[Discussion] Activating MKR Staking Rewards

MIP49: Staking Rewards is going through the May monthly governance cycle, and I wanted to start discussion on what the starting parameters should be. I’ve constructed a little chart to see how various rewards % amounts correspond to MKR holder’s yearly ROI.

As you can see the APR quickly increases the lower the lockup. In particular if we were to stay put in terms of MKR lockup (~20%) then we could offer 10%+ APR with only 50% of the burner redirected to the rewards contract. This may not seem like a lot compared to the farming rewards available out there, but I think we are within striking distance.

I will attempt to profile a few types of DeFi degens in increasing amounts of degeneracy:

The Sound Sleeper

The Sound Sleeper likes to keep MKR in her cold wallet. She trusts the Maker protocol, so she already participates in voting, but isn’t interested in touching yield farms with a 10 foot pole.

The DeFi Chad

The DeFi Chad has a busy life-style. He heard about this crypto thing, but doesn’t want to spend too much time hunting around. DeFi Chad uses Yearn and a high collateralization ratio, so he only needs to check in once a day.

The Rik

Rik has an insatiable appetite for maximum yields. No he will not waste money on Yearn performance fees. He does his own research and keeps his collateralization ratios on the bleeding edge.

Let’s see how they compare with various rewards setups:

As you can see it is possible to bring competitive yields to the Sound Sleeper profile vs the DeFi Chad. It’s hard to say how many fit the Chad profile, but my guess is this is the majority of farmers as it is the most benefit / least work. Being a true DeFi degen requires reading code, keeping up with new launches and re-adjusting your CR frequently to ride the line. Even then the risk / reward calculus is not the same. MKR staking rewards are much safer on many fronts including smart contract risk, price risk, etc. It may be that a number of Riks will be willing to hang up their degen hats for a safe 20% APR.

The above numbers assume a 20% rewards lockup which is larger than the current amount locked in the chief, but we can probably expect some inflows from users who are just there for the rewards. It’s hard to estimate what the actual result will be, but we can probably deduct users like the Foundation, MKR holders still inside the foundation and a good chunk of lost/forgotten MKR. My guess at a reasonable upper bound is 50% locked in rewards, but who knows. Even in that scenario we can provide 10% APR if we direct all burner MKR into the rewards contract.

In any case, this is something that can be tweaked as we go. Starting with maybe a small 10% or so to see how things go and gradually ramp it up/down as needed. I think this is a good parameter for Parameter Proposal Groups to adjust based on market analysis. IE we could have a mandate to keep the rewards as low as possible, while trying to balance with the MKR locked in third party lending protocols.

Please discuss. :slight_smile:

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I was trying to figure out how I missed the lingo on Rik but I now realize who you are referring to :wink:

Thanks for spearheading this initiative. I really hope we can persuade more “traditional” community members that these types of incentive schemes will be necessary to compete with the rest of the market and promote healthy protocol participation. This along with delegation will help secure and incentivize the protocol from many risks. Again, thank you and awesome work.

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I am generally in favor of what I see here, but don’t want it to ever become such a focus that we leave ourselves undercapitalized or not investing in further growth :+1:

Just remember that we’re discussing incredibly high yields compared to other assets. Granted, a lot of risk sits with Maker compared to Smells Fargo or HSBC or something. But it doesn’t really have to be a huge income to achieve the goal of taking MKR out of the markets.

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The rewards are hooked into the profit taking mechanism (currently only the burner), so operational costs come out of the surplus buffer first. This is only if we have an excess and can never cut into operational costs (funding teams, growth, etc).

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Somebody else probably had the idea already, but we could fund rewards through inflation. That is, non-staked MKR could pay staked MKR in a way that is net-zero for the surplus buffer or fee collection. Just to make it clear, this could work as:

  • print MKR
  • sell MKR to DAI
  • distribute DAI to stakers

This is probably not an efficient way to do it. Smarter people than me could probably figure out how to get the same effect without slippage and with fewer transactions.

I realize that such a scheme is completely different from MIP49 and is probably off-topic for this thread.

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Thanks for clarifying! (Even though I see you mentioned it elsewhere and I was just slow to absorb)

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Really Nice presentation and explained in simple terms–thank you Sam.

IMO we will be able to attract “The DeFi Chad” with Double-Digit Yields of 10% to 20%+ Anything below 10% (and that’s push it 11-12 looks better) won’t catch the eye, or it will just make them yawn–unfortunately.

The “Rik” won’t get out of bed unless it’s at least 1000%+++

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Haha yes basically. I do think we can begin to attract some Riks at certain point because of the large decrease in risk.

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Agreed, this is great for anyone on the Sleeper/Chad spectrum. This will not attract leverage seekers or “Riks” but I’d say (like you did) that the majority of our target audience falls into the first 2 categories anyways.

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Strongly in favor of the rewards system above. 20% should be more than enough to beat AAVE or uni/sushi MKR LP positions and secure the hat

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Anything above 5% APY would be great for my MKR!

Anything above 10% APY would be a dream!

Anything above 15% APY would be bad, because I’d probably sell all my other stuff and go all in on MKR. :stuck_out_tongue:

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Would it be problematic if MKR earned say 10% and Yearn developed a vault that allowed users to stake their MKR in order to yield farm even more? Similar to what they do with the HEGIC vault.

I mean…at least that MKR then isn’t being lent out or on exchanges right? So even if “yields” go down the implementation is doing what it was designed to do, keep MKR in the chief/securing the protocol.

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I would be for it, but not sure how people would feel about Yearn having a seat at the governance table.

Wouldn’t Yearn be obligated to delegate on behalf of depositors? Wouldn’t it be transparent as to where that MKR was coming from? Rewards come in the form of DAI (presumably) so its just the deposited MKR that could be used and I’m not sure they would risk the PR to misuse users funds for their own gain.

Why would they be obligated? Is there a legal reason? Or just morally?

What if there is say a vote on YFI debt ceiling, would they not be incentivized on behalf of depositors to maximize the debt ceiling and vote to lower the stability fee.

From a PR/brand perspective if a company was caught using customer funds for personal agenda, that would look bad right? If not explicitly communicated beforehand on behalf of said users.

Only if their customers would pull funds or sue for some reason. Everyone knows cigarettes kill them, but still buy them from Altria. Are yield farmers different? They don’t strike me as the ESG crowd (at least, not on the G)

I’m confused as to why anyone would use a Yearn vault for something you can get 100% of the rewards yourself without an actively managed position.