SIP-420: Protocol Owned SNAX

Simple Summary

This SIP proposes a mechanism for SNX stakers to provide staked SNX to protocol-owned staking pool, where the protocol will own the debt and use it to generate yield via Ethena. This reduces the complexity of staking for individual stakers while making the overall system more capital efficient.

Abstract

This SIP proposes the creation of a protocol-owned debt pool, effectively enabling “delegated staking.” SNX holders can contribute their existing debt positions to this pool, which can support a lower issuance ratio (e.g., 200%) because there is no concern about bad debtors within the pool. Over twelve months, debt positions (but not the collateral) will be transferred to this new staking pool. The protocol will use its newly minted sUSD to mint sUSDe (via the Ethena protocol), providing additional yield. Meanwhile, a higher c-ratio (1000%) will be enforced for solo stakers, incentivizing them to join the delegated system. The collateral from the treasury staking position will be redistributed to all participating stakers over a multi-year period, and an sUSD/USDe liquidity pool will be incentivized for the liquidity of the stablecoin. Finally, 250k SNX from the treasury will be allocated as a bonus for the core contributors who implement this proposal at the council's discretion.

Motivation

No inflation and mediocre fees have created minimal incentive for SNX staking, even with the lower risk in the current system. Staking rates are at multi-year lows, and a large minority of SNX is unstaked and sitting idle on exchanges. This proposal removes the need for active individual staking and creates a capital-efficient structure that significantly enhances incentives. It also helps rectify past debt inflation issues by ensuring only willing participants remain in the protocol’s debt pool.

Specification

Overview

1. Create a delegated staking contract
   • Stakers deposit their existing debt positions into the new pool.
2. Raise the current c-ratio to 1000% for all solo stakers
   • Discourage solo staking and encourage delegation to the pool.
3. Set the issuance ratio for the delegated pool to 200%
   • Allow more efficient capital deployment without the risk of bad debtors.
4. Transfer each debt position (but not collateral) over 12 months
   • Gradual transition ensures minimal disruption to existing stakers.
5. Use the sUSD from the delegated pool to mint sUSDe via Ethena
   • Leverage Ethena to generate yield.
6. Transfer a portion of the treasury staking collateral to other stakers over 2-3 years
   • Redistribute collateral systematically and fairly among participants. Approximately 10m SNX should be allocated for this incentive.
7. Incentivize a liquidity pool for sUSD/USDe
   • Encourage stable trading between these two synthetic assets.
8. Allocate 250k SNX as a bonus
   • Reward core contributors who implement this proposal at the council’s discretion.

Rationale

The rationale behind this delegated staking model is twofold:

1. Capital Efficiency & Reduced Risk
   • By consolidating debt into a single protocol-owned pool, we remove the variability of individual staker defaults or liquidation risks, allowing for a lower issuance ratio.
2. Enhanced Staking Incentives
   • Transitioning to a delegated model removes the problem of low staking rates. The newly minted sUSDe and the liquidity incentives and debt jubilee make staking more lucrative, driving higher participation. This also addresses historical debt inflation.

Technical Specification

A detailed technical design and contract specification will follow upon community feedback. It will likely involve:

• A new delegated staking smart contract (or extension of existing staking contracts).
• Logic for transferring debt positions over time without transferring underlying collateral.
• Mechanisms for distributing SNX collateral from the treasury.

Test Cases

Planned tests will include:

• Simulation of debt transfer over the 12-month window to ensure no partial debt positions remain stuck.
• Edge cases where stakers attempt to unstake or alter their collateral mid-transfer.

Configurable Values (Via SCCP)

• Issuance ratio for delegated staking (initially proposed at 200%).
• C-ratio for non-delegated stakers (initially 1000%).
• Time windows for transferring debt vs. collateral.
• Incentive amounts for the sUSD/USDe pool.
• Amount of SNX allocated from the treasury for implementation bonuses (250k SNX)
• Amount of treasury collateral to be used as staking incentives (10m SNX)

Copyright

All content herein is licensed under CC BY 4.0.