Sundae V3: Preliminary Discussion on a Comprehensive Budget Proposal

DAO Discussion
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Good afternoon DAO community,

Sundae’s V3 is well on its way in the coming months and that will bring about exciting new opportunities for the Sundae protocol and DAO members. Pi has already kickstarted a piece (fee structure proposal is already live/on-chain) that leads to a broader conversation around a comprehensive budget that V3 will make possible.

I wanted to get members input on ideas that will not only attract liquidity/TVL but also incentivize sundae holders by potentially adding more utility to the sundae token. The biggest question I would like to discuss is what to do with the fees collected?

I talked with a few DAO members already and curated some ideas that could be a part of a comprehensive budget proposal:

  • Allocate X% of protocol income to the scoopers
  • Allocate Y% of protocol income to sundae labs for running the infrastructure
  • Allocate Z% of the protocol income to a stable pool incentive (bring down trading fees for holders with certain sundae amount?)
  • Allocate W% of the protocol income to a SUNDAE token holder incentive
  • Allocate V% of the protocol income to boosting yield farming rewards
  • Reserve the remaining T% of the protocol income as protocol owned liquidity

Mind you these ideas are tied to the current proposed fee structure that’s being voted on now. But I would love everyone’s ideas and thoughts. If we have any math geeks, I would love some examples and numbers behind some of these bullet points.

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I think there are some difficult decisions for the Sundae community to make about how these funds are leveraged, especially before we know how much revenue is being generated by the new contracts, and while that revenue is small.

There’s so many compounding variables, including the vote on the new fee calculation, which make it difficult to estimate protocol revenue. Just for the sake of discussion, however, lets do some napkin math.

A fairly low end estimate for revenue:

  • Lets assume that the middle-of-the-road option B (0.332 ADA + 1.418 ADA) from the fee check passes
  • Lets assume Cardano does an everage of 5000 swaps per day, and that we (for now) secure 10% of that traffic with the new contracts, for a total of 15,000 orders per 30 day month.
  • Lets assume our average batch size is 5 orders
  • That’s 22,266 ADA per month in protocol revenue.

A more optimistic projection:

  • Let’s assume that cardano does an average of 8000 swaps per day, and that we (for now) secure 30% of that traffic with the new contracts, for a total of 72,000 orders per 30 day month.
  • Lets assume our average batch size is 5 orders
  • That works out to around 106,876.8 ADA per month in protocol revenue.

Assuming we match v1 TVL, we can anticipate another 20,000 ADA a month or so from staking rewards.

The question, then, is how much of this do we allocate to different purposes.

For example, it’s important to continue to pay scoopers to run their infrastructure. In a previous thread, a few scoopers weighed in, estimating their costs at around $200 to $300 a month, not counting labor or profit incentive. That works out to roughly 550 ADA a month at current prices, or 16500 ADA per month across all 30 scoopers. Several of the scoopers have said they would be willing to operate at a loss temporarily to help Sundae regain some of the market, but it’s unlikely that can be sustained indefinitely.

We’d also humbly ask that the DAO consider a budget for Sundae Labs to pay for some of the infrastructure costs that we incur by running some key infrastructure for the protocol. While the protocol can continue to operate without us (there are now multiple front-ends, etc.), we still provide one of the most reliable and nicest user experiences for interacting with the protocol, as well as the yield farming infrastructure, and several APIs used across the ecosystem. We have operated this infrastructure out of our pocket for 2 years, and will continue to do so if the DAO deems it strategic to focus on other incentives, but eventually we feel it’s only fair to help offset these costs with, say, 8,000 ADA a month.

For our pessimistic calculation, that leaves 17,766 ADA to either accumulate as protocol revenue to be spent in the future, or put to another purpose like staking incentives.

For our optimistic calculations, that leaves around 102,376 ADA per month to allocate as the DAO sees fit.

I’ll leave it to others to weigh in on comparisons to other protocols and what kinds of returns / discounts the average users have come to expect.

I’d just ask that everyone consider that a long-term, sustainable outlook will generate far more potential long term than a mad dash to spend the revenue as fast as possible.

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100% agree that these proposals have to cater to a long-term outlook that benefits the protocol, scoopers and DAO members.

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I think this is a top priority:

  • Allocate W% of the protocol income to a SUNDAE token holder incentive

I am considering the possibility of staking ADA in each liquidity pool of the protocol, in a similar way to Minswap. However, instead of paying LP holders, those who stake SUNDAE would be paid.

It would be beneficial that, at the same time as ADA rewards are received, Sundae staking obtains a gain of between 5% and 10% of SUNDAE inflation. Or instead of the above, it could be a percentage of commission or fees proposed here, then the ADA staking plus the protocol fees would be paid to the SUNDAE holders. This strategy could further incentivize investment in this asset.

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Just to be clear, we (Sundae Labs) have never made it a goal to “incentivize further investment in the token”; it is a governance token and a utility token for the SundaeSwap exchange. We believe it would be prudent for other members of the DAO to take the same stance.

A token incentive program like you’re describing could be relevant to making SUNDAE a better governance token by making participation in the DAO more attractive. This, in turn, may lead to more optimal decision making. That’s something we’ve considered proposing to the DAO for discussion, and Fortune here beat us to the punch (which is great!).

We are always working towards making the SUNDAE protocol the most useful it can be. Part of that is ensuring that the protocol is governed by a diverse, intelligent, and decentralized decision making body. But we are never trying to “incentivize further investment in the token,” i.e. just to pump the value of the token for the short term unrelated to its utility and governance roles.

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@fchimaobi1 Since nobody has chimed in, do you want to put forward a proposed budgetary breakdown to start the conversation?

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Yes that would be great to get kickstarted. I am at the CES conference so im 3 hours back. it’ll take me some time to up a draft budgetary breakdown.

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I would like to propose something, just like when you vote in CARDANO and earn ADA for voting, I would like that 3% - 5% of the Sundae treasury, has been distributed to those who vote in CHAIN in the DAO of SundaeSwap.

This would also give value and participation to have Sundae. I don’t know if I was clear.
I don’t know if this is also possible

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So, to recap:

The streams of revenue that the v3 protocol will have available to it are:

  • Protocol fees collected from swaps
  • Staking rewards from the locked TVL

Additionally, there are 2 other unannounced streams of revenue for the protocol in the v3 contracts.

Some napkin math gives a wide range of potential revenue, but we’re likely to see between 20,000 and 150,000 ADA per month in protocol revenue.

Here’s the various things I’ve seen people propose we use protocol revenue for, including estimates for minimums:

  • Paying for Scooper infrastructure costs (minimum 16,500 ADA per month)
  • Paying for Scooper labor (suggested 16,500 ADA per month, but flexible at the start)
  • Paying for Sundae Labs infrastructure (suggested 8,000 ADA per month)
  • Additional incentives for liquidity providers
    • Directed to specific pools
    • Directed to the yield farming program in general
    • To replenish some of the SUNDAE being emitted by yield farming
  • Incentives for SUNDAE token holders
    • “Stake SUNDAE for ADA” type program
    • Discounts for trading fees
    • Voting incentives

Let me know if there are any I missed.

We can’t pay for everything, and the protocol revenue will likely start modestly, so we now need to stack rank them: which are the most important to the DAO, and how can we quantify their potential benefit? How can we decide what percentage to allocate to each (if any at all)?

From my perspective, the most important is paying for the scoopers, as without them the protocol cannot operate. Additionally, it would be very helpful to have some budget allocated to helping pay for the Sundae Labs infrastructure (running the website + node + servers + etc. that powers the main UI used to interact with the Sundae protocol).

Beyond that, I think some kind of incentive program to catch peoples attention would be great, but I don’t know which one would be most effective. If anyone has insights with data, comparing similar protocols and the benefits they’ve had, that would be awesome! :slight_smile:

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What I will suggest may sound amateur but that is indeed what I am. What if we made sundae worth $1 or 1 ADA and kept it stable through a mint and burn or mint and spend and spent the sundae to fund sundaeswap. The protocol should use its own token to fund itself ffs.

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There isn’t really a way to “make SUNDAE worth $1”; How it trades on the open market is out of our control.

What you’re describing would represent an entirely new asset, and an entirely new protocol on its own.

Note that the Sundae DAO also still has a treasury of SUNDAE tokens, so it’s definitely able to fund itself with SUNDAE tokens (and, indeed, is via yield farming). But it can’t do so indefinitely without some form of revenue to replenish its supply of tokens.

So it sounds like your proposal falls into the camp of “use the generated revenue to purchase SUNDAE for further incentive programs”.

I’m not sure where the frustration inherent in “ffs” comes from, and seems uncalled for. I don’t see any inherent reason a protocol shouldn’t have ADA revenue, or must only use it’s own token for incentive programs.

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You are right, I take the ffs back. We have the token, we funded the token, why can we use the token as the Sundae native ecosystem token? That token should do everything within the protocol and be converted into ADA when leaving the protocol imo. Just like ADA in the Cardano ecosystem. As for being an entirely new asset we could do a V2 token version with new functionality. Sundaeswap could be a vibrant new marketplace in the future, growing beyond exchanging various project tokens. This could of course include NFTs art, music movies, or even pooling the community’s buying power to buy items at wholesale prices, be it digital or real-world items. Maybe even buying and seeling cars and property in exchange for crypto. yea I know talking about it and implementing it are two different things.

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I disagree that the token “should do everything”, but don’t let my disagreement stop you from creating a detailed proposal for how that would actually work.

This discussion is about how to allocate the ADA revenue generated by the protocol.

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Just random numbers in thoughts nothing backing it.
The absolute goal is to process a much more swaps so at 50% that would gives probably 150k ada.

15% - DAO which can be used to pay for anything including Sundae labs , additional yield farm program or Sundae buybacks.
5% - Scoopers base on pro-rata on number of scoops processed. if the number of tx grows far beyond what is projected then we can look to reallocate this towards DAO.
80% - Sundae Delegator who delegate to each pool. eg if delegators delegated to ADA/WMT and 100 ADA income on that pool. 80% will go delegation stake base of those who delegated to ADA/WMT.
This gives a HRA on Sundae delegation which allows holders to delegate towards pools with higher tx to earn higher HRA which help increase liquidity to optimal point.
It is important to NOT reward all sundae holders but only reward those that has delegation strategy that is beneficial to the protocol.

As for POL or boosting TVL of ADA/SUNDAE. I don’t think that is necessary. A smaller TVL has its benefits as well in allowing better price discovery.

This serves to optimise the incentives to delegate towards high number of tx pools or even encourage lower LP fees to compete on swapping efficiencies. Users can be targeting 0.05% pool to gain the edge in filling orders against other dexes.
A 500k TVL pool with 0.05% LP fee can compete at the same mid price with a 0.3% pool with millions of ADA and provide a better execution assuming most of the trades are 500ada and below

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Hi @relent, just seeing this;

The idea to reward delegators based on their delegation strategy is really interesting! I like it a lot. The hardest part would be communicating to the user why they received that much, but it’s doable.

I think the percentages would likely need to be shifted around a bit, as 5% of 150k is only 7.5k, which isn’t enough to cover the operational costs.

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Hey guys

Can we try keep it simple to get the ball rolling?

Pi mentioned there are not enough community members involved to get off the ground, id say we introduce
‘X’ fees no allocated to Sundae stakers and provide Sundae holders with a 2.2% apy from fees.

Once Sundae holders can stake that will then bring more community members in to

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“introduce X fees no allocated to Sundae stakers” ← not sure what this means

Also, how did you arrive at the 2.2% APR number?

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Apologies i meant to write 2.2apy for e.g

For the first point, a certain amount of fees get distributed to stakers. I understand this may be taking away from protocol fees but the bet would be that it would attract a lot more volume. Having dividend (from staked assets) is a strong point we need going into the next wave, especially if liquid staking and restaking takes off.

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Doing some napkin math:

Currently, there is 51 million SUNDAE participating in yield farming staking. Supposing the DAO directed the funds to those SUNDAE holders, and wanted to provide a roughly 2.2% annual return, it would cost ~1729.75 ADA of protocol revenue per month.

That seems trivially achievable, and there may be room to shoot higher as well.

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Would keeping it a 2.2% to begin with make it easier to get Sundae staking on its feet to begin with?
Starting as low as possible could be quiet effective in the short to mid term (too many other chains have given too much in rewards/inflation which becoming dumping machines)
If more growth come in we could allocate extra yield to say Sundae Liquid staked tokens, or even restaked LS + yields on a sunday labs section as a kind of super app ontop of something liquid (protocol)