Value Capture for SOV Staking

While the Sovryn community has managed to ship a plethora of products and features on the Sovryn protocol - leveraged trading, new token listings, origins platform, lending, borrowing, governance, bridging, etc. - there is much to be developed. This is not just from a tech perspective, but from an adoption and user activity front.

Our community of SOV stakeholders has been tremendously valuable over the last 5-6 weeks, with over half of SOV holders having SOV staked in our system.

But what are they getting out of it?

What they are getting are:

  • The possibility of early allocations and/or airdrops from future Origins sales aka quality projects that advance our ecosystem, such as what has been ratified in the Babelfish sale
  • Fees generated from margin trading in the Sovryn protocol

Which amounts to how much?

This amounted to about $80,000 in revenue this past month, which, if all 9,000 stakers staked an even amount, would receive about $10 each on average.

One can say this is not overly impressive, due to the early stage of adoption that the Sovryn protocol is in.

Currently, the value to the SOV price delivered by the bitocracy stakers is substantially higher than the value they get out of it accrued from fees, which means their staking hinges on long-term faith in the future success of Sovryn, and the chance at early allocations in Origins sales.

But what if we could capture the value they provide early on - not through fees accruing now, but on the speculative belief that in the future (let’s say 10 years from now), Sovryn’s fees will be substantially higher than they currently are, which would lend to greater value capture from staking SOV.

In a nutshell, given that in the future, staking SOV could reap substantial fees that match or exceed the value of staking, there could be a potential way to equalize the value of staking between now and 10 years from now.

How can we do that?

One way I’m proposing we do that is through a revenue redemption token that can be stake-mined only by SOV holders. A person who mines this token year 1, though they will not see much revenue initially, could potentially cash in at a later date when the Sovryn protocol has acquired a substantial mass of users and earnings through fees at year 5 or 10.

When the user from year 1 reaches year 5 or 10, they can then redeem their token representing value given to the Sovryn protocol from year 1 at year 5, as opposed to collecting an underwhelming average of $9 a month in the immediate term. This will burn the redemption token out of circulation and fees earned will be released to that user according to the percentage of the token supply vs percentage of total fees.

This could prove to be a better alternative to accruing $9 a month for the immense value of locking SOV out of circulation in year 1 of the SOV token’s existence, as well as being part of bitocracy.

Bottom line: Through a rev-share token, we can create a way to reward early Bitocracy stakers who stake now, for a share from the earnings-generator that the Sovryn protocol may one day become years from now.

Mechanics

The Rev Share Token would be mined on a per-block basis, with weekly unlocks on a per-user basis.

The Rev Share Token emissions will have 5 two-year epochs, with a halving of emissions for each.

Epoch 1 - 2M tokens

Epoch 2 - 1M tokens

Epoch 3 - 500k tokens

Epoch 4 - 250k tokens

Epoch 5 - 125k tokens

Emissions total: 3.875M tokens over 10 years

325k tokens to the team

4.2M RST total supply

Benefits

By having a token that can be redeemed for a portion of fees accrued over the next 10 years of the Sovryn protocol’s operation, early stakers can benefit from a future value accrual for the value they provide in staking SOV early on in Sovryn’s journey.

This will add another layer of incentive for SOV stakers on our platform, as they can earn a more meaningful reward for the work of staking that is provided.

This token can take a ten-year span, where every two years there is a halving of Rev Share Tokens issued. This will encourage early staking of SOV tokens. In the latter halving cycles, burn pressure to cash in on fees earned will increase, shortening the supply, and potentially creating buy pressure on the remaining Rev Share Tokens in circulation. As Rev Share Tokens get burned and become more scarce, there will be more pressure to stake SOV and mine more Rev Share Tokens.

What this also allows is a gamification between holders of the Rev Share Token that hinges on several moving parts.

Causes for sell pressure

  • The mining/inflation of new Rev Share Tokens through SOV staking
  • New revenue streams and fee volume from the Sovryn protocol
  • More SOV staked

Causes for buy or burn pressure

  • Rev Share Token holders burning their tokens
  • Fees accrued by the Sovryn Protocol
  • New user intake and product releases that add revenue streams for the Sovryn Protocol

Causes for stake pressure

  • Fees accrued by the Sovryn Protocol
  • SOV unstaked

As you may assume, this is a rough sketch for how this could play out, so feedback is greatly welcome. I can understand thoe who might be wary about minting another token that interacts directly with Sovryn’s Bitocracy, however this could potentially serve as a way to secure our foundational loyalty of Bitocrats who support the SOV token early on in this crucial period. In addition, this would function more or less the same way as simply accruing fees, as burning the token would result in acquiring a portion of fees generated at any moment.

Fin.

11 Likes

Great post @Inglandia! Been working on some similar thoughts in parallel - so I have a prepared response (sorta) :slight_smile:

We share a vision of Sovryn developing into a global operating system for finance. If we accomplish this ambition, or even a fraction of it, the value of fees accrued by the platform will grow over time many-fold. However, SOV stakers are staking now and providing value now - but they are not capturing the benefit their activity will drive in the future.

A great benefit of having programmable assets is that we can tokenize specific attributes and rule sets. In general, I have often said that the more we are able to tokenize assets with great specificity, the more exacting the economic value represented by those assets becomes.

In this specific case, I think there is an opportunity to tokenize and capture the future value that today’s stakers are providing. Let’s imagine the value (in BTC) that will accrue to the Sovryn protocol over the next 10 years. We can expect that this value will grow from year to year. Now imagine, that today’s stakers, instead of simply earning the value captured today, were to earn a share of the value accrued over these 10 year. Perhaps they would earn 100% of the first year’s revenue, 90% of the next, and 10% less in each preceding year, such that in year 10, they would accrue 10% and in year 11 none.

Please note, I am not suggesting these numbers are even close to being the desirable numbers. I am merely sketching a simple model to illustrate the point.

Now, these revenue can be collected by the protocol and directed to a contract that would distribute them, at the end of ten years, to (I am inventing a name here) RYN token holders.

This would introduce the following mechanic: Stake SOV tokens today, and on the basis of their stake weight, earn RYN tokens. This could also include a retroactive drop to those who have already been staking. These RYN tokens can then be burned to earn a pro-rata of the BTC earned by the protocol and directed to the RYN contract over the 10 year period.

RYN tokens can be tradable from the moment they are received by Bitocracy traders and a market could develop for these tokens.

Now to some of the more complicated details. If we choose to create the RYU tokens, we have several questions to answer:
How much value do we believe early stakers are providing? To put this into concrete terms, how much of the value generated in years 1 through 10 should be captured by Stakers in year 1?
Do we wish to continue distributing RYU tokens forever? I rather think not, as the goal here is to bring forward future revenue for those staking in protocols infancy - but I could see other arguments. In any event, we would need to decide for how long we wish to distribute RYU tokens.
How should we transition from the protocol distributing rewards in the form of RYU tokens to simply distributing BTC?

Answering the first question is most difficult but there might be a simple heuristic: We wish for the RYU token to capture the % of future value that maximizes the current value of the SOV token. The intuition here is that the SOV token represents the markets long term outlook on the Sovryn protocol - and as such, that which the market deems to increase the value of the SOV token, is also the markets best assessment as to what the Sovryn protocol should do.

{As an aside: If this insight is correct, it opens up an interesting option - instead of deciding in advance how much of the protocol value should be distributed to RYU holders, we can let the market decide. In other words, we could introduce a prediction market.}

I would be very interested in help to model this out, so that we can see what RYU distribution would look like under different assumptions.

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I loved your proposal @Ingalandia
Do you have any success stories to analyze or another project that has implemented something similar?
Regards!

Great ideas, thanks for putting this together! I have a few just clarifying questions:

  • If all revenue will accrue to this new token as opposed directly to staked $SOV, what incentive is there to buy $SOV token…for governance? Are we cannibalizing $SOV value?

  • I’d personally prefer to prioritize dev resources to actual revenue generating activities. Then figure out these speculative derivative products down the line. SIP’s like collecting a small fee on swaps should be pushed forward first. SOV staking rewards - discussion prepping for a SIP

  • Regarding current fee structure: Do all staked $SOV (including vested founder shares) earn fees in the protocol? In prior months I was told multiple times founding shares currently on a vesting schedule (meaning they’re locked) do have voting rights but DO NOT earn revenue share. Then recently I was told this is incorrect on Discord and they DO earn revenue share. Can @yago or @Ingalandia confirm which is correctand if they do now earn revenue when did that decision change and what was the rationale

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SOV is already a claim on future revenue on the platform, i don’t see the logic in creating another token to be a claim upon a claim of future revenue.

The more logical, simpler, and cleaner way to reward SOV stakers would be to amend the AMM pool contracts to split fees earned in the pools between LP’s and Protocol Stakers, as well as to amend Yield Farming rewards with a split going to yield farmers and protocol stakers.

Something as simple as 80% to LP’s / 20% to stakers for both AMM fees and YF rewards would vastly improve the attractiveness of staking in the protocol, because far more fees are earned in the amm pools than by borrowing / lending activities.

This has been, in my opinion the biggest reason for Staker’s dissatisfaction: they saw increasing, impressive TVL numbers, and thought there would be higher payouts, expecting that the AMM fees would be part of the fees they would earn, which is not the case. They only earn fees from far lower volume products on the platform.

These proposals seem to me dangerously close to an additional futures market on a token that is already a bet on future income. And if the incentives are better to hold this token as a bet on future revenue than SOV itself, it could even be viewed as an outright attack on it.

The far more logical, simple, and elegant solution would be SIP amending how token allotments emitted by the protocol should be distributed.

If all the exchequer can do with Adoption allotment SOV is use it for YF rewards, maybe we need to amend the Exchequer’s mandate with a vote to amend the smart contracts so that the protocol emits a percentage of Adoption SOV to stakers.

IMO, Sovryn is far too immature to add an additional speculative derivative on top of the existing token, which has yet to prove itself capable of generating adequate returns for the length of stake that investors have already taken a bet on.

I appreciate and value both ingalandia’s and yago’s calculations to make an argument for such a derivative, but find the premise false. Sovryn should amend the token it already has rather than introduce another instrument to incentivize staking.

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You make a lot of sense. Too many tokens seems like a poor use of dev resources compared to a new scheme for distributing protocol revenue to existing SOV stakers. This is something I’d support in a vote

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I tend to agree. Looking at the rewards for Yield Farming - I am already torn between the amount I want to stake for the future and the amount I am earning daily. I tried looking into other examples (i.e. https://www.originprotocol.com/tr/litepaper or Valuation of DeFi Tokens | Bitcoin Suisse etc) and did not see a clear case one way or the other but KISS principle (or Occam’s Razor - if you prefer) puts my vote in the Yield Reward split. Perhaps 90/10 would be enough (rather than the 80/20) if there were stronger benefits to the launches (such as BabelFish) or NFTs annually for an annualized stake/governance position with a 12 month hold? Seems like Exiled Surfer’s approach is cleanest at this time - in my opinion. Appreciate the thinking here!

I agree with @exiledsurfer 100%.

I also just have one small point to add. A simple calculation of $80,000 divided by 9,000 staking addresses is not representative of the distribution of value within the staking contract. I haven’t looked lately, but at the last vote I believe around 90% was held in less than 10 addresses. This changes the amount received by the other 8,990 stakers dramatically and is a lot less impressive than $10. I suspect most stakers have earned their fair share of less than $1 thus far.

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Nothing changed, many of us were confused, including myself. I reached out to Ororo during a team call, and she verified that vested tokens do earn revenue shares.

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I can confirm I also recall several times reading from team members that founding shares that are currently unvested (locked) could vote but are not earning revenue.

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Great proposal, however one I would approach with extreme caution.

I think anyone that has staked SOV with the expectations of fee’s earned immediately needs to realign expectations. Ultimately these fee’s aren’t going to be present until we have more activity on the platform, which will come once there is more liquidity.

If this is being done to appease stakers for lack of revenue on a protocol so young, I would suggest the motives are incorrect.

Borrowing against SOV would perhaps be a better drive for holders/stakers to obtain immediate value against their positions, but this once again comes back to driving liquidity to the platform

I appreciate the brainstorming around how to properly capture value for Stakers. It’s crucial.

The idea of a revenue redemption token is interesting, but adds complexity. And especially if it becomes tradable in itself, let alone the basis for a prediction market, it adds too much unnecessary complexity. @exiledsurfer puts it very well: there are too many layers and risks in that speculative derivative approach.

I’ve been watching the development of the Sovryn platform with intense fascination. The devs are doing amazing work, and the vision is strong.

My only two points of contention:

  1. The fact that founders have full VOTING rights on their vested tokens, skews the vote distribution tremendously. This risks turning Bitocracy into an oligarchy with a pretty pink democracy wrapper. Unvested Stakers – as in, everybody who actually chose to stake – see their voting power diluted to the point of meaninglessness.

  2. The fact that founders have full STAKING REWARD rights on their vested tokens, is foundational to the problem of value capture for SOV Stakers dealt with in this thread. The founders cannibalize the staking rewards that Stakers-by-choice were expecting to get when they committed to staking, often for the long-term.

The reward for founders should (mainly) be in the value appreciation of their as-yet-locked tokens. Which is already truly enormous. Founders’ still-vested tokens also capturing the vast majority of staking rewards from protocol fees, is double-dipping and a bad look. Again, more akin to a rich-get-richer oligarchy than a fair-distribution community-driven Bitocracy. Vested Genesis and Origins tokens don’t accrue staking rewards either, after all?

This double benefit for the founders’ vested tokens should have been known, explained, and communicated better.

So, a simple and elegant solution to value capture for SOV Stakers should be preferred. Moreover, this solution should see most of the value be fairly captured by stakers-by-choice. Not by the founders’ vested tokens.

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It is undeniable that stakers’ expectations have not been met. Acknowledging this, reporting the profits made by Sovryn, and showing each staker’s share is an exercise in humility and transparency. It is a good starting point.

We all know that we are at a very early stage, in which the results achieved should come as no surprise to anyone. In any case, there may be investors who are disappointed because they have not understood the scale of the figures and the times. And the self-criticism could be to have communicated it in a better way.

I agree with @Ingalandia and @yago that it is important to regain investors’ confidence and I believe there is only one way to do this, which, using the seafaring analogy, I will describe as staying the course, and offering lifeboats for those who want to leave the ship.

Offer lifeboats. I propose to offer an exit window to disenchanted stakers. Perhaps exit penalties could be temporarily reduced, or compensation mechanisms could be offered for sending stakers to liquidaty mining, no-fee trades in the app, or whatever rights or benefits the Sovryn team can come up with to keep them on board.

Staying the course. Sometimes more important than the destination is the path. Sovryn’s path must be to create value, proposals that change people’s lives, offering more and better options for their sovereignty every day. From my point of view, the ship must move forward steadily, hoisting more and more sails, and it doesn’t matter if sometimes the wind is missing or blowing against us, because those of us who are on board are in no hurry to get anywhere, because we enjoy the journey.

I believe that we should not devote our energies to seeing the price, but to giving value to Sovryn, because the latter will bring the former, in that order.

For all these reasons, I am against creating new promises of value wrapped in a token. SOV is enough. All energies should be devoted to making SOV bigger.

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I completely agree with @exiledsurfer.
The SOV token IS the claim on future revenue.

We fundamentally need to try to stick to SIMPLICITY. This proposal has good intentions, but seems to create complexity for no reason.

And it will dilute the SOV value, so price would likely drop by more than the actual value of the token, as it’s impossible to forecast the value of the new token 5-10 years out.

Seems that you could accomplish materially the same result by rewarding stakers with some level of additional SOV. And you could lock them up for a long period if desired. This would serve to transfer some of the same value, but keeps it simple.

The main focus should be on increasing the size of the pie at this point.

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I like that you’re trying to bring more value to the SOV stakers. However I believe introducing multiple tokens will only create illusions of value but not add any real one.

I agree the revenue you earn right now is not much, but comparing to investing in any young company these tends to give zero dividend for many years. It’s as you say all about future value (which is usually enough). That said it’s important to be able to clearly see what this future value could be created from, but many ideas seems to pop up here.

I also strongly believe too much of these complicated incentive systems makes any project look a bit shady. The Sovryn project is awesome but in the beginning when everything was publicly about the sales of the SOV token (glad we’re past that), and it’s the same for most projects, the babelfish nobody is talking about the tech, only the FISH token etc., sure I understand most projects needs funding, but it’s not healthy. Trying our best to give some real easy understandable value to the SOV token itself gives as much better picture, in the end (fair or not) without new users we wont reach very far.

The incentive to buy SOV will be in governance and staking for the revenue share token.

I’m not 100% sure that this would be cannibalizing $SOV’s value.

However, another idea: what if this rev share token were non-transferable, voiding any possibility of $SOV’s value splitting to another market?

By having a non-transferable token that can be redeemed for fees at any point from now until 10 years from now, you get the chance to wait until a later date to cash it in for fees, when there is much more in the system.

At present, you are instantly cashing out indefinitely for pennies. The rev share token would allow you the chance to save your redemption for later, as well as gamify the timing of your redemption in relation to other stakeholders and the token supply/fee ratio.

@exiledsurfer SOV is already a claim on future revenue on the platform

Staked SOV is a claim on present revenue from the platform.

my argument is that any tokenomic design for a new token could be applied to the native token via a SIP to modify existing contracts.

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Totally agree with these points. Do not want an oligarchy with a Bitocracy pink ribbon. I’ll be tracking SOV, and if that happens, I’ll wait for the perfect moment and get out even with the early unstake penalty.

Totally agree, humility and transparency. Unfortunately I have been a little disappointed with this project thus far, as I do not feel like the explanations of its dynamics were completely clear and transparent, at least not enough for someone looking to join a “Bitocracy” and really financially support it for a few years. I wish I would have gotten on these forums first. I still would have gotten in, but definitely not staked. The staking penalty should be revoked unless they add an “Agreement” window just before you stake that gives you an actual breakdown of what you are getting for your money.

But hey, this means the developers and leadership of the protocol have the chance to really show everyone it is different, and for the people. Will there be more transparency? Is this really the future or just another financial venture of the select few? We shall see.

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I’d like to propose founder’s shares, (meaning shares which are locked in a vesting schedule) be excluded from Bitocracy revenue share calculation. However, I think these shares still maintain full voting power. As vesting founder shares unlock, they can subsequently be staked for fee share with everyone else.

I want to be careful with this topic. To be clear, I have no issue with founders receiving outsized shares early on and becoming fabulously rich. I think we all owe them an extreme debt of gratitude and that incentive is absolutely necessary.

However, much of SOV’s value proposition is as a productive, cash flowing asset and while it is probably not intentional, right now the founder shares disproportionately skew the revenue. It just makes this an up-hill battle.

Making this change would be an extremely good show of faith to the community and broader ecosystem. Early on in Telegram and Discord many people (including myself) were under the impression this was already the structure, as that is what the team was telling us. I can tell you personally this added to a stronger overall sentiment and appreciation for the core founding team.

In the short term the platform isn’t earning much revenue, so from the Founder’s perspective does it really matter if their shares are getting a cut of that? No, not really. It’s not going to make or break them. All of the value is in their actual long term ownership of the token itself. Plus, by the time the platform starts earning revenue more of those shares will be unlocked and they can max stake and immediately get revenue share.

As DeFi evolves, the ultimate fundamental is going to be revenue/cash flow. Not TVL, not fees where the majority are collected by founding members, but participatory revenue share that is available for the common person to buy-in on. We need to protect and promote this narrative. I think this is an easy trade-off for founders to make that net long term the benefits far out-weigh any short-sighted revenue grab.

I firmly believe the long term benefits of prioritizing the base-line staker in the long run will provide far more out-sized returns to vesting shares then trying to scrape returns by engaging in revenue share in the near term.

I’d like to hear from people who actually have founders shares. What are your thoughts on this?

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