Meria is a validator on dYdX, governor on Stride as well as part of Stride dYdX liquid staking validator set.
We fully support this proposal as an effective solution to improve the overall economic security of the dydx chain. We believe that this proposal will ensure the long-term future of the network, by diversfying the treasury and benefiting all parts of the ecosystem.
Nevertheless, we’d also like to see more liquid staking protocols getting involved in these initiatives to promote decentralization at every levels.
This well-considered proposal addresses crucial security and growth concerns for the dYdX Chain. Staking a portion of the community pool is a proactive step that will help match security measures with the protocol’s increasing adoption.
I also agree that addressing the current concentration of voting power among top validators is a priority. Delegating to smaller active validators is an effective way to improve resilience.
Side note I would like to add in this conversation; I believe we should add more LST-providers in the mix for this 20 million DYDX. As a delegator I am not happy my APR will go down from 21% to 18%, but I understand the trade-off for the chain security.
In return we should not put all our eggs in one basket, but spread it out over multiple providers. That does not necessarily mean it has to happen in a 1:1:1 relationship, because we also should not introduce a new risk where the value of the LST becomes bigger (or close to) the chain-secuirty of the provider. So there is some research needed to determine what the ratio should be and via what route we could be able to incorporate a protocol like QuickSilver as well.
I see a number of comments in this thread regarding sharing the proposed 20M DYDX between several liquid staking providers.
I agree that in the abstract it would make sense to include as many liquid staking providers as possible, but at the moment Stride is the only provider that can securely handle a deposit this big. There’s a couple of reasons for this, but the main one is economic security. Stride’s economic security via ICS is $3B, while the economic security of Persistence stands at $60M. This matters a lot, because economic security is the foundation of all security.
I expanded on this point in a response to the Persistence thread, which can be found here:
Unfortunately I can’t post a proper link to it for some reason, so here’s a link with brackets:
Our team at Anthias Labs is supportive of this proposal. It seems apparent that dYdX Chain will benefit from this increased security, and as far as decentralizing the stake, this could be something to consider more closely, potentially with part of the additional 60M vested tokens in the community pool. However, from an efficiency standpoint, utilizing Stride could be beneficial in allowing the DAO to minimize complications related to working with many different staking entities. In addition, it appears that there is a fair amount of overlap between dYdX Chain Validators and Stride governors, so hopefully this will be a natural partnership.
One thing to consider if the community would like to decentralize this allocated stake is the amount of TVL currently in potential other staking protocols that the DAO would engage with. If these providers do not have significant TVL, it could be a cause for added security concern that would detract from the point of this proposal. Stride appears to have sufficient TVL to justify this addition in stake.
We are generally supportive of this initiative thanks @Reverie!
We agree that the economic security of the chain is very important and while this initiative will end up diluting staking yield, it will provide a safer environment for an increasing number of deposits and users on the dYdX Chain. Although we can improve a bit on the proposed fee agreement and yield accrual.
Stride currently has ~$10.17M in staked DYDX and ~$153.8M in Total Value Locked across all products. This proposal allocates $66M in DYDX ($3.33/DYDX) to Stride which will 6x the protocol’s amount of DYDX staked, and increase Stride’s overall TVL by ~43%. On top of this, stDYDX is auto-compounding at a high rate of 18%-20% further increasing TVL and a flow-on effect in TVL due to positive brand signalling.
Stride has delivered a great product and we are supportive of selecting them, however, given the large allocation of DYDX we’d expect the staking fee rate to be lowered to 5% or less. This means the dYdX Community will receive a higher share of rewards rebated in USDC.
We’d also very much be in favour of receiving all staking yield in USDC instead of having it auto-compounded into stDYDX. This will begin to help diversify the Community Treasury and allow these funds to be used to pay for service providers/subDAOs without having to sell DYDX from the Treasury.
Should this initiative boost Stride’s staked dYdX by 3x?
I think this needs further development. If the hurdle is managing a rotation of staked minority validators StableLab would happily manage that for a small fee to offset personnel costs.
On behalf of the PRO Delegators’ team, we have carefully reviewed both the original proposition from Reverie and all the replies.
Context:
Firstly, we would like to summarize all the impending modifications that would occur if this proposition passed:
On-chain stake will increase overall security by 20m dYdX from the current 245.57m tokens staked (roughly an 8% increase).
The community pool’s balance will spend 20m tokens, which represents 8.54% of its current 234m supply.
Existing depositors’ APR will decrease from 21.32% to roughly 18% (a 15.6% drop in revenue for existing stakers).
90% of rewards used to auto-compound DYDX, 2.5% flow directly to the dYdX community treasury as USDC, with the remainder 7.5% going to the Stride protocol’s fee.
Voting Power in the active set will add 20m dYdX to 14 validators based on the current delegation policy weights agreed upon by both Stride and the dYdX community (sources: here and there).
Analysis:
By compiling all these elements, here is our general interpretation: this modification is expected to have a minimal impact on security (+8%). Still, we think this cautious approach is essential to avoid creating unwanted distortions in the reward distribution mechanism of the protocol. Calculations provided in the original post foresee a reduction of 15% in revenues for existing delegators. This revenue reduction is expected to be compensated by an increase in the token’s price as 90% of the generated revenue by this new stake will be compounded into buying dYdX from the open market. Moreover, a slight portion of the remainder (2.5%) has been conceded by the Stride protocol to be directed into the community treasury and will be kept in USDC. This will help fund future initiatives for the community.
Legitimate concerns have been raised in comments regarding the distribution among the set in regards to the VP distribution. Our calculations show that the impact will be minimal on this front. Moreover, the Stride delegation program is expected to include new validators over time, which will further dilute this potentially negligible effect.
There are also voices complaining about the LST provider choice, which seems to favor Stride against other competitors, also raising potential conflicts of interest. Even though this falls into the realm of speculation, it is also evident that Stride currently has a significant leadership position in the space, and therefore it is hard to consider that self-interest is the only motivation here. To address this particular point, we would like to remind readers that PRO Delegators has a neutral political stance and will always cast abstain in regards to every proposition that may have significant ties to politically dividing votes.
Conclusions:
Overall, we think this is a good proposition that offers a balanced solution to kick-start an improvement to the chain’s security while not moving too radically to disturb natural market economics. We currently expect to cast a YES vote as long as the LST provider choice doesn’t become too much of a political divide. Beyond a certain threshold of public contest, we would be forced to abide by our obligation to abstain and invite our delegators to cast their own independent votes.
As a community contributor, I am supportive of the initiative’s intention in enhancing the economic security of the chain, diversifying the pool’s revenue streams and expanding further into the LST space. Much kudos to Stride as well for pioneering with the first LST for dYdX and now with this next step.
While on first glance, the execution can be potentially improved from a decentralization perspective, we can consider these 2 risks, Learning from Lido (Notes from Ethereum Researchers : Magnitude and direction of Lido attack vectors, The Risks of LSD):
1. Risks on Capital: This is from the community treasury. Ideally, the protocol/protocols chosen should reflect robust economic security with a sufficient level of adoption. This includes existing TVL, number of users and even how the protocol derives its security.
2. Risks to Protocol: The most obvious being centralization risks, but it is important to note the diversity in the underlying validator sets. Furthermore, this is still regulated by the community through governance and the amount can be withdrawn should any protocol become malicious.
Next, instead of it being auto-compounded into stDYDX, USDC yield will be ideal for future expansions on subDAOs/community initiatives.
Ultimately, 20M tokens is not a small amount and this should not be a race to the bottom for fee structures but what is in the best interest for a healthy and sustainable ecosystem. eg. Will a proportional distribution work based on their existing TVL? etc.
We appreciate all the thoughtful responses and feedback on the proposal. Given the overwhelming support for allocating the treasury towards economic security, we intend to move forward with the initial signaling proposal. Since there were a few comments suggesting adjustments to the original proposal, we’d like to clarify our reasoning for moving forward as initially proposed.
The 20,000,000 DYDX was decided based on the rapid growth of USDC deposits and slowing of staked DYDX on the dYdX chain. This initial allocation of 20 million presents an opportunity to address any immediate growth concerns as we enter a market of high activity and adoption. Since the treasury has over 230 million, of which 80 million has vested, we think this is a reasonable amount that adds a high security buffer while still leaving ample capital for other community initiatives.
We respect the opinions presented for adjusting the proposal with different amounts, economics, reward accruals (USDC vs auto-compounding), delegation strategies, and so on. However, we don’t think we’ll ever find a solution that makes everyone happy when it comes to delegating the treasury. We could spend all year debating these different parameters and variables. Where we have all agreed on is the goal of this proposal; to improve economic security with a treasury delegation.
We think the original proposal presents a sound solution to accomplish this goal. The Stride team have offered a discount on their fees, something they’ve never done before, allowing the dYdX community to accrue more rewards. And accruing rewards in both DYDX and USDC is a win-win for the community by allowing economic security to grow overtime while also diversifying the treasury. We think it makes sense to pursue this proposal now for the sake of protecting the protocol in a timely manner.
We think Stride is the right partner for the community to kick start this initiative. Their solution leverages core Cosmos technology (ICAs) and gives the community full control of their staked capital without any added multisig/counterparty risks. Stride’s economic security as an ICS chain removes economic risks, and their TVL confirms battle-testing and user adoption.
There have been some questions around the tradeoffs of using Stride vs native staking. Native staking via governance is an option, but requires a lot of work to be done in a safe, robust manner. At a high level, it would require either alignment of all validators on delegations or a committee to review applications, interview validators, review validator standards, vote on allocations, and so on. This could be a multi-month process with many proposals and tons of back and forth.
Stride abstracts all of that complexity away, allowing the community to distribute stake in a safe and robust manner. With Stride, we’re accomplishing our main goal – increasing security – in a much more efficient way.
Finally, we don’t think of the 20M as a cap on allocations to security. After this allocation, the treasury would have another 60M DYDX available, and 153M vesting gradually. As the protocol continues to grow, the community may want to consider leveraging its treasury some more. Separate proposals should be considered, which could include other providers.
We look forward to participation in the first signaling proposal, which will launch the process to kickstart a community-owned protocol growth and security initiative.
We want to thank Reverie again for this important proposal. That being said, we have seen the community take a lot of interest in the matter and would have loved to see this discussion come to fruition, as it usually does when given space and attention.
In our experience the road to decentralized governance is the road to community empowerment. This can be frustrating for proposal authors, as decisions making processes take time. But the ultimate solution tends to be more robust, because it incorporates many different viewpoints.
I am genuinely perplexed as to why the largest expenditure from the community treasury should only be discussed for a few days and then put to a vote in its original form. The two topics that have been under discussion are by far the best threads on the forum in terms of the wealth of useful information they’ve provided for a long time.
I also suggest that validators who are investors in Stride should utilize the Abstain option
It seems the corporations have sensed blood in the water and are rushing towards their intended outcome without addressing your excellent points:
-Dilution of staking rewards will not encourage more staking
-Parties with a conflict of interest should abstain
-Lengthy unbonding periods
Fortunately there have been a few people bringing up the point that community funds should be staked with the smallest validators (that have a fee below a certain sensible level).
I also think that if community treasury tokens are going to result in staking returns being diluted then the community treasury should at least be active in trying to address consolidation of voting power.
This proposal seems like a no-brainer yes. Here’s the way I see it.
92.5% of an expected $13.5M in interest (marked to a $3.22 price) will accrue to the treasury; 90% in the form of additional DYDX, 2.5% in the form of USDC. This is value that the treasury would otherwise not have. Anyone who is concerned about the 7.5% Stride fee is stepping over dollars to pick up cents here. Phrased differently, if we want to consider that 7.5% a cost, would you pass up an investment opportunity as a DAO to make a (92.5%/7.5%) = 12x return on capital that would otherwise be stagnate? Seems like a no-brainer, contingent on it not making the protocol security worse.
Will it make protocol security worse? I’m certainly not a protocol security expect, but if you’ll indulge my speculation, my intuition is that this is significantly better for protocol security. Currently there are two pseudonymous validators that control over 30% of the network stake weight. Since stride presumably isn’t going to be staking with them, I’m quite convinced this is going to improve basically any metric of stake weight diversity (Gini, shannon entropy, nakomoto coeff).
