Usage of protocol's revenue and token utility - Temperature Check

Temperature Check
1

Dear everybody,

Please find below a Temperature Check regarding protocol’s revenue and token utility.

Description

Should we use the protocol’s revenue to pay for its infrastructure costs, establish a stable treasury and share revenue with Sundae active holders ?

Context

Since the vote on Sundae Scooper Payment Agreement there is now a minimum of 49% of the protocol revenue unallocated. I believe we should use this for three things:

  • To offset hosting costs for the Sundae protocol, so that it can eventually become totally self-sustaining.
  • To grow a strategic reserve of stablecoins for the Sundae treasury.
  • An incentive program for the SUNDAE token holders who are helping direct yield farming rewards via their delegation.

Background

Based on current projections, the Sundae protocol is expected to have a monthly revenue of around 30.7k ADA, once the 50% discount on fees wears off. The protocol is currently averaging around 250 ADA per day in protocol revenue from trades, which would be roughly 500 ADA per day once the discount wears off, or 15,000 ADA in a 30 day month. Additionally, with 6.5m ADA locked in the smart contracts, and an average monthly return on staking rewards of 0.241%, we can expect another 15700 ADA in staking rewards.

This projection has been steadily rising, and so it’s possible it will be higher by the time the discount wears off.

Based on a recently passed motion, 50% of the protocol revenue will be allocated to covering scooper costs until the protocol revenue exceeds 40,000 ADA per month. Additionally, 1% of the protocol revenue is directed to paying the treasury administrator to distributing those funds to the scooper equitably.

That leaves us with roughly 15000 ADA per month to spend, at current projection.

Sundae Labs has shared that the current AWS costs for the production environment for the Sundae protocol currently costs $4000 USD a month. They have recently been able to significantly drop these costs, and for 2 years have paid out of pocket for this infrastructure. I believe, for the protocol to be self-sutaining in the long term, it should seek to cover these costs. However, while the protocol revenue is still growing, and while we’re at a critical juncture, Sundae Labs have offered to continue to cover a portion of these costs out of pocket.

Additionally, with the recent launch and growth in TVL for the USDM stablecoin, I think it’s in the strategic best interest of the Sundae protocol and the Cardano ecosystem as a whole to acquire and grow a strategic reserve of USDM. Using other stablecoins could be discussed and decided on by later vote.

Finally, the success of our yield farming program is dependent on SUNDAE token holders who thoughtfully consider and delegate to pools in an attempt to attract liquidity.

For this reason I propose allocating 15% of the protocol revenue to each of these categories:

  • 15% (projected at 4605 ADA) to be directed to Sundae Labs to offset AWS costs for hosting pieces of the Sundae protocol infrastructure.
  • 15% to be directed to Sundae Labs, who will sell it for USD, and then mint USDM, and deposit that USDM into the Sundae DAO Treasury.
  • 15% to be directed to Sundae Labs, who will distribute it proportionately among users who have SUNDAE locked in a position under yield farming with a delegation. Note that these SUNDAE can be placed in LP or added ‘alone’ what matters is that they are used to vote on rewarded pools.

To accomplish the above, we will raise the “allowance” parameter temporarily to 100%. The DAO can re-evaluate these thresholds as protocol revenue grows.

(Operational note: This leaves 4% of the protocol revenue unallocated; Sundae Labs has suggested that we leave some portion of the protocol revenue unallocated to simplify operational concerns, because of how rewards are withdrawn from pools with low volume.)

Decision

If enough people show interest the proposal will have two voting options:

Vote YES to approve the above parameter change and budget, and direct Sundae Labs to begin distributing protocol revenue according to this breakdown.

Vote NO to reject this proposal and leave the treasury allocations unchanged.

Are you interested in voting in an on-chain governance vote to this effect?

  • Interested
0 voters
2 Likes
2

This is a great proposal, IMO, thanks for driving the discussion that created it.

My only suggested addition when you create the actual governance vote is to add some details about timing and implementation. It will take us some time to implement a system (especially without disrupting our other roadmap items), and Sundae Labs will need some freedom to make reasonable decisions about the implementation as we get into the weeds of it.

I would suggest targeting September 6th as the first payout (this is 1 month after the discount wears off, and gives us plenty of time to implement a robust system).

I would also suggest making the rewards retroactive to June 8th. Assuming this proposal has a 5 day vote, that gives 7 days for people to update their posture without missing out.

For the above reasons, I would suggest the proposal include the following bullet points:

  • The first payout under this budget will happen on September 6th
  • That first payout will be retroactive and pro-rata from June 8th
  • Sundae Labs is responsible for making reasonable and judgement-based decisions on exactly how the rewards program is calculated.

At a high level, just so you know where my head is at, here is how we would likely implement things:

  • Assume the protocol generates generate a total of 100,000 ADA in protocol revenue over that 90 days:
    • 15000 ADA will be directed to Sundae Labs
    • 15000 ADA will be used to purchase USDM
    • 15000 ADA will be distributed to SUNDAE token holders as follows
      • Split pro-rata across 90 days, or 166.666666 ADA per day
      • Distributed to each user proportional to that users SUNDAE-seconds
        • SUNDAE seconds is the number of SUNDAE held by the yield farming contract, times the number of seconds it was held
        • For the purposes of calculating the number of SUNDAE, we will also count ADA/SUNDAE v3 LP tokens, using the pool balance snapshot as of the following midnight
      • For an example of how 1 day might be calculated:
        • if you held 1000 SUNDAE for half the day, you would have 43200000 SUNDAE-seconds
        • If another user held 1000 SUNDAE for the full day, they would have 86400000 SUNDAE-seconds
        • You would receive 55.555555 SUNDAE, and the other user would receive 111.111111 SUNDAE

Each 30 day period would then proceed similarly, but distributing the protocol revenue from that 30 day period instead.

1 Like
3

DJED would be a better choice for convertibility
That can be done onchain and tracked as well.
Otherwise USDC to be stored in a verifiable EVM address multisig
bills typically accepts USDC as a form of payment.

4

Hi!

Thank you for your inputs.

@Pi: OK, I will add the points if it gathers enough people interested to go to proposal. For the retroactive date I will put day of posting the proposal +12days. ok ?

Just to be sure: in your example, people would receive ADA not SUNDAE? As protocol revenue is in ADA and at least in my mind there was no intention to convert the ADA revenue into SUNDAE to distribute it to SUNDAE holders.

@relent: I have to admit my mind was not set regarding which stable to select. Djed has the advantage of being fully onchain. But it is in its V1 form which definetly can be improved and can not be directly redeemd in USD (which is probably the currency we might use for our expenses). USDC is not native on Cardano so I would not go for it. USDM has the merit of being fully ‘Cardano grown’ and being asset backed (even though it has downsides) can be practical and reassuring for some.
In your mind would that be ok to start with USDM and leave the door open to a vote for using other stable coins (replacing or adding) in the futur ?

5

correct, the ADA would be distributed directly. A user may receive both ADA and SUNDAE, if they’re also receiving rewards under yield farming, though.

1 Like