On behalf of the PRO Delegators’ validator, we extend our sincere thanks for the rigorous effort and commitment reflected in your post.
At Govmos, we’re fortunate to have financial experts on our team, which is why we took the time to carefully review every detail of your extensive analysis. After evaluating the proposed ratios and forecasts, we found that our conclusions align closely with yours. Your insights are both rational and realistic.
One point in particular caught our attention:
The important business model adjustment to make, in our view, is to find a sustainable level of cost of revenue (growth) and cost of goods (security) such that in the steady state, the protocol can grow at a healthy gross margin and accrue a positive cash surplus.
We fully agree with this statement, but we believe a progressive approach is essential. Introducing a Treasury sub-DAO and allocating some proceeds to it is an excellent idea, one we will support. However, adjusting these economics will inevitably impact both validator revenue and staker incentives, as their investments in dYdX tokens were made based on the current risk-reward balance. We concur that there is room to grow protocol revenue and that, if managed wisely, the protocol treasury could bring long-term net benefits to stakers.
Our only suggestion is to conduct further studies on how these changes might affect security aspects. To assist in this area, we’d like to share our thoughts on the topic.
Analysis of the Staker Economics:
Understanding the potential impact of reducing security allocations requires an examination of the current status, framed by long-term trends:
Source: https://analytics.smartstake.io/dydx/stats#staking
Looking at nearly a year’s worth of data, we observe that delegate growth has slowed since February, likely due to increased competition in the decentralized perpetual exchange market. However, the percentage of supply staked has remained steady, suggesting that this competition hasn’t yet affected overall staker perception. The average delegation has also remained relatively stable, reinforcing this assessment.
Yet, we notice that the 25% supply staked may represent a plateau. Further reductions to the stakers’ reward bucket should be approached cautiously to avoid turning this plateau into a reversal. We recommend that the sub-DAO be explicitly mandated to adjust proceed reallocations in a way that maintains the chain’s overall security market above this 25% threshold.
Analysis of Validator Costs:
Another critical aspect of reallocating proceeds to a treasury DAO is the immediate reduction in validator revenue, which is further exacerbated by the centralized distribution of voting power.
| Gini Coefficient | 0.568629 |
|---|---|
| Nakamoto Index | 4 |
| #1 VP Equals N Bottom Validators | 29 |
| Top 100 delegate stake share | 84.01% |
| # of Consensus Validators | 60 |
| Validators below average Voting Power | 44 |
| Last Active Validator Stake | 380391 $DYDX/ $322913 |
| Median/Weighted Median Commission | 5% /5% |
Source: https://analytics.smartstake.io/dydx/stats#stats
Looking at the history and also comparing with other chains in the ecosystem, we can highlight some trends that should be considered:
Source: https://analytics.smartstake.io/dydx/stats#vp
Decentralization has improved over time, but more progress is needed to match historical leaders like the Cosmos Hub. The chain still shows significant gaps in validator revenue, as reflected in the stake distribution charts. For a median validator with a 2M DYDX delegation, a 5% fee, and the provided figure of $50.2M in annualized security revenue, this validator would earn approximately $21,000 annually. With monthly operational costs around $700, many smaller validators with delegation below 1M DYDX are operating at near-loss levels today. Further reductions in the security budget could make their situations even more precarious.
Conclusion:
We propose two paths to foster the new treasury while maintaining a sustainable level of security budgeting. The first path would involve raising the minimum validator fee to 6% as we proportionally reduce the security budget by 20%. The second path could explore a progressive approach tied to revenue growth, allowing for a gradual reduction in security allocations while keeping validator and staker revenues stable.
At Govmos, we are open to either option and recognize that other viable paths may exist. We look forward to hearing feedback from the proposers, the Foundation, and the entire validator cohort.
To conclude, we fully support the creation of this sub-DAO. We believe now is the right time to foster this initiative so that it’s fully operational when market momentum returns. On behalf of the PRO Delegators’ team, we will gladly support the on-chain proposal.
Thank you for reading,
We look forward to the community’s feedback.
Govmos.
