Exit Polling: MIP49 Staking Rewards [Informal Poll]

Where do we go from here?

With a few hours left for voting at the time of drafting, it looks like MKR holders are overwhelmingly against Staking Rewards. This post will attempt to gather community feedback through a brief set of polls as I attempt to figure out the best path forward. While MKR Voters’ feedback is extremely valuable here if the proposal wasn’t exciting enough for you to vote your opinion is also important!

Huge thanks to @hexonaut for drafting these questions and encouraging this post. MIP49 has occupied my headspace for the better part of 4 months now, and while I’m a bit burnt out on the subject, the danger of too much MKR out on lending markets remains a pressing concern that will need to be addressed by the community.

What are your Feelings on MIP49: Staking Rewards
  • I like the MIP as written
  • I like the idea, but the specifics need changing
  • I don’t like the idea because I don’t think it will work
  • I don’t like the idea because I don’t want additional tax liability
  • I don’t like the idea for another reason (please elaborate in the thread)
  • Abstain

0 voters

Payout Denomination
  • DAI
  • MKR
  • Abstain

0 voters

The next topic is Token Lockup. Many platforms offer rewards to token users willing to lock up their holdings for extended durations. Some, like Aave, offer more of a “cooldown period” where tokens must remain for 10 days once staked.

What lockup period is appropriate for Staking Rewards?
  • No lockup
  • Short lockup (~10 days)
  • Medium lockup (~3 months)
  • Long lockup (~1 year or longer)
  • Abstain

0 voters

This final question concerns the allocation amount to staking rewards. A reminder that staking rewards will be based on funds otherwise heading to the burner. This means that the system is only paying out when flap auctions would otherwise be occurring.

How should staking rewards be allocated (all number refer to burner flow percentage)?
  • Fixed amount: 5%
  • Fixed amount: 10%
  • Fixed amount: 25%
  • Fixed amount: 50%
  • Fixed amount: 100%
  • Variable, based on Governance Actions
  • Variable, based on outside lending rates
  • Variable, based on the amount of DAI otherwise heading for flap auctions
  • Abstain

0 voters

Thank you for taking the time to vote! If there is enough sentiment I will proceed by making a FAQ for Staking Rewards and making edits to the MIP based on this feedback, and that of the large voters, should they make their feelings known.

8 Likes

Can’t choose more than 2 options for lockup period question. I want to choose all 3 because I think you should be able to choose your lockup period and receive a bonus multiplier for that commitment.

5 Likes

I would be more comfortable with a legal opinion from someone specializing in securities law before implementing a direct compensation mechanism like this. That being said, I should also stress I don’t think that if MKR were ruled a security it would be a dealbreaker, but would require a lot more preparation.

I would also like to see more separation of which problem takes priority to fix:

  1. Reward those active in governance with income
  2. Secures the protocol against vote-renting in a low-voting-participation environment

I feel like #2 is my larger concern, and there’s probably other ways to address this (if we’re creative) that are easier than reworking the MIP that looks like it’s about to fail by a wide margin.

There may also be other priorities besides those two that the MIP is designed to address. But it’s easier to build a hammer than a Swiss Army Knife. Just my casual suggestion as someone without strong opinions on this particular MIP.

3 Likes

To those saying it will not work can you please clarify why you do not think it will work? Specifically why you do not believe that MKR will be pulled off Aave to be locked into rewards if we offer a reasonable % APY?

1 Like

Thanks for the effort you guys put into it.

3 Likes

I liked MIP49 but it probably would have made a failed Howey-test more likely with resulting trouble with the US SEC. So it is back to the drawing board. The task is to get MKR into the voting contract without directly paying to do so.

8 Likes

Well, if we reduce the supply of MKR on Aave, what will happen to the yield on Aave? What does that then imply about what yield staking would need to achieve its goal?

As I understand it, this MIP would restrict supply and subsidize demand for MKR. This tactic is commonly used by governments and usually just leads to a higher price equilibrium. I will point to goods like higher education, health care, certain types of finance as examples in most parts of the world.

Should have minimal effect on Aave yields as the yields come from borrowing stablecoins against your MKR and putting into farms. Here is my post that explains: [Discussion] Activating MKR Staking Rewards

This MIP directs some % profit away from the burner instead into a direct payment. These are both profit-taking mechanisms and there is no subsidy overall.

2 Likes

A summary of objections to staking-rewards-for-the-purpose-of-securing-against-gov-attacks that come to mind:

  1. In general as long as degenerate farming rates are available we can’t really offer better rates than what’s available elsewhere. So by giving rewards we can only bring people in Chief at the margin, based on how much they care about Maker, how risk-taking they are, etc.
  2. A fully automated system (even with lockups and whatnot) is vulnerable to a middleware contract attack. Governance would always have to play a cat-and-mouse game if people tried to get the rewards and still lend based on the value of their MKR holdings. The better the rate we offer, the more incentive there is to game the system.
  3. The whole securities thing.

To move forward, and before we try to refine MIP49, it would be hugely valuable if some actors with a large voting power (and who voted no) could give feedback through whatever channels re: a) why they voted no b) whether they have a better system in mind.

1 Like

I put abstain because there is no option : I like the idea but it won’t pass.

Realistically, I would say the vote has been clear, that is not the solution.
Unless you find real support I doubt this will pass in any way. My understanding is that will dilute the vote power by bringing more voter, which lead to the No.

Tho, I have no insider.

I don’t think this is true at all. Based on the numbers I crunched we can not only compete directly with Yearn farming we can probably draw in those who are more risk-adverse and prefer an alternative.

This is technically true, but unrealistic from a practical standpoint. Currently only a few lending markets have enough liquidity, security, reputation to borrow any serious amount of stablecoins. This is a cat and mouse game, but one we can easily win in an adversarial situation by implementing a blacklist of wrapper tokens. Lending markets need to do a large amount of work to onboard a new collateral (SC work, oracle work, voting, etc). This is in addition to the work the token creator must do to promote their token as the “go-to” rewards wrapper token. All we have to do is blacklist any token which can be tacked onto any governance vote or even possibly operated by a multi-sig. This is a very credible threat, so the chances seem almost zero for this type of scenario happening. Furthermore Aave is currently engaged with us on MIP50 (which passed), why would they start adopting an adversarial position?

I’m not a lawyer, but it seems to be altering the profit-taking mechanism should have no effect on this? Admittedly this could be a concern. I wish we could move away from USA-specific legal stuff, but unfortunately that’s the world we live in I guess.

3 Likes

Personally, I was disappointed that MIP49 did not reward long-term MKR people that protected the HAT for the last 18-24 months—I believed that the Active MKR dedicated folks should have had a higher % payout versus some random whale who joins now/tomorrow—only because its in their best interest to earn Yield on MKR. But I blame myself for not speaking up during the RFC stage. My fault.

I also agree with @paperimperium about trying to figure out if staking rewards via DAI constitute MKR as a security in the eyes of the SEC. I posted on the Rocket Chat that it is my opinion, as to why last night the large MKR players came out and voted “No” on MIP49 based on that theory—but what do I know…

3 Likes

The tax liability and possibility of turning MKR into a security worry me.

Yep. Seems like there’s more than one issue at stake here.

Increasing participation from smaller holders would also offset the impact of those who prefer to lock their MKR in Aave than vote. Delegates should help with that. I’m assuming Snapshot has already been explored and discounted as an option?

Still exploring Snapshot for MKR Weighted polls, but not planning on changing our Exec votes to link up with it for security reasons

4 Likes

The issue is that this doesn’t solve the whale’s problem, and the only way that it works is if they sell to other participants that don’t have the same issue as them. They need vote delegation for a variety of reasons, punishing them for not voting will not make them vote it will just make them sell.

7 Likes

I should preface that I think MIP49 was worth trying out, but since it’s not passing it’s worth going over possible objections, steelmanning them, and finding solutions.

I think we’re mostly in agreement. Unlike you I’m not sure we can fully compete on the yields but there are indeed risk adjustments to make that could bring in part of the Aave MKR or enough outside MKR to compensate.

Yes I’m overall buying that, at least medium-term. However I’ll note that as long as we’re up for manually fiddling with the reward rules, we may want to go all the way and manually vote every 6 months for a lock&activity reward in minted MKR.

Yup I don’t think we’ll be out of those particular woods for another few years.

1 Like

Bit disappointed this didn’t pass - was there any indication on the Forum about what could be the reason why people might have been against it?

I seem to remember it had broad support here so I’m not sure if polling people on the Forum gives an accurate picture of why MKR holders voted no.

1 Like

Yeah, to be honest I am also a bit disappointed and surprised.
I was kind of sure this would have passed easily.

Well, I was wrong! I like the attitude of this comment:

We should take the result of this onchain poll constructively and improve on the original MIP49 proposal.

Thanks a lot @hexonaut and @prose11 for your work.

I think the right approach in these cases is to accept the result, take a break of a couple of weeks (from this topic, if not from work in general), and come back with renewed energy! :slight_smile:

1 Like

Wholeheartedly agree with Greg – paying or slashing voters isn’t the key here and, based on the prior proposal, may have a negative effect on MKR’s regulatory status, as other posters have alluded. Better to spend time and focus on voting delegation. If you look at whale participation on other protocols, delegation has driven more frequent and attentive voting, and I believe we’d see the same results here.

2 Likes

Maybe someone borrowed a bunch of MKR on Aave to vote against MIP49 :wink: