

Yes, but if you must be in the pool until the end of the epoch then your locked time depends on when you entered. For example, if you entered in day 1 you have to wait 14 days to leave but if you enter on day 14 you can leave the following day.

To avoid this I’m proposing that a period is set (it can also be 15 days like an epoch) but starting on the day of the last deposit. This makes it more linear and no longer constraints the big movements at the start/end of each epoch.

Does this make sense now that the concept of Epoch is no longer applicable at all when it comes to profit sharing?

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Ok, then what is being suggested is that from the profit distribution, a percentage (say 80%) is distributed evenly based on weight (% staked) in the pool and the rest (say 20%) is a top-up distributed to those that have been staking for a minimum of X period of time. Is this right?

If so then ok this makes sense, although same as before I’m against using Epochs and using a more linear period that rewards based on time locked/staked and not time in the Epoch

A challenge of this would be that daily snapshots may be needed to avoid abuse by long-term holders. Sample scenario:
Holder H stakes 10 USF and after 14 days he stakes another 2000 USF. If long-term rewards are awarded after 15 days, on day 15th Holder H should only receive the top-up in respect of 10 USF and not all 2010 USF staked.

Does this make sense?

Makes sense to me. I honestly think either is fine. my guess is that is was stated in the current way based on the testnet and private launch being Epoch based. I think you bring up some good potential benefits for having it being duration based while getting rid of the epoch rigidity.

I think the other consideration that should be accounted for with this is the amount of development time and resources to accommodate this. I don’t have the technical expertise to understand what it would take, but I think that should be part of the equation.

I agree with what @plemonade said. The conversation thus far is that by having a Curve like model this further incentivizes long term stakeholders to be committed for longer durations of time. I think it is definitely a detail that should have more discussion, but it seemed like Marh and many others were in favor of this.

I think this is a really cool idea, but not sure on the technical complexity to make the discounts practical.

I think a lot of this is in line with what i was thinking. obviously I think percentages should be TBD due to volume and understanding more of the details, but I like the general thought process. a couple comments-

There were some comments and questions from Marh and a few others regarding buybacks and market buying USF due to potential frontrunning and other issues with buybacks. I was in favor of this, so cant speak to the details but just wanted to note it. I think they suggested providing direct dividends or distribution in ETH as an alternative option.

Regarding the yield generating option, I like it and think that definitely could be part of the Asset management proposal. In addition to capital, we could be looking to the fees generated as another bucket to gain additional yield.

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Yes, it is important to keep frontrunning in mind, which is why I wrote that buybacks should be “at regular but random intervals (i.e. 3 times per day at random times)”

By randomising the intervals and make them regularly it could solve the frontrunning issue.

Let’s not forget that the buybacks are important to generate a regular buying pressure on USF to help keep the price if USF stable to the upside. In future, the USF incentives will reduce our disappear, therefore it’s more beneficial if the platform shoes but backs and distribute then instead of getting rewards in ETH and for each sUSF staker to have to withdraw the ETH incentives and then go to Uniswap to buy more USF (and pay gas)

Of course, this is just my opinion based on what seems to be working on other platforms.

[A- Staking Pool Creation - #8 by acedabook](Read my last comment here)

I am in favor of encouraging longer capital, rather than penalizing exits, as long as we have the right incentives and checks in place. Capital/sUSF should be fairly well aligned.

agree- I think that helps. Not sure what other considerations or factors others had in mind.

I am of this same mindset. I just know others had some considerations or thoughts that I cannot speak to. @Marh would you mind providing your thoughts on this when you have a second?

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I don’t like taking a share of the premiums of capital miners at this stage of the project. We need every incentive for capital miners we can get. Growth is more important than short term value to the token right now.

Longer term this should definitely be an option.

We could currently balance this with some of the fees mentioned in B.

While I agree with the general idea I think we should only punish capital/cover miners who stay less than 1 full epoch.

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After thinking about it I think encouraging is better than penalizing at least sentiment-wise like you are saying.

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I agree with your proposal.

I was thinking premiums of those that buy coverage or policy revenues. Not capital providers. from the Asset management side, I was thinking a portion of the yield from the managed capital. Not a portion of the capital itself.

100% agree timing is important this early on and we should prioritize growth/support of the project over taking away. IMO, we should discussion on what timing/threshold makes sense for this.

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I dont think you can control the flow of LP, since they dont stake. Perhaps you can play on their rewards

However, I think @BananaOfMercy hits the nail on the head here : “Growth is more important than short term value to the token right now.”

We should be thinking of encouraging capital inflow instead of punishing outflow. I suggest to get rid of point B entirely. point A and C should be discussed, I suggest to think this way

“how can we direct profits from the platform, in a way that stimulate growth?” what should we incentivize ? Long term capital provider for example ?

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An idea for the Dev team would be to consider allowing independent developers to develop new strategies and or pools/buckets that might bring in new capital. If it works then those Devs could be rewarded with a % of profits.

Something similar could be done to incentivise individual ‘salesmen’ that could work on behalf of the platform to find a new partnership. The salesperson would need to be vetted by Unslashed to ensure messaging is consistent and that the same ‘lead’ isn’t bombarded by too many angles.

TL;DR: if an individual converts a lead into a partnership then it could receive a small % of profits of that deal

P.S.: this might require a proposal of its own

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Maybe I am misunderstanding what is being said here, but… the premiums paid by those who buy coverage is what is funding the APR for the capital providers. So if you take a cut of those premiums for the DAO, you are effectively reducing the revenues for those capital suppliers.

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Do we have many cases of users not staying for a full epoch?
I would think that at the given gas prices, the transaction to supply ETH, and then the 2 transactions to withdraw are probably enough of a punishment.