Hello Community,
You may be familiar with my opinions about the current state of WTN which I have expressed. In many threads including this one:
https://forum.dfinity.org/t/governance-centralization-risk-from-liquid-staking-design
and more provocatively here:
https://forum.dfinity.org/t/nachos-my-100-original-idea
Today I come to you not as a provocateur, but as an advocate for change. There are better, more ethical ways to do things that could make ICP a shining example in the crypto community.
I do not have the technical skills to implement these changes. I do build websites and write sofware for fun. I understand what I’m putting forth here isn’t something trivial to implement. I’m just trying to put my best foot forward and try to help provide a solution to an issue that is dividing the community.
This is the current design of WTN economically:
This on the surface appears very fair. It appears that most of the rewards are going from the DAO to the nICP holders. The DAO is getting voting power, the nICP holders are getting extra yield they couldn’t through staking 6 months themselves, and they are retaining liquidity. Everyone is happy and winning right?
There are a few issues going on which I find, problematic.
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As the number of nICP holders grow, the deal gets worse and worse for each successive one.
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At the beginning the DAO is “paying the nICP holders” for their voting power. However, when the number of nICP holders grows high enough they will actually be “paying the DAO” to vote for them.
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These 2 parties are not operating in a vacuum. There is a wider ecosystem that is effected by inflationary pressure. nICP holders cause inflation to occur and can receive higher rewards than their friends who simply staked their tokens for 6 months, while still retaining liquidity.
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There is only 1 8 year neuron, and currently no implementation to provide granularity to the 6 month neurons (which is a more complicated problem to actually solve). Meaning that if 49% of WTN DAO votes one way, their voting power is not only ignored in the NNS, it votes the opposite way.
To illustrate points 1 and 2, here is the same model drawn to scale, when the protocol is mature. Please note, I realize that 90% of the rewards from the 6 month neuron flow back to it. And 10% from the 8 year goes to the DAO. I’m simply including the numbers that represent the economic exchange that is occurring between the DAO and the nICP holders.
This equation can be used to show that, when the 6 months neurons outgrow the DAO by a factor of more than 18, the nICP holders will be paying the DAO to vote for them.
x is the size of the 6 month neuron
y is the size of the 8 year.
2 is because 8 year neurons get 2x rewards.
.1x = 2 * .9y
x = 18y
I understand one of the WTN community’s goals is to find a way to reward community members who take governance seriously. I think there’s a more ethical way than this model.
I am not naive enough to think that this is the best solution, I’m doing my analysis in MS Paint… But I think it’s a step in the right direction towards more productive discussions.
A More “Ethical” WTN Design
This model accomplishes a few things:
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Lower rate of diminishing returns for successive nICP holders, in exchange for Lower returns up front.
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More rewards right now for community members who are active contributors for governance. Rewarding the individuals who are safegaurding the protocol right now, instead of later.
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The “fee” nICP holders are paying to the DAO is very clear in my model. They pay it from the beginning and it scales much less aggressively.
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Splitting the 8 year neuron into smaller equally sized ones would in theory allow for granular voting. I understand that the 6 months neurons are a more challenging problem. I split into 10 here for illustrative purposes, in reality this number should be at least 100.
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In this model the rewards of nICP holders will not exceed the rewards of their friends who chose to stake in the NNS, reducing overall inflation.
I also understand that it is not trivial to change the parameters of these economic agreements, as the protocol depends on these parameters not changing. It would effect previous agreements between nICP holders and the DAO. This is not an easy fix.
I also understand that from an investment standpoint, and profit motive, the design I’m presenting here is not nearly as attractive as the original one.
I realize it is much more complicated than I have made it sound here, I hope this can serve as a starting point towards more productive discussions than the ones we have been having.
