Exit Polling: MIP49 Staking Rewards [Informal Poll]

Paradigm voted no on this proposal. Realize how important it is that the community can interpret the outcome of votes, especially when they’re split, so wanted to share our rationale here.

Facilitating higher voting participation is crucial. We’ll make better decisions and discourage crypto-economic attacks. Hope we can all agree on those goals and appreciate the work that @prose11 +co have done to push us to make progress.

However, we’re not sure that staking rewards are a sound near-term solution:

  • Staking rewards do not directly incentivize meaningful governance participation, like voting (let alone thoughtful voting).
  • Staking rewards may not pull that much MKR off lending markets. Holders can still tokenize and lend locked MKR. Even with a lockup, provided the rewards yield isn’t insanely high, the only effect may be to raise the borrowing costs a little bit – inconsequential for an actual threat actor.
  • We agree with @g_dip and @equivrel that delegation is a more credible near-term solution to low voter participation. Staking rewards would also influence the incentives to delegate, so we’d prefer to revisit them after (or as a component of) implementing delegation.

This post does not constitute investment advice or a recommendation or solicitation to buy or sell any investment and should not be used in the evaluation of the merits of making any investment decision. It should not be relied upon for accounting, legal or tax advice or investment recommendations.

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Thank you for the Feedback Charlie. Always good to have our community members stop-by and voice their opinion. And good looking out on helping the community shape the future of the DAO. We’ll eventually get it right.

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Really appreciate the feedback Charlie. We’ve been flying blind for most of the previous MIPs, so this kind of feedback is critical to match future proposals with what MKR holders want.

Agree with this. The intention of rewards was never to encourage voting. I’m skeptical that proper voting incentives can ever be encoded on-chain as any strategy is likely to just be gamed.

Respectfully, I disagree with this point.

  1. As I outline here, I believe we can directly compete with the yields being offered at Yearn. That combined with the staking rewards having much less risk than farming should help to pull a good chunk of the “lazy farmers”.

  2. The tokenize and lend strategy can be easily distrupted by a blacklist maintained by a multisig with governance override. Making a token, building liquidity and getting it added to a platform like Aave is not trivial and likely takes at least a few weeks of hard work. This is compared to the 1 tx that the multisig can perform to stop this. If we present the credible threat of a blacklist to anyone attempting to do this it should be enough to stop this from happening.

So I agree with the point about delegating likely solving this for now especially since you guys have stepped up to the plate to help with governance. One thing I will note about the delegation is that we are building the contracts to give the rewards to the delegator and the delegate as I agree the incentives would be rediculous giving a delegate that high of a return.

Happy to hear you are open to revisiting this later. I really hope this loaning MKR problem goes away, but I suspect it will not.

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Very much agree with these points and form of feedback. I’m actively pushing other VCs holding MKR in my circle to engage and using this as an example of what it looks like.

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It seems after reading a lot of the discussion to MIP49, the actual campaign for/against during the voting, and then the post-mortem report…that voters were confused on the intent of the MIP. There was misinformation on Reddit and other forums about the intent of the MIP to hijack/incentive voting. To my knowledge…this was not the intent of the Staking Rewards proposal.

My suggestion: take the feedback, add more explicit controls over staking rewards/mechanisms, clearly emphasize the need x10 of the importance to protect against governance attacks…eventually the competitive moat we have created with the DAO/MKR as a governance token without a yield/staking component has the potential to really hurt the small-time investor to take interest in the protocol.

The jury is still out whether plutocratic DAOs can build sustainably for the top holders and continue to foster inclusion for the small fish. For a small fish like myself: staking rewards with the intent to protect the protocol feels a lot better than sitting on a small amount of MKR and not being able to vote/find sustainable yield because of enormous gas fees and not your keys/not your coin risks (eventually will be eliminated with L2s, etc.)

Keep it all in-house? A different risk profile for me.

Thank you to all those that worked on this first rendition. I hope we can continue the conversation and get something palatable for the top brass (VCs, funds, whales)

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FWIW the mere threat of this sort of thing passing is enough of an incentive to get me to start voting again. This is despite my belief that there should basically not be voting on individual decisions at all and that MKR should just use the approval voting mechanism to protect rulesets/processes. This would set and maintain a very high quorum without the constant attrition caused by new proposals coming in.

Let us hold position in the approval voting system and lend out the non-voting gov IOUs if we want to trade off lockup for more returns. (Is it still using DSChief under the hood?).

This staking model is appealing to high time preference voters and it seems like it would naturally tend towards increasing staking rewards until they are 100% and then such voters would naturally choose to start diluting non-staking holders for even further rewards.

Holding MKR is staking. Fix the voting system, don’t bend incentives with what is essentially reallocation towards people that vote to give themselves money at the expense of “support status quo” holders.

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As an aside, I agree with @Mr.dorf that the intent should be clearer. It did seem like part of the purpose was to lock in MKR stakers for when there is a black swan, but this is basically the opposite of what you want (this kind of crisis is exactly when you want the people who want to sell to get out and people who want to buy to get in – a reallocation towards better risk managers). OP identifies that the only justifiable argument for the lockup here has to do with borrow/vote attacks, which I address in the last post.

If you want to compensate people for locked up risk-sharing, that could be achieved with something like a user-funded surplus buffer, IE, lock up their cash (dai) and redirect revenue to giving them a ROI like an insurance policy.

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What would this look like in practice?

Yes, with minor changes to defend against flash-loans.

The top-voted address would be a contract which encodes the logic of how decisions are delegated.

At the moment there is a de-facto executive team that puts together proposals and pushes them through the voting process with very high probability that voters just go with the proposal. The problem is that there is attrition of MKR voters precisely because they are OK with this setup.

I guess it is trending towards having multiple teams with distinct responsibilities. Each could be represented as, for a example, a time-delayed multisig. MKR voters only have to coordinate when there is something that they need to respond to. (Personally I think collateral approvals should move towards a process where proposers have some kind of skin in the game, e.g. futarchy-like betting+voting on which collateral types are safe.)

Note that you could still have MKR voters themselves be a form of delegated voter, so simple majority voting for polls or day-to-day actions could still be a thing.

As time goes on this could become more sophisticated because you can choose arbitrary logic. Each change in ruleset requires beating the MKR approval quorum.

The key point to reiterate is that in an approval voting system, each outcome is essentially a separate election – votes for different options do not add up to 100%. So you can have a situation like this:

Option 1: 80% approval (the current ruleset)
Option 2: 65% approval (the current ruleset with a minor change)
Option 3: 40% approval (a totally different ruleset)

By analogy, in the US we have nearly 50/50 division between the two major parties, but there is overwhelming approval of the constitution itself. The constitution is not really up for vote each election, though it can be changed with enough consensus and coordination.

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I think that’s pretty much the long term plan, yes.

Are you @cnoyes saying that Paradigm thinks the governance risk posed by lended MKR is better solved by increasing voting participation? This makes sense to me. The pool of sleeping/idle MKR is significantly larger than the pool of lended MKR, is it not? Better to focus on diluting the potential power of a negative actor by turning idle/absent holders into participants.

As a MKR holder who fits the @hexonaut Sleeper profile (3+ years; zero participation; no intent to sell; small fish), I can credit my (lack of) participation to high gas fees. I’ve pulled up multiple straw votes with the intent to vote, then gaffed at the high gas fees (@Mr.dorf). I’d be very interested to hear from other sleeper accounts; why are they not participating? Hard to design solutions without knowing the motivation(s) of these idle accounts. Maybe MKR holders are simply accustomed to free-riding (habits from holding stock?) and don’t fully understand/realize the risks to their MKR holding that governance attacks pose?

Thank you @prose11 for facilitating this effort. My primary concern with offering staking/rewards without first understanding why people are not participating (I’m again assuming a large part of our MKR pie is idle, and like me), is I worry we might inadvertently foster incentives that promote short-term decision-making. For example, I would much rather see excess fees used to burn MKR rather than used as income (@PaperImperium). I see income as a short-term reward (you get something today), and burning a long-term reward (scarcity will increase demand later).

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Came here to say the exact same thing (which is that there should be multiple lockup periods with relatively more rewards the longer you lockup)

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I concur with the person who said they’re a small fish who doesn’t vote because of gas fees. Maybe MKR paying for gas fees would be a way to increase voter participation to reduce the influence one big bad actor whale could have?

I know this Informal Poll failed to get any traction–but where do we go from here?

It’s a bummer to see a “new” DAO easily implement incentives and here we are still trying to find answers:

API3 token holders will gain one vote per token staked in the DAO smart contract, where these tokens will be locked up for 12 months, allowing voters to share in staking rewards, starting at 47.12% APY and adjusting downwards as the collateral targets are met

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I guess we try Delegation. Then incentivized Delegation. I think that is the path of least resistance based on where we are now.

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