[RFC] Strategic Upgrade for RFOX Tokenomics: KPIs for RFOX & Thoughts on LP-RFOX

Proposal Discussion
1

Shapeshift DAO members,

As I have stated in earlier posts, I think it is imperative to further enhance our new tokenomics (RFOX; SCP-166) to optimize both the utility and stability of the FOX token. Building on our initial discussions and the introduction of FOX/ETH Uniswap V2 LP tokens for staking under SCP-177, I propose several strategic enhancements to deepen our ecosystem’s liquidity and broaden staking diversity. Here are the key areas for your consideration:

1. Enhancing Liquidity Provisioning Over Single-Sided Staking:

  • Rationale: Staking LP tokens not only boosts our liquidity reserves but also ensures that FOX maintains a vital role in DeFi transactions, enhancing both its utility and market presence.
  • Proposal: Redirect a proportion of the 25% of RUNE affiliate fees to reward both LP and single-sided stakers, based on the dollar value they contribute. This approach aims to foster balanced growth across our staking mechanisms.

2. Advantages of Burning LP Tokens:

  • Strategic Insight: Burning LP tokens can provide sustained benefits beyond the immediate reduction in token supply. These tokens continue to support market operations by facilitating transactions and maintaining price stability.
  • Action Item: Explore the development of a protocol where a calculated fraction of LP tokens are periodically burnt, thus preserving their utility while enhancing long-term ecosystem health.

3. Broadening Staking Options:

  • Flexibility: Offering members the choice between single-sided and LP staking caters to diverse risk profiles and investment strategies.
  • Implementation Strategy: Start with an emphasis on single-sided staking and, based on specific performance indicators, consider expediting the integration of LP staking.

4. Defining Performance Metrics and Strategic Adjustments:

To ensure that our strategic enhancements align effectively with our overarching goals, we have identified several key performance indicators (KPIs) and metrics for rigorous evaluation:

  • Comparisons to vTHOR Adoption and Liquidity Evolution: We aim to closely monitor the adoption curve and liquidity metrics of vTHOR post-implementation of their staking program. This analysis will serve as a benchmark to set expectations and calibrate our strategies accordingly.
  • FOX Liquidity Evolution and Time-Series Analysis: Tracking our liquidity over time is crucial. We will employ time-series analysis to correlate liquidity changes directly with our token burning actions to evaluate their impact on the market. This will help us understand the efficacy of our burning mechanism in real market conditions.
  • Fee Generation Efficiency: One of the primary metrics will be the total fees generated by rFOX stakers, which should aim to surpass 50% of the total RUNE fee revenue. This threshold is critical as it represents the break-even point for the DAO under the new staking model, ensuring that the program is financially sustainable.
  • Staker Engagement and Growth: Monitoring the growth in the number of stakers over time and their activity levels will provide insights into the attractiveness and competitiveness of our staking options. Increased engagement from the community is a strong indicator of program success.
  • Market Stability and Impact from FOX Burns: We will analyze the stability of the FOX token price in response to our burning actions. Stability in this context refers to reduced price volatility and sustained or increased price levels, contributing to overall ecosystem health.

Adaptive Measures:

Based on the data gathered from these KPIs, if we find that the metrics do not meet our expectations—such as insufficient fee generation, stagnant or declining liquidity, or inadequate staker growth—we will propose an accelerated integration of dual staking models and adjust the incentive structures accordingly. This approach ensures that our strategies remain flexible and responsive to real-world outcomes, maximizing the benefits for our ecosystem.

Conclusion: Integrating both staking modalities will not only diversify our staking options but also enhance our market position through improved liquidity and token stability. This proposal is designed to align with our long-term vision and immediate operational needs, ensuring sustainable growth and robustness of the FOX ecosystem.

I am eager to engage in further discussions to refine this proposal and look forward to your valuable insights.

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@PTT had a smart takeaway from looking at this program. On the first day vTHOR saw 800 deposits. This was due to a heavy marketing campaign, a migration from an old contract standard, and some other attention grabbing. Based on that in 3 months time we should likely be tracking

  • 50 deposits or less fail
  • 500 success
  • 1K or more growth
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Thanks for posting this and your initial thoughts @ProfMcC - it would be great to see this RFC thread turn into a wide open field for discussion about possible improvements to the foundation of FOX/rFOX tokenomics now that it is live (and soon to be announced) and ways that we might improve/evolve things as we get more data post rFOX’s public launch!

When it comes to the question of how allocate some of the overall RUNE pie to the new LP bucket (and where that % comes from) I think it would help to first ask a few questions about the goal of the LP program you and anyone else is imagining here.

What is the goal of the LP program (the recent proposal mentions specifically FOX/ETH liquidity on arbitrum) - e.g. how much liquidity is the DAO aiming to generate?
What would an attractive range of APR be in order to achieve that liquidity goal?
What would the historical APR for the liquidity goal have actually been for various levels of liquidity goal based on the last 3-6 months of DAO RUNE revenue data?

I think based on that we could probably determine and then discuss what an attractive program may look like and figure out what the right % would be. Given the 28 day lock that will hopefully mean this type of LP is a bit stickier than what the DAO has worked with in the past when renting liquidity, but this will still be a form of renting liquidity (and maybe keeping it as long as the APR remains attractive) so the community should also weigh the various benefits of renting/PoL/ and buy/burn program as other various measures of where that % could be spent to improve liquidity alternatively (and it may very well be that some combination of all of these things is the best way to go).

I’m not sure I understand what exactly you are talking about here. A potential change where we buy PoL and burn it (the burning of the LP tokens itself), or burning some of the currently owned DAO LP tokens?

I think all the areas you and @0xFBL mention makes a lot of sense to measure as data points.

A few things to consider adding:

% of FOX staked (both vs total supply and vs circulating supply) → I think a good initial goal (first 3 months) would be somewhere in the range of 2 - 3% of the total supply being staked being a general success, but over the long term even 5-10% seems plausible.

Tracking the historical APR over time (1 day/7 days/30 days/3 months etc will all become important metrics to see if the APR is in a good place to meet the DAOs goals and help inform any adjustment to the buckets based on that.

Burn tracker - We should be tracking and (meming about IMO) all the FOX that gets burned over time, how much FOX has been burned via the buy back and burn bucket, what % of total and circulating supply is now burnt?

As burn amounts is a direct downstream effect of the total DAO RUNE revenue, it may be worth it for the DAO to consider setting FOX monthly burn goals. Marketing could advertise around these and run programs to help the DAO hit its goal. It may even at times be worth specific programs and incentives to hit the monthly burn goal etc. The community could come up with a good approximate starting monthly burn goal by looking at the last 3-4 months of RUNE revenue and shooting for something that would equal a 20-30% growth in revenue over an averaged month over that period and keep resetting the goal higher when the DAO reaches the previous month’s goal (otherwise the goal stays until we hit it). → This could be both a KPI goal and marketing focus to potentially help people understand how it benefits the whole ecosystem (DAO + token holders) together when we hit the burn goal to get those folks helping on that “ground” level.

It would be difficult to measure, but if possible looking at the market impact from the demand side of people buying FOX and staking it as rFOX is also worth looking at as a factor of the susitainability metric. rFOX hopefully “pays” for itself in two different ways: (1) attracting more attention and users to the DAO that brings extra volume from those interested in the program (these are the fees that would go directly back towards its “costs”" but also (2) by taking liquid FOX out of the circulating supply with a time lock (and hopefully offering enough benefits to make rFOX stakers quite “sticky”) it lowers the circulating supply (and helps with the supply side of the market) for all FOX holders (with a plurality of that benefit arguably going to the DAO treasury).

With enough value from (2), it doesn’t need to be “even” on (1) for the tokenomics to be more than worth it from my perspective, but (2) is of course much harder to directly measure (especially in the short term, but perhaps we can get better about measuring that over the long term).

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Well since the 3 days I posted this rFOX has already gotten over 3% of the total supply of FOX already staked into it! Didn’t expect that so fast! Still think that this goal/metric makes sense but probably gotta aim a bit higher in the short term which is great news.

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Small note:

Would be good to be explicit about what chain we are discussing (assuming FOX/ETH LP on mainnet)

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Good call, as thats unclear. (i was assuming arb myself)

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→ The DFC aims to initially establish $200k of liquidity on Arbitrum. Our target is to eventually reach a level similar to that of Gnosis, around $300k.

→ Considering the stability and reliability of this investment compared to others, an APR range of 10-15% should be attractive enough to draw participants into the pool.

The following is the RUNE revenue data for the past months, excluding the outlier of March:

  • February: 17k RUNE
  • April: ~20k RUNE
  • May: 10.5k RUNE
  • June: 7.9k RUNE

Summing these, the DAO earned 35.4k RUNE. At a market price of $3.58 per RUNE at the time of posting, this totals $127k over the period, or an average of $31.6k monthly.

rFOX distributes 25% of this revenue, averaging $8k monthly to stakers. Dividing this equally between single-sided stakers and LP stakers gives 12.5% to each group. For an LP cap of $200k, this means an average monthly payout of $4k to LP stakers, totaling $48k annually for $200k staked, corresponding to an APR of 24%.

If the cap increases to $300k while revenues stay the same, the APR would drop to 16%, which still falls above the targeted incentivization range.

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I wasn’t proposing anything above and beyond being a proponent of a LP buyback and burn. I’m not proposing any changes nor an automated process of burning dao-owned LP tokens.

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Interesting data, the rewards for the first 11 days would be 25% of the total rune revenues for July 1-11 (5436 RUNE or $19,460 with RUNE at $3.58), so $4,865. If the existing staking amount has been there since around July 1, that means the $1.636M of staked rFOX has earned 9.87% APR

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Gotcha, as you mention 200-300k of liquidity on arbitrum is relatively small and we can likely get there with a pretty small % of the RUNE pie to get to a decent APR (maybe as low as 5% of the total or even lower since 15% on 300k is only 45k/yr or 3.75k/mo to reach that target APR).

One question I would have here though is if the DAO really wants to bother renting that liquidity for such a small amount. Since the DAO could alternatively do this by just purchasing 150k worth of ETH from the treasury (using its own RUNE or other assets) and then pairing it with FOX as POL to reach the 300k number (or only 100K to get to the 200k lower number), is it really worth renting that liquidity that may go away the moment the rewards get too low or change? Maybe it is, but its worth asking the question, i’d rather just see the DAO own that PoL in this case rather than paying almost half its cost over the course of a year to rent it personally.

I think the right strategy changes a lot depending on the target, but the target you are mentioning seems achievable without having to rent any liquidity at all IMO.

What do you mean by LP buyback and burn? Like doing bonds to get LP tokens and then burning the LP tokens or do you mean the DAO purchasing additional PoL that it then burns? Still not totally clear what the suggestion is tbh.

That is a very healthy APR already on a large amount of FOX! if/when we get another leg up in the market and RUNE likely appreciates that APR could end up being quite high for a time! I think the DAO should be advertising a rolling 7day APR (historical lookback) on the rFOX page personally because earning almost 10% is likely to lead to more FOX buyers and stakers.

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To this point, I think we need to be utilizing a combination of not just how much FOX is staked but also make sure the staking is beneficial for all. Here are some metrics that could help us see the full picture:

  1. Participation Rate

    • Tracks how much FOX is staked against our total and circulating supply.

  2. Gini Coefficient

    • Measures how evenly the FOX tokens are spread among stakers, aiming for a target below 0.3. This would ensure a fair distribution, preventing dominance by a few large holders. More on Gini coefficient.

  3. Lorenz Curve

    • Visualizes token distribution, helping us see how well the tokens are spread across participants. More on Lorenz Curves.

  4. Herfindahl-Hirschman Index (HHI)

    • Indicates if a few wallets dominate the staking scene. Dive into HHI.

  5. Palma Ratio

  6. Quintile Share Ratio

Early Metrics of Success for the First 3 Months

  • Aim for a 5-10% monthly increase in the number of stakers, showing growth in community engagement.

  • Target a 3-5% monthly increase in total FOX staked, reflecting a steady and sustainable rise in participation.

  • Achieve a 2-3% staking rate of the total FOX supply as our baseline for success.

  • Maintain a Gini coefficient below 0.3, aiming for equitable distribution.

  • Reduce the Herfindahl-Hirschman Index (HHI) to below 0.1, indicating a well-diversified staking landscape where no small group of wallets overwhelmingly dominates.

  • Achieve a Palma Ratio no higher than 2, ensuring the top 10% of wallets hold no more than twice as much as the bottom 40%, aiming for a more balanced distribution.

  • Narrow the Quintile Share Ratio to under 2, which would indicate the top 20% of wallets hold no more than twice as much as the bottom 20%, promoting fairness.

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Yes, we are tlaking about fox/eth LP on arbitrum. Specifically, the v3 fox/eth LP tokens.

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v3 as in uniswap v3? If so, these are not ERC20 tokens and are not compatible with rFOX

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Think we have to make sure we are all on the same page.
goal is to have rfox add on, from setting up eth/fox LP (arb first?) if that works out somehow, with rewards being done as if it was rfox staked? thats …what i think we are hoping for?
(wordsmith it however it fits)

THEN, we look at doing it on other chains?

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Ah yes, because they are all specific to the range of liquidity they are supporting.

Let’s go with v2. Apologies with the confusion

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Despite rFOX staking taking place on arbitrum one, the rFOX program is, essentially, a cross-chain program. Both the vast majority of the fox purchased for rFOX will come from mainnet LP pools, and the buyback-and-burn mechanic will, most likely, take place on mainnet as well. The reasons are a few:

  1. Concentration of Liquidity: The majority of FOX liquidity is on the mainnet, unlike Arbitrum, which currently hosts only about 10k in liquidity. This concentration makes mainnet a more robust indicator for analyzing the market’s response to our strategies.

  2. Buyback and Burn Operations: The mainnet is anticipated to be the primary arena for our buyback and burn activities. These operations play a crucial role by potentially enhancing the token’s price stability and attractiveness through a reduction in supply.

  3. Operational Clarity and Reliability: Focusing on mainnet reduces the complexity of managing multi-chain interactions, which can sometimes introduce errors or inefficiencies.

  4. Assessing Effectiveness: Monitoring liquidity and market response on the mainnet provides a clear, direct measure of our program’s effectiveness. If we find that our objectives—such as enhancing liquidity or stabilizing the market—are not being met, it signals a potential need to reassess our approach and possibly expand to include an LP rFOX program.

@0xean, thoughts on the burnback-and-buy chain selection?

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I think the buybacks should take place on mainnet simply due to liquidity. We want to burn as much FOX as possible, there will be significantly less slippage on mainnet for foreseeable future leading to more FOX burned and less slippage eaten up by cross chain arbitrageurs

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I actually think the best path (which is still mainnet) for buyback/burn operations is likely via just doing streaming swaps via THORChain (since the asset being used to buy will be RUNE anyway).

This effectively uses the mainnet Uniswapv2 pool since THORChain arbitrage buys up FOX from the mainnet liquidity over time as a streaming swap occurs (and if the streaming swap is sufficiently large it will likely take 12=24+ hours which helps defend against anyone trying to just sell into the liquidity of the buyback as it gains the advantages of a longer twap than a single trade)

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I agree with lots of this discussion and think we are getting too broad/in the weeds.

I want to refocus on FOX liquidity and tokenomics. I want to refocus this discussion specifically on evaluating rFOX based solely on its impact on FOX tokenomics and liquidity. By concentrating our efforts on liquidity, we can better assess how the rFOX program is doing in this dimension, better informing the need and speed at which we introduce and tool out a LP rFOX program.

For broader KPIs, I’ll create another forum post and share the link here for further discussion. This approach ensures we thoroughly evaluate all aspects impacting our ecosystem and evaluate different dimensions of the program.

Key Performance Indicators (KPIs) for FOX

1. Total Value Locked (TVL) Across Selected Chains

  • Chains: Mainnet, ThorChain, Arbitrum
  • Metric: Monthly percentage increase in TVL in these combined pools
  • Target: ≥10% increase per month for all pools
  • Measurement: Compare monthly TVL figures for all specified chain
  • Outcome: Achieving a ≥10% monthly growth in TVL across these chains indicates successful organic growth and robust participation.

2. Asset Quantity in Pools

  • Metric: Change in LP asset amounts (e.g., ETH/FOX)
  • Target: Non-negative monthly change
  • Measurement: Track asset quantities monthly in the above pools (in#1)
  • Outcome: Consistent or increasing asset levels indicate sustained investor commitment.
  • Should these be consistent asset level increases or staying steady within all of the pools?
  • Or should it be a net asset level non-negative monthly change across all the pools (combine them all and see if there has been negative changes to fox and/or the paired token)?

3. Market Price Stability and Growth

Definitions and Metrics:

  • Standard Deviation (SD) of Daily Price Changes: Measures the volatility of price movements. Lower SD indicates less price fluctuation and more stability.

    • Calculation: SD is calculated as the square root of the average of the squared deviations from the mean price.

  • Price Stability Index (PSI): Reflects how closely the daily prices remain around the average price over a specified period.

    • Equation:
      PSI = 1 - {SD of Daily Price Changes}} / {Average Price}}
    • A higher PSI (closer to 1) indicates that prices are stable with minimal variations from the average.
Scenarios:

  1. Explosive Growth Adaptation:

    • Condition: Price increase >20% within the month
    • Outcome: Success if PSI improves or SD decreases significantly, even with high volatility

  2. Steady Growth Adaptation:

    • Condition: Price growth 5-10% within the month
    • Metrics:
      • Volatility: Decrease SD by ≥15% from the previous month
      • Stability: Increase PSI by ≥10% from the previous month
    • Outcome: Success with either significant SD reduction or PSI improvement alongside steady growth

  3. Stability Adaptation:

    • Condition: Price change <5% (increase or decrease)
    • Metrics:
      • Volatility: Decrease SD by ≥25% from the previous month
      • Stability: Increase PSI by ≥15% from the previous month
    • Outcome: Success with either substantial SD reduction or PSI improvement, indicating minimal fluctuations and enhanced stability
Success Criteria:
  • Meeting the metrics of decreased SD or improved PSI under any scenario indicates effective market adaptation and robust token health.

Measurement and Reporting:

  • Frequency: Collect data and assess monthly
  • Reports: Monthly performance reports against each KPI, with actionable insights
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1. Liquidity Across Selected Chains

  • Chains: Arbitrum (& Mainnet?)
  • Metric: Monthly percentage increase in Liquidity
  • Target: ≥10% increase per month for all pools
  • Measurement: Compare monthly Liquidity figures for all specified chain
  • Outcome: Achieving a ≥10% monthly growth in TVL across these chains indicates successful organic growth and robust participation.
  • How to track: Flipside/Dune LP Contract Tracking of the gross deposited amount, month over month.
    • try to create for current LP on Mainnet, if that works, insert into Arbitrum.

2. Asset Quantity in Pools

  • Metric: Change in LP asset amounts (e.g., ETH/FOX)
  • Target: Non-negative monthly change
  • Measurement: Track asset quantities monthly in the above pools (in#1)
  • Outcome: Consistent or increasing asset levels indicate sustained investor commitment.
  • Should these be consistent asset level increases or staying steady within all of the pools?
  • Or should it be a net asset level non-negative monthly change across all the pools (combine them all and see if there has been negative changes to fox and/or the paired token)?
  • How to track: Asset Breakdown showing the FOX and showing the wETH on their own bars/charts.
    • Asset Breakdown start with one asset, move to month over month, possible WoW, then if successful there, create for other asset in pool, then move to combine

3. Market Price Stability and Growth

Definitions and Metrics:

  • Standard Deviation (SD) of Weekly Price Changes: Measures the volatility of price movements. Lower SD indicates less price fluctuation and more stability.
    • Calculation: SD is calculated as the square root of the average of the squared deviations from the mean price.
  • Price Stability Index (PSI): Reflects how closely the daily prices remain around the average price over a week.
    • Equation:PSI = 1 - {SD of Daily Price Changes}} / {Average Price}}
    • A higher PSI (closer to 1) indicates that prices are stable with minimal variations from the average.

Scenarios:

  1. Explosive Growth Adaptation:
    • Condition: Price increase >20% within the month
    • Outcome: Success if PSI improves or SD decreases significantly, even with high volatility
  2. Steady Growth Adaptation:
    • Condition: Price growth 5-10% within the month
    • Metrics:
      • Volatility: Decrease SD by ≥15% from the previous month
      • Stability: Increase PSI by ≥10% from the previous month
    • Outcome: Success with either significant SD reduction or PSI improvement alongside steady growth
  3. Stability Adaptation:
    • Condition: Price change <5% (increase or decrease)
    • Metrics:
      • Volatility: Decrease SD by ≥25% from the previous month
      • Stability: Increase PSI by ≥15% from the previous month
    • Outcome: Success with either substantial SD reduction or PSI improvement, indicating minimal fluctuations and enhanced stability

Once Dune/Flipside is established for KPIS 1-3, we will try to incorporate these scenarios and if not possible, have GPTS help create off Dune/Flipside materials for tracking.

Success Criteria:

  • Meeting the metrics of decreased SD or improved PSI under any scenario indicates effective market adaptation and robust token health.
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