As part of ongoing DAO governance, we’d like to open a conversation on the best way to utilize the ~2.2M NIGHT tokens earned by the SundaeSwap protocol. This post is meant to gather community perspectives, explore different strategies, and surface new ideas that could maximize value for the DAO and its stakeholders.
Context
The Sundae DAO is currently eligible for approximately 2.2M NIGHT tokens, which represent a significant asset for the protocol. There are multiple ways these tokens could be deployed. Each approach has different tradeoffs but ultimately aims to drive value for liquidity providers and strengthen the health of the protocol over both the short and long term.
Options to Consider
Distribute Pro-rata to Liquidity Providers (Snapshot)
Allocate NIGHT tokens to liquidity providers in respective pools based on a snapshot of providers at the NIGHT snapshot date.
Distribute Pro-rata Based on Time-Weighted Average Snapshot
Allocate NIGHT tokens to liquidity providers based on a time-weighted average snapshot over the vesting period, to reward long-term participation.
Seed a New Liquidity Pool
Use NIGHT tokens to seed a new liquidity pool via the Taste Test process, and distribute LP tokens to liquidity providers based on the NIGHT snapshot date.
Retain a Portion for Protocol Incentives
Because NIGHT tokens generate DUST (used for transaction fees on Midnight), the DAO could retain some or all tokens to offset user costs, create a strong USP for SundaeSwap on Midnight, and drive volume and revenue back into the treasury.
Discussion Points
We’d love to hear your thoughts on questions like:
Should the DAO pursue one option, a mix of options, or entirely new strategies we haven’t listed here?
If combining approaches, how should the allocations be weighted?
What tradeoffs or risks do you see with each path?
Are there additional strategies or use cases we should explore?
Next Steps
This is not a formal vote. The goal of this post is to surface community preferences and ideas. Based on the discussion here, we’ll work toward distilling the most popular and promising paths into an on-chain vote for the DAO to decide on the final strategy.
I suggest we treat NIGHT as a strategic asset, not a one-time giveaway. Here’s my recommended mix:
50% – DUST Engine: Retain tokens to generate DUST and sponsor user fees on Midnight. Gasless or fee-subsidized swaps would make SundaeSwap the most user-friendly DEX in the ecosystem.
25% – Protocol-Owned Liquidity (POL): Seed key pools (ADA–NIGHT, later Midnight pairs) and keep LP tokens in the treasury for sustainable liquidity and revenue.
20% – Time-Weighted Distribution with Vesting: Reward long-term LPs instead of opportunistic liquidity, while reducing sell pressure.
5% – Growth Experiments: Rebates, bounties, and integration incentives to stay agile.
This approach:
Builds a competitive moat with fee subsidies.
Creates stable income through POL.
Aligns incentives with loyal participants.
Keeps flexibility for new opportunities.
In short: let’s use NIGHT to drive usage, volume, and liquidity on SundaeSwap, ensuring long-term value for both the protocol and SUNDAE holders.
Off the top let me first say; Sundae never fails to find ways to be transparent, thoughtful and pro eco-system, without favour or affection, prejudice or partiality. This is always feels good.
The listed options cover the range options that would typically occur to me.
What resonates the most is options 3 and 4.
From my perspective, providing some recognition to LP providers on SundaeSwap is important. Folks can place there LP assets on any of the DEXs, but actively select Sundae for a reason.
I typically do not feel is useful to follow that others doing as this creates a herd follow mentality, but I suspect most AMM DEXs on Cardano with sizeable NIGHT redemptions will would to drive the token into a liquidity pool expecting to earn addition protocol revenue. This may be the kick-in-the-b*t for Elder to finish the automated fee manager and slave it to a ADA-NIGHT and/or SUNDAE-NIGHT pool.
In summary, my view is that we need a balance that provides reward to LP providers and the protocol.
As an LP provider (Iagon) we think that the best route is to reward LPs for their participation for providing liquidity to the platform. If this was not the case, then you are disincentivizing LPs for providing liquidity, making the opportunity cost of doing so a lot higher. LPs are integral to the strength of a DEX, and taking their rewards in a case like this only will push them to seek alternatives that chose to distribute their rewards.
As a result, we think that options 1 and 2 (possibly 3) are the best path forward.
All options are good, however what’s the calculation between options 1 and 2. For example, those who’ve been providing liquidity into sundae since 2021. Would they be receiving more midnight via a pro rata rate? Additionally with options 3 and 4 how is the distribution then decided. Would it be a current snapshot of the pro rata rate like option 2 for those who’ve stayed the longest delegated to the project or like option 1. I’m not opposed with reinvesting and building our own midnight node or liquidity pool or midnight, but the mathematics behind it needs to be shown.
Note that our intention is for all options to directly reward LPs for their participation for providing liquidity on the platform. Sundae Labs would not put forward a proposal that even included an option that we didn’t feel rewarded liquidity providers exactly for the reasons you outline.
The question, then, is whether we optimize for short term, concrete rewards (paying the NIGHT out directly), or longer-term rewards which could pay off in a more substantial way, like a higher pro-rata share of the protocol revenue.
For example, option 4 might look, concretely, something like:
Deploy a version of SundaeSwap on the midnight blockchain.
Use the NIGHT to continuously generate DUST, and subsidize transaction fees for all SundaeSwap transactions that happen on Midnight.
In return, mint 1.5x the supply of said NIGHT and distribute them pro-rata to the liquidity providers whose ADA resulted in the Sundae protocol receiving those NIGHT tokens
Use all protocol fees generated from SundaeSwap on midnight to purchase NIGHT, and place them in a distribution smart contract: burning the 1.5x multiplier token entitles you to withdraw an equal amount of NIGHT.
Once 1.5x as much NIGHT has been purchased for this distribution smart contract, direct all remaining Midnight SundaeSwap protocol fees to the Sundae treasury.
Not saying this is exactly how it would look, as we’d need to run the specifics of such a plan through legal before putting forward the proposal, but right now we’re gauging whether there’s appetite from the community and liquidity providers for something like this before we put together a more thoroughly researched proposal.
In option 1, we would use the same snapshot date that the NIGHT token used, as the most straightforward option. You’d just get as much NIGHT as you would have gotten if you held that ADA in your wallet;
In option 2 we’d have more flexibility to design something; we could do a time-weighted average over a period of six months to try to attract new liquidity; or layer in some multipliers for “uninterrupted liquidity provision” for some durations, etc.
Ultimately the design space here is really large, so we’d need input from the community on what they’d like to see before we synthesize a more complete proposal.
Another potential option here is to fuse 1 and 4; Just let each person pick whether they want to claim their NIGHT, or donate it to the Sundae protocol in return for a share of the revenue as I described above. This will likely give Sundae less DUST capacity to subsidize transactions with, so it dilutes option 4, but perhaps that quantity of DUST is overkill for the protocol needs anyway, and this would leave everyone satisfied.
Thanks for the creative thought on subsidizing transaction fees on a Midnight version of SundaeSwap. This could end up attracting tx vol and TVL. I am now more bullish on option 4.
As the NIGHT tokens are derived from the ADA provided, we are of the opinion we’d like to see those night rewards distributed based on the liquidity that was provided at the time of the NIGHT snapshot. Can understand the value of the long-term distribution perspective as it benefits both the protocol and the LPs, I think thats a valid plan, just would want to ensure that the distribution prioritizes the LPs as beneficiaries, and that the ‘long-term’ distribution is not overly dragged out, vastly postponing the dividends of of the NIGHT distribution. Ideally we’d still opt for the first option with direct NIGHT distribution, but could be open to slightly alternative, creative methods, that still provide the same (or greater) value to the LPs.