Unclaimed Rewards Optimisation

The X-files
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Ok peeps its time to get down to the nitty gritty on this hot topic; Unclaimed rewards and how, we as a community, can best utilise them to solve a plethora of issues linked to the linear protocol.

On discussion with key community members and via the DAO council we propose the following with the view to putting to snapshot within the coming days.

Unclaimed rewards vary, quite understandably, based on fluctuations in the price of the LINA token. Clearly when the price is up, stakers are able to achieve a good p-ratio, build, claim, trade etc. When the price is down we all know the pain of trying to keep our heads above water, it becomes a challenge just to ensure we keep above 200 and avoid liquidation, let alone 500 to claim.
Note, so far this year the average weekly amount of unclaimed rewards has been around 8 million per week, compare this to a period of October to November last year, 2021, around 3 million per week.
A mean average of unclaimed rewards to date is duly 6 million per week, unclaimed Lina tokens.

We propose to use these tokens as follows:
20% Burn
30% DAO fund (see below)
50% Back to stakers in Buildr

What does this mean in reality?

The 20% burn and 50% return to stakers are self explanatory. Whilst the burn will probably not have a huge effect on token price, it will as mentioned in the forum, at least allow us the popular label of a deflationary token. Regarding the 50% back to stakers, I guess what we need to consider is this - We’ve all enjoyed a nice ride of extra rewards recently, this wont last forever, can we cope with 50% less in EXTRA rewards?

30% to the DAO
So here’s the interesting component and our initial suggestion.
This will be used to help achieve peg. Currently, quick maths suggest that we need circa 35k-50k usd value of LUSD vs BUSD to achieve peg, currently we are .88c lUSD on Pancake Swap. 30% of 6 million Lina in monetary value, at todays price is about 33k so we suggest that peg can be achieved within 2 to 3 weeks of this proposal being voted in.
Following this, if no funds are required to achieve peg, then the funds will go in to the DAO treasury to be used for other incentives, or, then re deployed for peg management as and when needed.

Other use cases for DAO treasury fund:

  • Linear exchange development, we see this as a major area of concern, to increase the user base of the exchange and develop its usability and unique offering.
  • LINA token use case and marketing, increase buy pressure and price action of the token.
  • Explore DEFI partnerships to help spread the word of our ecosystem but also enhance our DAO funds through shrewd investments.

Concerns?
To help achieve peg, we will need to sell LINA on the open market for lUSD and/or BUSD, thus creating a negative effect on the LINA token price. Whilst this is a concern, it is deemed a necessary measure and certainly a temporary one in order to achieve peg. For sure the long term benefit should outweigh the short term negative effect.

Pancake Swap liquidity, LUSD/BUSD info:
https://pancakeswap.finance/info/pool/0x392f351fc02a3b74f7900de81a9aaac13ec28e95

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surprised to not see more conversation here about this popular topic. this is a significant proposal with some pretty serious changes to the weekly rewards.

here’s my initial questions:

right now the dao holds a significant amount of LINA in its treasury - why do you think that the dao needs to add more LINA each week to its coffers?

what mathematical strategy was employed when determining the percentages of 20/30/50 for burn/dao/stakers?

selling LINA for LUSD/BUSD is one strategy to raise the peg. what are the other strategies considered before determining this solution in your proposition? why is selling LINA the preferable option?

how often do you anticipate needing to sell LINA for peg management? will this action require approval from the linear community (via LIP)?

thanks

capt.

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Thanks @captaintrips, some good questions there.
I’m sure the community will have some better answers than me but just an over view of my current thoughts on the topic and to cover some of your concerns:

I think regarding DAO funds, the more the better. Once peg is achieved, which I believe by using this method, will happen quite quickly, we can then use these DAO funds in other ways to help secure the peg. For example, one that you mentioned, by creating further liquidity pools that encourage buy pressure on LUSD. Maybe an LUSD/ BUSD LP?
It is in essence a peg protection fund, as coined by Bowser.

The mathematical equation is not a complex one, its simply 20% plus 30% plus 50% equals 100% but to be fair I don’t think a more complex equation is required here. We are only talking about redistributing unclaimed rewards to help the protocol. The lion share goes back to stakers whilst the rest is used to help peg and token value.

It is hoped that selling LINA on the open market won’t be needed too often but that’s why other strategies will need to be employed, with use of these extra DAO funds, to help mitigate that requirement.
Be good, as you say, to get more input on these alternative strategies, but I like the initial motion of this strategy to get peg sorted quickly and then manage it.

Ok peace all, thats it from me.
Ill hold off snapshot for now, see what other views are expressed 1st.

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Hi

I don’t want to repeat what has already been said but I am totally in favour of the proposal although I would rather go for a higher burn let’s say 30%.

Please can we move this to a vote asap.

Thx

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Nice to see some progress is taking place here. @Captain_Trips_Linear I want to share my view on your questions too.

  1. Even if the DAO holds a siginificant amount of LINA already, it’s the best place to put the rollover staking rewards currently. I think it’s even better than burning it. We could burn them later if the dao decides to do so. I think the main point is to take supply to the sideline to fight the rewards owed high inflation rate. The DAO than can vote what’s the best action to help the collective investors.

  2. I think these numbers represents a first simple consensus from other discussions here and in discord. Let’s gather more suggestions.

  3. The most concerning part of the stategy to stabilize the lUSD peg is to sell LINA which will result in price preasure. But it is a very efficient and direct approach to address the issue. It is 100% secure that it will work in contrast to other considerations. Maybe there will be short term price preasure but in the end (case when peg goes above 1$) the LINA price will profit from this mechanic because the dao will buy back more LINA than it sold (dollar wise). I have no doupt, that the simple existence of such an pegging automation will help to peg lUSD by the smart users. While we discussing it the peg is back up to 90%.

  4. I would like to invite some devs to share their thoughts on the possibility to implement a automated bot for the task. An approval via Lip for each action would be a disadvantage, because of the high reaction time in my opinion.

Hope to hear more opinions!
Best regards!

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i appreciate the thoughtful reply, pho. :slight_smile:

the reason i am asking for more specific information is because i consider changing the weekly rewards to be a significant change to the platform and protocol, and i think the level of detail to enact such change should be precisely considered. this is different than the DAO dipping into their funds, it’s changing a fundamental aspect of our users’ reward mechanism.

the DAO has a significant treasury, but i agree that it’s a better place to rollover funds than burning tokens. i am against burning tokens. burning tokens is little more than a marketing gimmick imo.

most importantly i have questions with the methodology to stabilize the LUSD peg. (for the record, i think a tight LUSD peg is one of the highest priorities). my concern and question is the liquidity pool size

image
image1546Ă—480 39.1 KB

what is the math/analytics to promote and ensure a tight (+/- 3%) LUSD/BUSD peg? i don’t know that answer, but i think that’s a critical piece of information to know before we commit to forever selling LINA to maintain the peg.

i’ve suggested in previous threads that we hire a professional economist to help us make an informed decision. i’m not fundamentally against changing reward mechanisms, but i think we should complete the necessary due diligence that respects our $60M market cap valuation.

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I appreciate your concerns! You take your responsibility as member of the DAO council very serious. That’s a very healthy contribution, thank you for that!

I will try to analyse those concerns and give a summery about my findings later this week (weekend). Way too busy atm.

Best regards!

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i appreciate the understanding, pho. i’m not adverse to change (in fact, i think there’s plenty opportunity to make adjustments), but i do take seriously anything that will change the rewards mechanism for the users. we have funds to pay for services, so imo we might as well complete due diligence for anything that affects users’ money.

something to consider when you’re thinking about linear and lina: how can we increase the utility of lina? what is the big picture ecosystem that can help

  1. increase utility of lina
  2. increase liquidity of lusd/busd
  3. maintain peg of lusd
  4. decrease sell pressure of lina

simple, right?! :wink:

i recognize this is a bigger picture discussion than this thread started with… so if jpr wants us to move to GENERAL, that’s cool.

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There’s an important key to know: INFLATION
Do not neglect about this, mostly with the current geopolitical situation where investors want to protect against “printer go brrrrrrr” effect.

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Hey @Captain_Trips_Linear lets get some importance order in those points. All the following is my personal opinion and the findings of my research.

The first point should be your number 3. Because without peg there is little to no utility of lUSD because it’s simply gambing to invest in a stable coin which is not stable at all. The first point is probably the most important but without the aim to stabilize the peg it’s worth nothing.

Your second point is very important, too. But here I think it’s not the pure amount of liquidity but the balance of liquidity. Let me try to explain it. Liquidity pools are the order books of decentralized exchanges. It’s due to the fact, that blockchains cannot handle as much TPS as they would need to implement the concept of an order book. Liquidity pools create LP tokens which rewards their creators for paying two amounts of tokens into the liquidity pool. This is simply not meant to peg two stable coins together but to find an exchange rate of two coins. The exchange rate is simply found by supply and demand. The banlance of the two tokens in the liquidity pool dictates the price of both tokens.

In the case of the lUSD/BUSD liquidity pool at pancake swap this means, there must be the same amount of lUSD in the pool like BUSD to achieve a pegged stable coin. If this is not the case the price will drift in one or the other direction. The problem by simply increasing the liquidity will result in a manifested off peg situation because every creation of new liquidity tokens will respect the actual price inbalance. With an increase liquidity it will simply be harder to fix the peg because more money is needed to move the price. So before increasing the liquidity it is essential to fix the peg. With a fixed peg the increase of liquidity would be very healthy and stableize the peg.

The last point is conditional to the points above. Yes there will be some (low) sell presure because of the implementation of a luquidity pool balancing bot. But we have to keep in mind, that all bought lUSD by LINA will be sold for LINA at a higher rate dollar wise. This is price positive at the end. The short term price preasure would also be a leverage the pegging goal through demand of lUSD by burning claim mechanism.

BTW we are currently at 98c lUSD per BUSD. Nice!
Best regards.

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Good discussion in here everyone, though I think we should try and stay focused on the main topic of this specific PiP, which is updating the reward structure.

My 2 cents…

Inflation as a problem is a bit overblown. I know it doesn’t feel like it to some, but LINA is still a relatively new project and a bit of an unfinished product in some ways. Usually early projects give higher apy’s to attract initial investors. We will naturally have a healthier APY when we’re off BSC, when the exchange is consistent and reliable, when we have a sizeable TVL and userbase, etc.

That said, I don’t see anything wrong with changing unclaimed rewards distribution. APY should remain reasonably high for debt holders. We just need to get this topic done with and move onto more pressing issues is my thing…

So how about this. Pho, Trips JP, whoever else is out there… reply below with your preferred unclaimed rewards ratio (or in Cap’s case “no change”). We can collect everyone’s reply and put it into a forum poll. The winning ratio from the forum poll is the number we will use for the snapshot proposal.

Goal to have a snapshot vote by the end of the month, so that we can move on to actually trying to fix this…
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My proposed split of unclaimed LINA rewards:

60% Burn
40% Stakers

Like trips mentioned, DAO reserve funds are plentiful and untouched. Not against moving money in there, but there also isn’t really a need at the moment. We can always take measures to fund DAO when needed.

It would be nice to have Dashboard statistics/chart where we can watch the total number of LINA burned climb every week.

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My proposed split of unclaimed LINA rewards:

60% DAO
40% Stakers

The DAO can burn it later if the DAO likes to do so. Maybe there is more useful stuff to do with it than simply burn it. The effect should be the same as long the DAO does not decide to dump it into the market.

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80% burn
20% stakers

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ahoy!

i hadn’t meant to insinuate prioritization by my numbering, but obviously that could be confusing

completely agree priority #1 is maintaining the peg.

my point with liquidity pool is that the larger the pool size the harder it will be to knock off peg. right now someone selling $100k of LUSD drops the price by 25%.

you bring up an interesting consideration that i’m not sure i’ve read before - a liquidity pool balancing bot. this is something that i would definitely like to know more about. i’m in favor of taking decision making out of people’s hands, or establishing manual processes. lots of considerations that need to go into such a bot, but very very interesting idea. you know anyone that is a competent developer?

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majin and i had a pretty solid conversation on the discord and i’d like to share some of that here, because it’s relevant to the conversation in this thread…

majin
capt

it’s a priority to the community at large to start [participating in DAO]
yeah, i agree with that. definitely want to get more people engaged with more thoughtful participation. we do have a small group of people who are currently participating in these discussions. gotta start somewhere

but also, i think that this further emphasizes my opinion that we should consider hiring a professional economist to review our protocol, our tokenomics and provide a professional report with recommendations. we have the funds to hire someone do to that work. just need someone to make the PIP and get consensus … then we have a foundation of professional analysis that we can use to build out our priorities and establish a strategic roadmap

I think people want to start seeing some non listing PiPs passed. Others really want a burn. Updating rewards structure seems like an easy win with little downside. Kill a couple birds with one stone. Is it going to fix everything? Of course not… but it’s popular and won’t hurt anything. Get it done and focus on more important things… fixing peg, marketing, bounty program, giveaways, etc

i guess my hang-up is that i don’t want to make a change to users’ rewards without having analytics to back up the change.

i do think there is room to make changes, but i don’t want to just make changes to our reward structures based on a gut-feeling.

What negative consequences do you think there could be from altering unclaimed rewards?

well, i’m conservative, so i’m more curious what are the benefits? i haven’t seen any hard data to back anything up. the fact that users can randomly interchange 20% burn, with no maybe it should be 50% burn, or it should be xxx% burn, tells me that no one is doing the math to determine what the real effects will be.

if we are a $60M market valuation business, i don’t think it’s a simple decision to change the reward structure of our users. i’ve worked in large corporations and i can tell you from experience that there is intense consideration and analytics completed for something as simple as “what toilet paper do we buy”. you can imagine the thorough consideration involved with anything that affects the user base.

The benefits are slightly less inflation and a slightly happier community. The cons are?

i think if you asked the majority of the community, “do you want to receive less rewards each week”, they would say “no, unless there’s a net benefit to that decision”.

what i see as a negative precedent is trivializing something as important as “user rewards” to a vote that can be made for the sake of making a vote.

i’m not convinced that the current model proposed (where ever the numbers arbitrarily find themselves) will have a net benefit on the value of LINA, the peg of LUSD or the satisfaction of our user base.

in fact, i believe that there is likely a large number of users who are collecting weekly rewards but not participating in our DAO or on discord. if they suddenly notice their weekly rewards diminishing, they would likely come out of the wood work asking what’s going on.

i’d like to be able to inform those people on the logic of our decision-making with professional analysis

we have an ample DAO treasury. a financial report would likely not be very expensive, but would provide the analytical foundation necessary to develop a strategic roadmap and guideposts to improving the experience for all our users

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i’ve started a new thread to discuss the “hierarchy of priorities” for linear finance

please consider joining the conversation!

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Can someone share historical information that shows schedule rewards and amount of unclaimed rewards distributed for each week. I also like to see the number of wallets for each and P ratio. Perhaps it’s even possible to see this information for each wallet.

I am happy to analyse this information.

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Clearly this is back to a GENERAL topic, whilst we fine tune.

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i’ve asked the team for this information

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