PSP-BPΔ1-1: Reduce the staking rewards budget (33M $PSP, 13.88% budget)

Key words
PSP staking policy

Context
As mentioned in the previous $PSP-IPΔ5 discussion, the 5M $PSP/epoch was a choice made by the team to bootstrap the staking module, but the goal was always to reach a more sustainable amount.

Goals

  • Lower the $PSP rewards to 1.5M $PSP/epoch

Rationale

If we lower the rewards from 5M to 1.5M $PSP/epoch, it would decrease from 44,4% to 13.88% of the yearly budget allocated for staking, which would leave more $PSP for the following points. With 1.5M/epoch, the APY would still be around 25%, which remains higher than most of the staking rewards on other projects.

On January 31st, the DAO will already have spent 25M $PSP for only 5 epochs, but we could lower it from february, which would create a yearly budget of 33M $PSP (from february to december 2022).

Voting options

  • Accept to reduce the staking rewards budget (33M $PSP, 13.88% budget)
  • Refuse to reduce the staking rewards budget (33M $PSP, 13.88% budget)
  • Abstain
Should we reduce the staking reward budget ?
  • Accept to reduce the staking rewards budget (33M $PSP, 13.88% budget)
  • Refuse to reduce the staking rewards budget (33M $PSP, 13.88% budget)
  • Abstain

0 voters

9 Likes

Out of all of the proposals laid out in the budget, I cannot stress enough that I think this might actually be the most important clause. The current rewards mechanism is not sustainable at all, which is why personally I am in favour of this slashing. Some things to consider:

  • The current APY’s on single-sided staking are so high yield and low risk that other essential protocols, such as the safety module, have not been able to acquire as much TVL as initially wanted.

  • I know it’s mentioned in the post, but I want to emphasise again how currently 44,4% of emissions is going towards this!! This reduction opens the door to new uses of this budget, such as the PSP-Heavy gas refund proposal. Additionally, every part of the budget which ends up not being used would refrain from entering into circulation, reducing unnecessary pressure.

  • Re-distributing the budget will help us fund more initiatives in different projects and chains. Seeing PSP’s name prop up in new sites will definitely serve as some unintentional marketing.

I hate getting less staking money as much as everyone else, but if we want to cease this constant downward pressure, it’s time to make the token evolve out of staking into new ways to energise the token :zap:

7 Likes

I agree with @0xYtocin on all these points. This proposal is the basis for all the others.
Although it is a very lucrative strategy, we stakers, and therefore holders, need to understand that the good of the protocol is also the good of our assets.
I think we need to make this effort in order to deploy our future actions.
I vote for.

5 Likes

I approved the proposal but I think it is important to clarify that the 5M PSP per epoch is the budget allocated towards both Stakers AND Market Makers.

As per the Reward Calculations section, the R and M (rewards allocated to Stakers and MM respectively) are equally set (2.5M each). Therefore, the proposed 50% haircut impacts MM in the same proportion.

Is it something that has been discussed with all the MM? We don’t want to see liquidity exit because reduced APY (divided by 3) causes them to provide liquidity elsewhere.

4 Likes

Very good point by @sebastien-S3B .

Experience tells us that this is a sensitive issue, but nevertheless crucial for this 2022 budget.

There are two main parties, the Stakers and the MMs.

As Sebastian suggests, have the MMs been informed of this proposal in advance. I guess they are not part of the DAO ( to see what they do with their PSP rewards) but even if their voice does not count during the vote, it is important to hear them for the proper running of the protocol and their actions can have consequences for our functioning.

But also at the level of the stakers and the DAO, is it possible to see with the handful of very large holders / stakers their feelings. They are clearly the ones who will make the vote. And since we don’t necessarily have their opinion here, it would perhaps be up to us to go to them.

@dydymoon , is this something you had the opportunity to do in addition to this huge research and presentation work?

3 Likes

Hello @Albist those are valid concerns thanks for sharing them!

First, let’s not forget that although the MMs are not super active on the governance forum, I’m confident they follow it closely. They have reacted to discussions in the past.

They can partake in the DAO’s vote and some might already - we don’t know who owns each voting wallet. :wink:

Another thing to keep in mind regarding the lowering of staking rewards which will also affect MM (this is my understanding, but when it comes to MM the pro is of course @Mouph )

  • Their market-making activity is profitable even without PSP incentives (they were doing it before it was here)
  • Currently, to my knowledge, other alternatives RFQ system like ours do not provide incentives

==> ParaSwap is the most profitable place for a MM to exert his activity right now, and it should stay as such even with a lowering of the PSP rewards.

2 Likes

I understand your point @tokenbrice but extending the argument what is the point of MM-based tokenomics if there is no MM pool performance / liquidity provisioning elasticity to their APY? If they do the same job with our without incentives, I believe it is a legitimate question.

From a Staker standpoint, I support the idea that a too high APY is counterproductive as discussed in the $PSP-IPΔ5 discussion.

From a MM standpoint, although V1 staking model has some merits, much can be done to incentivize competition between the pools and attract liquidity provisioning in period of high volatility where MM often pull liquidity (time at which Traders need it the most). As a result, we should end up with a model that incentivizes both deep liquidity and risk taking (relatively to the competing pools).

My point here is that this proposal treats the same way non-risk takers (Stakers), who are disproportionally rewarded, with risk takers (MM), who are not properly aligned because of an imperfect reward model.

Instead of breaking MM APYs with reduced budget, my view is to leave it at the same level (2.5M), implement a proper reward model, measure its impact with KPIs, and revise the budget later on.

3 Likes

Decrease the staking reward better burn it as well . its more benefit to everyone who held PSP .

Its make nonsense to decrease the reward but replace with nothing .

In fact the reduction in rewards partly funds the other proposals in the 2022 budget. So it’s not cutting staking rewards to do nothing, it’s putting our budget back into actions that will help the protocol develop.

2 Likes

Given that no Market Makers seems to be complaining about lowering the rewards and that there seems to be a global consensus among stakers to lower them, I think we can push this proposal to a vote.

What do you think @dydymoon ?

4 Likes

Yes we’ll try to get the proposal on snapshot today sorry for the delay

2 Likes