Context
We propose a change to yield farming emissions to make the protocol self-sufficient on revenue; or, failing that, pausing emissions completely.
Currently, yield farming emissions are distributed to incentivize liquidity providers. These rates were set at the launch of Yield Farming v2, and have been updated every 90 days since, though have largely remained unchanged. Such incentives have largely not had a significant impact on growing the protocol TVL.
The emissions rates were set based on remaining treasury funds, and on the thesis that protocol revenue would grow and replenish those emissions. A significant portion of the treasury has now been emitted, and the remaining treasury is more illiquid, locked in smart contract vaults that will take some time and engineering efforts to access.
The Sundae Labs team is working on several initiatives that we believe will substantially change the role of revenue and incentives within the protocol. We believe this warrants a shift in how yield farming and tokens are emitted, and the first step of that is making the protocol fund its incentives programs from revenue, rather than new token emissions.
Option 1: Recirculate protocol revenue as emissions
Currently, each month, 15% of protocol revenue is used to purchase stablecoins and provide them to Liqwid to earn interest, 15% is distributed to SUNDAE token holders, and 15% is distributed to Sundae Labs to cover infrastructure costs.
Under Option 1, the protocol would reallocate that 45% as follows:
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35% of protocol revenue is used at the start of each month to purchase SUNDAE, which would determine the daily emission rate for the remainder of the month.
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10% of protocol revenue is distributed to SUNDAE token holders.
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0% to Sundae Labs — we will forgo our portion of protocol revenue until the comprehensive plan is presented.
We were genuinely surprised by how close revenue-backed recirculation gets to current emission levels. Using last month’s numbers as a guide, this would have resulted in the purchase of roughly 3,108,091 SUNDAE — a daily recirculation of roughly 103,603 SUNDAE per day, or about 1/3rd the current daily emissions. Incentives to SUNDAE token holders participating in yield farming would drop to roughly 3,353 ADA, compared to 5,030 ADA in prior months.
Importantly, these are tokens already in circulation being recirculated, not net new tokens entering the market. Protocol revenue effectively funds the incentives directly and sustainably rather than diluting the supply.
Option 2: Distribute protocol revenue directly
Alternatively, the protocol could avoid distributing protocol revenue as SUNDAE entirely, and instead distribute it directly as ADA. This avoids the slippage overhead of swapping to SUNDAE, but avoids the opportunity to align liquidity providers with future revenue of the protocol.
If this option passes, the protocol would use the same breakdown as Option 1, but simply distribute the collected ADA directly.
Option 3: Pause emissions entirely
Vote Option 3 to completely pause yield farming rewards. Protocol revenue allocations would remain untouched: 15% to stablecoin purchases via Liqwid, 15% to SUNDAE token holders, and 15% to Sundae Labs for infrastructure costs.
Duration
Whichever option passes will remain in effect until a subsequent governance vote changes the emissions schedule. Sundae Labs currently expects to present a comprehensive expansion to the protocol capabilities that will drive new revenue, and a restructuring of these incentives, within the next 3 to 6 months.
Conclusion
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Vote Option 1 to halt new emissions and reallocate protocol revenue as described above to fund yield farming incentives.
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Vote Option 2 to allocate protocol revenue in ADA directly as described above.
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Vote Option 3 to pause emissions entirely and leave revenue allocations untouched.
- Interested