Proposal: Fund The DAO-Owned LENFI/ADA and ADA/LENFI Pools
Short Description
Fund the DAO-owned LENFI/ADA and ADA/LENFI pools with 100,000 LENFI and 200,000 ADA.
- Approve
- Disapprove
- Abstain
Problem
I’ve seen a lot of people on Discord seem frustrated about not having staking with V2 launch right away. If we look at it objectively, there is no reason to find staking such an exciting prospect for a few simple reasons:
- Staking mechanisms are traditionally inflationary, meaning tokens will be put in circulation => sell pressure from selling free tokens;
- Staking rewards are split among all stakers, meaning everyone gets a proportion of the total rewards based on their stake. In simple terms, whales get the most rewards, while smaller holders get next to nothing. This loophole brings the so-called “mercenaries” in - whales with $$$ in the hundreds of thousands who buy token XYZ, stake it and sell the rewards to the rest of the community;
- If there is no feasible revenue stream for the project/DAO treasury, the staking rewards dry up sooner or later. And when that happens, mercenaries simply sell their bags and move on to the next staking opportunity.
TL;DR: I have personally started to understand why there’s no rush about staking at the moment - we need to have a strong treasury revenue that can back up such an endeavor.
Example to back that up:
Total LENFI Supply: 29.5 million LENFI
Daily Emissions: 700 LENFI tokens
Total Staked: 10 million LENFI tokens
Whale Staker (100,000 LENFI staked):
- Daily Earnings: 7 LENFI
- Monthly Earnings: 210 LENFI
Casual Staker (1,000 LENFI staked):
- Daily Earnings: 0.07 LENFI
- Monthly Earnings: 2.1 LENFI
Conclusion
This simple example shows how inflationary mechanisms inadvertently favor larger stakeholders, allowing them to accumulate funds and influence at a much faster rate. Moreover, smaller holders are disincentivized to stake due to the disproportionate reality of staking reward distribution.
Solution
For this reason, I want to do something about it by proposing the DAO supply 100,000 LENFI from the treasury to the DAO-owned LENFI/ADA pool and 200,000 from the Minswap LP. Since all interest fees are paid in the supplied token, the proposed pledge will give the DAO a steady inflow of LENFI and ADA. The LENFI can potentially be used to fund Safety Module staking, while the ADA can be utilized for other purposes.
Here’s a list of the most notable benefits that doing this will bring:
- Earning Passive Income: The primary benefit is earning interest on the supplied assets. This is a form of passive income generated from the borrowing fees paid by borrowers. The DAO can earn a significant amount of ADA or LENFI over time, depending on the APR and the amount supplied.
- Increasing Protocol Liquidity: By supplying liquidity, the DAO will increase the overall liquidity of the protocol. This is beneficial for the ecosystem as it facilitates more efficient and less costly loans for users. Higher liquidity can attract more users to the platform, potentially increasing the demand for the protocol’s services.
- Potential for Capital Appreciation: Apart from earning interest, the DAO stands to benefit from any capital appreciation in the assets it supplies. If the value of ADA or LENFI increases over time, the DAO’s holdings will become more valuable.
FAQ
There’s no particular reason or maths behind this figure. It’s merely to show that the strategy can work in the long term. The DAO can always propose and vote to reduce or increase the pledge.
Because they will find a way regardless if the DAO supplies liquidity or not - there are already alternative platforms that offer shorting LENFI (FluidTokens, Levvy, etc.).