PIP-53 Streamlining of the staked PSP incentive system

[Laita]

PIP-XX: Streamlining of the staked PSP incentive system

Abstract

The following proposal aims to streamline the current ParaBoost calculations following our analysis of the current underutilisation of the boost system, as well as clarify the scope of the Gas Refund Program relative to these changes.

By implementing these changes, a number of benefits are introduced to the system, including:

1. Increased accessibility to the staking system, thanks to its reduced complexity
2. Simplification of the distribution process, making it safer (less prone to errors), faster (less complex calculations), and less time-consuming
3. Flexibility for future possible iterations: automation of calculations, execution, verification, and new incentives.

Goals & review

Prior to the publishing of this proposal, a research thread was shared to provide the complete context of the effectiveness of the current paraboost system:

ParaBoost Retrospective - Analysing boost usage and effectiveness after 20 epochs

Two years ago, a new experimental overhaul was passed to the tokenomics system as PSP 2.0. The proposal aimed to address some of the shortcomings of the initial staking system and introduce two new experiments in staking that were not commonplace at the time: liquidity-based staking and action-based boosts. Recently, a community thread began discussing a revamp of the existing distribution system, with different ideas being discussed. Laita Labs supports discussing new incentive innovations, an…

The goals of this proposal are those shared in the final section of this research post, mainly the simplification of the boost system towards a system that removes the currently underutilized complexities. By executing these goals, the DAO opens the door for both new staking improvements and the possibility for easier automation and verification.

Means

Were this proposal to pass, the existing systems would be altered as follows:

• Revision of the Staking Score: The new staking formula can be summarised as: (Staked sePSP1 on the staker’s wallet) + (2.5 * PSP in sePSP2 on the staker’s wallet) * (Pooling boost relative on the number of epoch). All of the other boosts will be sunset to allow for more flexibility in future systems.

The staking boost will remain identical, with the following per-epoch criteria:

• Gas Refund Program: The gas refund program will now follow this new staking score formula and apply it only to trades done using the Augustus V6.2 and ParaSwap Delta contract sets.

Implementation Overview

The majority of these changes will be simply on the reward calculation duties that occur at the governance committee prior to distribution, such as the generation and verification of the data. As the Laita Labs team currently generates the distribution files, a change will be made in the internal code to account for this proposal and will share the new version of the calculations as soon as these changes are implemented.

[SEEDGov]

We support this proposal which aims to simplify the system, remove complexities, and make it as simple as possible.

The current ParaBoost system is overly complex and difficult to grasp, with the shared metrics in the research post clearly illustrating that this complexity results in minimal impact on both user engagement and protocol volume. We have no concerns nor foresee any negative consequences in simplifying the system for Pooling Boost, which already has a high adoption and usage rate. On the contrary, the proposed simplification will not only benefit the protocol by reducing the management burden of underutilized mechanisms and streamlining future automation for greater efficiency, but it will also make the system easier for stakers to understand.

[JOROWILL]

Will we remove the 60,000 psp limit in SEPSP2 to benefit from the stacking boost ??

[cay]

Hi,

I would like to express my disagreement with this proposal. Initially, this system was designed to incentivize stakers to use ParaSwap, but with this proposal, we risk ending up with a focus solely on the “pooling boost.”

To simplify things, I propose that, for the “trading boost” category, we combine the trading volume and stable-to-stable trading volume. The same should apply to the referee volume and referrer volume. Regarding the “market making boost,” I suggest we remove it and keep the “psp balance boost” and “pooling boost” as they are.

With this simplification, we can still maintain incentives for users to engage with ParaSwap. This approach not only preserves the core purpose of the incentive system but also promotes a more streamlined and effective engagement.

What do you all think?

[Julio]

As already written:

@SEEDGov

with the shared metrics in the research post clearly illustrating that this complexity results in minimal impact on both user engagement and protocol volume.

Keep the trading boost makes no sense. Simplification is the way

[Laita]

Thank you for your suggestion regarding the trading boost category. This was an idea we considered before, but after analyzing the data, we personally do not believe that would move the usage significantly beyond the current ~ 4% of overall volume we currently experience.

However, as stated in the summary section of our research post, we are happy to explore future systems that could have a greater impact.

[Laita]

Following the three weeks of discussion since the original posting of the research post and yesterday’s community AMA - we believe this proposal is ready to move to a vote, and are aiming to have it live for voting next Tuesday. We look forward to continuing discussions of the improvement of the staking system.

[Laita]

The proposal is now live for voting: https://snapshot.box/#/s:paraswap-dao.eth/proposal/0xf3bb890a7da177dfe477fcbd98b1cc1150f58a02d69080556c5f66aafa82fa2a

[Adisame]

The current perspective from the research focuses on active versus inactive stackers, with all data centered around this. However, it does not consider regular users.

In my view, this interpretation of the data is inaccurate.

Exemple :

Trading Boost
Due to the main function of the ParaSwap protocol, the trading boost is among the most important introduced in PSP 2.0, as it incentivizes consistent use of the protocol by stakers across epochs compared to passive stakers.

Regarding utilization, an average of 12% of stakers used the stable swap boost, while 37% used the volatile boost. Overall, the volume generated by these boosts represented less than 8% of the total ParaSwap volume.

In addition, the fees generated by these boosts represent less than 4% of the total ParaSwap protocol fees. The number of stakers using these boosts and the volume and fees generated by them have decreased consistently since the introduction of PSP 2.0.

“these boosts represented less than 8% of the total ParaSwap volume. + these boosts represent less than 4% of the total ParaSwap protocol fees.”

If we take in count the regular user, 2 061 279 user for 4 927 stacker, it’s means stacker represent 0.24% of the total user.

So 8% of the volume is made by less than 0.24% of the stacker (37% are active stacker for the volatile boost)

In other way, active stacker made 36 more volume* than regular user.

Paraboost is a successful feature, but simplification will penalizes active stacker. The main interpretation is that the percentage of stackers is very low and needs to grow.

[Julio]

@Adisame

The main interpretation is that the percentage of stackers is very low and needs to grow.

And the simplification will help new stackers and « beginner » to come.

[cay]

It’s frustrating to hear that “simplification”. Stop calling this a simplification when it is, in fact, a complete elimination of all other boosts.

while we could have found solutions to truly simplify the other boosts in order to increase engagement…

[0xYtocin]

@cay

while we could have found solutions to truly simplify the other boosts in order to increase engagement…

Based on what I have seen in the distribution calculation system in the Governance Committee, this is simply not possible using the current calculation system, which is why it was chosen instead to simplify towards the most impactful boosts (staking), and propose to re-implement in the future with new criteria.

Rather than trying to make underperformant systems work with minor tweaks, I feel the wider community would feel a lot more excitement with a new tailored incentive system aiming to reward these actions directly.

@Adisame

Paraboost is a successful feature, but simplification will penalizes active stacker. The main interpretation is that the percentage of stackers is very low and needs to grow.

Thank you for sharing your thoughts. Personally, I would have preferred if you shared this feedback during the one month the discussion was live or on the community AMA, but I am happy to listen to this regardless.

I understand your perspective of rewarding active traders, but if you read the full analysis provided by @Laita , the Paraboost system is also not retaining these high value users on the current system.

To see this, one just has to look at the trend over time of both volume and fees.

Fees contributed to stakers have trended downwards since the release of PSP 2.0, with a reduction of 1110% in the latest recorded epoch compared to the all-time-high of fees produced.

We see a similar worrying trend on the overall volume created, which also continues to trend downwards with also a similar striking difference:

Could you point out to me what KPIs you set for the current volume boost system? Because from my perspective, the current volume boost:

1. Has failed to incentivise steady usage from stakers
2. Has failed to capture a significant amount of the overall volume
3. Has failed to capture a significant amount of revenue for the DAO

Compare this to the pooling boost, which in contrast:

1. Has lead to long-term pooling from stakers
2. Has lead to a significant increase in liquidity compared to pre-PSP 2.0
3. Has lead to succesful incentive campaigns by the DAO (eg. Aura rewards), while also activating people’s voting power.

Happy to hear your thoughts, but let’s not forget that the aim of these proposals is the growth and maintenance of the ParaSwap Protocol first and foremost, and we should have this as our long-term vision.

[Adisame]

Thank you for your thoughts and for engaging deeply with the challenges we’re discussing.

@0xYtocin

Fees contributed to stakers have trended downwards since the release of PSP 2.0, with a reduction of 1110% in the latest recorded epoch compared to the all-time-high of fees produced.

Volume per epoch is drive by the market. For exemple fees contributed by regular user as a similary patern reduction if you compare lower to the all time high. [Source : Dashboard 2023 - 2024]

@0xYtocin

We see a similar worrying trend on the overall volume created, which also continues to trend downwards with also a similar striking difference:

Could you point out to me what KPIs you set for the current volume boost system? Because from my perspective, the current volume boost:

1. Has failed to incentivise steady usage from stakers

False => As we can see in the image, there is recurring usage from stakers. The reason it appears “low” is because there are 200,000 to 300,000 monthly ParaSwap users compared to 1,000 active stakers.

@0xYtocin

Has failed to capture a significant amount of the overall volume

False => If we take in count the regular user, 2 061 279 user for 4 927 stacker, it’s means stacker represent 0.24% of the total user. [Source : Dashboard 2024]

So 8% of the volume is made by less than 0.24% of the stacker (37% are active stacker for the volatile boost)

In other way, active stacker made 36 time more volume than regular user.

@0xYtocin

Has failed to capture a significant amount of revenue for the DAO

False => 4% overall from 0.24% of the stacker, it means stacker made 18 times fees than regular user.

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Actual Proposal Simplification:
Paraboost design has limitations => Simplifying it may attract more stakers.

• Benefit: Simplification
• Cost: Loss of advantages for current stakers
• Expectation: Gain new stakers

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Simplification of my response :

Paraboost design :
Staker value from volume 36 time more efficient than regular user
Staker value from fees collected 18 time more efficient than regular user

Paraboost design is great and doesn’t need Simplification. Conversion rate from regular user is the Key.

Costs of Simplification: This approach risks eroding staker loyalty by removing advantages. Without the tailored rewards that fostered long-term commitment, we may see fewer stakers and reduced overall engagement.

While simplification might seem appealing, it’s not always the key to better conversion. In ParaSwap’s case, funnel optimization—not simplification—is likely more effective. With over 2,000,000 users but only 4,927 stakers, the opportunity lies in converting these active users into stakers.

How to improve the conversion rate is a whole other discussion.

[0xYtocin]

@Adisame

How to improve the conversion rate is a whole other discussion.

Agreed that this is a separate discussion. As you have shared your opinions after going live on snapshot, this currently cannot amended. We look forward to seeing your alternate research and proposal, as from the side of Laita, we have explained our reasoning from an operational and growth perspective.

[SEEDGov]

We voted in favour of this proposal. You can read our rationale in our delegation thread:

@SEEDGov

Rationale As we stated during the debate, we support this proposal, which tends to make the ParaBoost system simpler and less complex by removing mechanisms that have proven to have low usage by users and low impact on the volume of the protocol. We understand that simplifying the system will be positive both for the protocol, by avoiding spending resources/time on managing low impact mechanisms, and for users, who will be able to understand the currently very complex system more easily. On the other hand, we don’t see any negative consequences.