[RFC] ThorFOX, a FOX tokenomics upgrade proposal

Workstream Discussion FOX Tokenomics
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Preface: This RFC is intended to start the discussion on upgrading FOX tokenomics and is by no means intended as any sort of “final” document or proposal that is ready for more formal DAO governance. This proposal lays out a potential path the DAO may want to embark on in a step to upgrade FOX tokenomics, however significant discussion is expected that may change this or even other proposals may result that try to upgrade FOX tokenomics in a different way. The initial parameters suggested are also just that, initial suggestions, please discuss, debate, and suggest away anything in this proposal you like, don’t like, want to see changed, alternatives etc. What is most important in my opinion is that a robust discussion around FOX tokenomics proceeds forward and hopefully results in a DAO aligned proposal that takes a significant step in updating FOX tokenomics one way or another.

Summary

The goal of this proposal is to enact an upgrade to FOX tokenomics that more closely aligns the DAO with the THORChain ecosystem of which it is a vibrant part.

As part of its operations the DAO treasury receives and holds RUNE. This proposal would upgrade FOX tokenomics by paying a portion of the RUNE the DAO receives on a regular basis as “real yield” to FOX stakers in RUNE, as well as using a portion of that RUNE to buy and burn FOX.

Abstract

The ShapeShift DAO has been building through the bear market, consistently improving the interface/product offering as well as adding a number of THORChain related features in particular (such as streaming swaps, Metamask Snaps, and soon lending). Most of the focus during that time has been on improving the product and attempting to acquire users (as it should be), however the tokenomics of the DAO have not gotten nearly as much attention. This started to change slightly with SCP-153 when the community approved using FOX as a way to get discounted fees when trading. This proposal suggests, on the back of SCP-153, that the DAO should further embrace its alignment with the THORChain community by upgrading FOX tokenomics to enshrine that alignment with RUNE and the THORChain ecosystem at large.

Motivation

ShapeShift was and is one of the earliest THORChain supporters, well before others in the ecosystem recognized its value and even before the DAO launched, ShapeShift integrated THORChain for crosschain swaps. ShapeShift has consistently supported THORChain features as they are made available and most of ShapeShift DAO’s trading volume comes from users utilizing THORChain. The main motivation here is to encourage the ShapeShift community to further embrace and strategically focus on the THORChain ecosystem as its best opportunity. One of the best ways to do that is through an upgrade to FOX tokenomics that further aligns the ShapeShift DAO and THORChain communities together.

Specification

If passed, this proposal would dictate the following:

  1. 25% of all new RUNE accumulated by the DAO treasury (from whatever source, whether donation, fees, or any other revenue stream) is paid out to FOX stakers as real yield every week (pro-rata across those who are staking). The definition of ”New” here means any revenue source that adds additional RUNE to the DAO’s treasury that wasn’t previously in the treasury prior to this proposal passing.
  2. 25% of all new RUNE accumulated by the DAO treasury (again from whatever source, whether donation, fees, or any other revenue stream) is used to buy FOX from the open market which is then burned by being sent to 0x0000000000000000000000000000000000000000
  3. The remaining 50% of RUNE would continue to be held and used by the DAO treasury as governance sees fit.
  4. In order to effectuate this new change, it will become required that in order to get FOX benefits (such as discounts on fees, rewards, and any other benefits), a user must stake their FOX in a staking contract (this staking contract can either be the current FOXy contract or a new staking contract as determined by the Product and Engineering workstreams) as well as sign a message or transaction to assign the RUNE address where their yield will be paid. It should become standard that “unstaking” FOX takes a minimum of 14 days henceforth (though the receipt asset, such as FOXy or otherwise could still be liquid and transferable).
  5. New software will need to be prioritized and built by the Product and Engineering workstreams in order to allow a user to sign a message or transaction and assign a RUNE address where their yield will be paid. The user will also need the ability to update/edit this address at future dates by signing a new transaction.
  6. The DAO multisig will effectuate these RUNE and FOX transactions on a weekly basis based on the RUNE revenue numbers from the prior week.

If this starts to see increasing success and scale (in terms of overall RUNE volume, users staking, and number of transactions needing to be made by the multi-sig on a weekly basis) then it will make sense for engineering to create a bot for use by the multi-sig to make these transactions automated and more efficient (e.g. a hot wallet which the mutli-sig fills up every week that does the transactions automatically). This is not necessary to get it going, but would become a necessary upgrade once any sort of scale increase is needed. Alternatively, if members of the community think that some version of a system to take care of these transactions should be built as a requirement of this proposal instead (perhaps with help from the FOX foundation or other external resources) then that section can be better scoped and added as a requirement to this proposal when it moves to the next governance phase.

Effectively the specification of this governance proposal would setup 3 parameters that governance could affect going forward: (1) % of RUNE accumulated that powers FOX staking yield, (2) % of RUNE accumulated used to buyback FOX from the market which is then burned and, (3) % of RUNE accumulated that is held by the treasury. While this proposal passing would set the initial starting parameters for all three of these, governance can modify this with a subsequent proposal in the future to alter any of these, including setting any of them between 0-100%.

Benefits

The major benefit to this proposal is upgrading FOX tokenomics in a sustainable way that more closely aligns the ShapeShift DAO with the THORChain ecosystem. With this alignment, the better RUNE and THORChain does, the better the ShapeShift DAO does as well. This creates ongoing yield opportunity for FOX stakers to earn RUNE (something which does not exist in many fashions outside of running a RUNE node or LPing on THORChain) and it starts to consistently burn FOX on a regular basis, all in a sustainable manner.

Another potential benefit to this proposal is that it could establish the foundation for a further upgrade to veTokenomics in regards to governance and for voting on how and where revenue the DAO earns is used on a more active basis. That is better served for a future proposal due to further complexity, but this proposal passing would setup such a natural evolution for the next tokenomic upgrade being successful.

Drawbacks

The major drawbacks of this proposal are the time and priority of the product and engineering workstreams in order to make these changes and operate the system on an ongoing basis.

It also could create some additional ongoing burden and workload for the Operations workstream who would have to field and respond to user questions and issues around this tokenomics upgrade and its effects.

There are opportunity costs to aligning with the THORChain ecosystem further, such as not aligning further with other ecosystems the DAO may wish to pursue or other engineering and product features which do not get prioritized as a result.

Finally the obvious drawback of aligning the DAO further with the THORChain ecosystem could have negative effects for FOX whenever RUNE is in a downtrend (such as in a bear market).

Vote

Voting “For” this proposal would enact the tokenomics changes for FOX as stipulated in the specification of this proposal. The initial parameters would be set to 25% RUNE yield for FOX stakers, 25% RUNE used to buy back and burn FOX, and 50% of RUNE continuing to stack in the DAO treasury. A “for” vote also serves to prioritize the product and engineering work streams to enact this proposal as quickly as reasonably possible.

Voting “Against” this proposal would enact no changes.

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Its interesting. Big thing that stands out to me, is ‘burn fox’. never been a fan of burning.

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Having never been a huge proponent of burning FOX myself, I think the burn has merit to verifiably make sure FOX that is bought by the DAO forever leaves the supply. The burn mechanism has worked well for a number of projects, including THORswap (who has a nifty “burn target” meter on their interface that resets every month) and so I think it is worthy of consideration.

That being said, if the community would rather send that FOX to fox stakers ala FOXy, I think that would work too, or alternatively the buy/burn param could be set to 0 or low to start with and only adjusted later, or that part could be removed entirely and the rest of the proposal still works!

If this proposal was to pass in some form and there ever was a future upgrade to veTokenomics of some type after that, it could be that veFOX holders actively vote each epoch how much fox is sent to stakers, burned, etc and could change in real time each cycle which could also be interesting.

Curious on others’ thoughts around that!

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hm ok, that variable is a bit better. (Stacking in treasury, and sending to foxy holders is my preferred!) :slight_smile:
Thanks jon. my first read was, no, should be fox. 2nd (or 3rd?) was like…hm well actually theres some bennies … so you might be convincing me.

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big fan of burns. Way too many foxies running around.

Is the primary source of incoming RUNE going to be from trade fee’s?

I’m a big fan of the DAO not holding just stables/FAIT and aligning with crypto as a community. holding BTC/RUNE means the dao benefits when the inevitable bull market hits. burning fox and holding real crypto are good steps +1

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That is how it is currently defined in the proposal. Suggestions or thoughts on that? The idea right now is this is powered by the RUNE that the DAO brings in, however it brings it in (and of course it would be up to the DAO community at large to figure out how to modify that in the future to add new sources of revenue and/or produce products as parts of ShapeShift that generate additional RUNE).

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Very interesting proposal. Placing a ward here so I can stay in the loop :slight_smile:

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A document outlining rough estimates on the engineering resources needed to bring this to fruition based on one possible implementation can be found here.

https://docs.google.com/document/u/2/d/e/2PACX-1vTROoWuVvkgMQ58hwU9YVqOdqIjWh4N9fC61KDipNewMUmHqPfdKwSMRehRa8nkpIkoKTl_nzsA8HgZ/pub

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Thanks @jonisjon for the idea and drafting this up for discussion. I’m in favor of the general idea and like the creative thinking :+1: Would vote for.

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Instead of burning >

80% of protocol fees go to Stakers and 20% to DAO Treasury. This will create massive interest. 20-50% is too low IMO

Move the liquidity from Uniswap to Balancer 80/20 Pool.

Those who stake their LP get 2x reward.

Also, Convert the RUNE to ETH and pay the stakers in ETH.

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Before I add in some nuanced points for one round of community-chiseling i would definitely say the following tl;dr:

  • Profit sharing when unprofitable seems like a nonstarter. Would love a minVolume to trigger this upgrade. I’ll elaborate below
  • Milestones to work towards less human controls would be ideal (not in v1 but the ensuing conversation will illuminate what those look like)
  • The skin in the game mechanics are great, I think they need more refinement.
  • There are lots of details to flesh out. :+1:

Parameters

  1. Rune allocation

Strongly advocate to FOX holders that 50% allocation of anything is not passed directly out the gate. Starting at 5% and 5% would be reasonable for some number of weeks/months especially if there are undefined points to hammer out. It also makes sense to start small just in case things go horribly wrong, there are accounting bugs, or some other number of issues. Additionally, allocation params should be in governance control.

  1. minVolume trigger
    As of right now, even a 10x in volume, like we saw in October, is not enough to cover costs. We have limited resources as it is. We can easily see the volume on chain through revenues, endpoints, and affiliate dashboards. Having a minimum volume threshold to trigger allocations would align FOX holders to not only use the platform but also to get more users on our platform. It creates a goal for the entire community to share and rally around. A volume trigger should be another one of the first proposals parameters.

Game theory good

A. redemptionBurn

Strongly advocating here for unstaking and claiming another token, stakers should have to burn a percent of their FOX locked up to claim. Ideally that percent goes down the longer you stake. Could even be zero after some period of time. By allowing stakers to reduce their personal burn but still reduce FOX in circulation you align the incentives across every party involved. Plus it’s simple to understand

  • longer staking = more rewards + less burn for stakers (or none of their own if they choose that).
  • shorter staking = higher burn & less rewards.

B. minStakeWindow

Staking on a time delay is good, but redemption burn & unstaking should accompany a staking period. 6 months comes to mind, though it would be preferable to have governance manage this if it passes. The idea that stakers get value is strong. But locking FOX to claim revs, then locking to do so again after 14 day windows is far too short and is sure to get abused by larger holders because of the economic incentive/power laws.

On the converse, staking two years is far too long (like all the curve gauges). There is a balance to strike. As a starting param 6 months before you can claim any pro rata is both low effort and would maximize game theory dynamics (plus would add to stickiness).

One benefit is the collective vs individual vs market game theory here is more interesting, plus having generate intrinsic value for everyone involved hasn’t really been executed well anywhere else (specifically talking about burning which has been haphazard). Adding this additional fine tuning (redemption burn + minstaking window) means that a similar total amount of FOX can burn over the life of the program. (possibly even more depending on the formula governance settles on, and stakers get to participate in that (actively too if they want!).

Also, if #-general is any indicator, burning a small amount “for the cause” might also be cathartic for some.

Those are just some initial thoughts aligning this proposal towards long term incentives which I think (hope) is the spirit here.

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I’m a bit concerned about how our cash flow claims might land us in hot water with regulators in certain areas. It’s probably wise to dig into this a bit more before we even think about bringing it to a vote.

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I would like to see the FOX leave the supply too but have never been a fan of burns (esp if we cannot make more). It would make sense to me to maybe lock the FOX up in a Hedgey for a year (or X time) and have it streamed to the DAO treasury instead of burning. This would solve this problem while giving us the flexibility in the future to either continue locking the tokens or use.

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It could definitely be an option to have the % that would otherwise be burned instead distributed to stakers, and as mentioned int he post 50% was just a starting place (can already see some in the community are going to think that is far too high and some far too low, so likely we just need to settle somewhere to start and let governance adjust as we go forward). Curious to hear how others feel about the question of buyback and burn vs buyback and distribute FOX to stakers. There is also a world where these both could happen but may be best to start with one or the other for simplicity sake.

This seems like a separate idea from this proposal regarding moving FOX liquidity and farming, not exactly sure how it relates or if it should be pat of any tokenomics upgrade, could you explain your thought further here?

This is an interesting thought and would definitely help make this more automated on a smart contract level, but then we lose the ability to reward native RUNE which I think is potentially quite powerful on a number of levels and unique. If the community preferred to just see ETH rewards this could certainly be done instead though.

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Thanks for the super thoughtful response @0xFBL ! Let me respond with a few comments on your post:

I appreciate these points, but my perspective is different here in important ways.

(1). I don’t think “Profit sharing” is the right nomenclature here, instead its better to think of this as routing protocol revenue via emissions to stakers, the distinction may be nuanced but I don’t think of this as profit sharing as much as creating a DAO aligned economy that benefits all involved. Instead the idea would be to give active stakers yield via their own active efforts they help create. Maybe not too important in specifics, but terminology wise I think it is.

More importantly, my perspective is that if we can nail doing a good tokenomics upgrade for FOX it will help bring volume and revenue to the DAO, help with runway, increase the treasury’s holdings, and even help with user acquisition. So I think that this in many ways comes first in the chicken/egg scenario vs waiting for some volume trigger to enable it, though I am not against the idea of different %'s being tied to different triggers/milestones if the community thinks that aligns interests better., What I think is important though is we may need to upgrade tokenomics in order to get a number of these other benefits in conjunction with product improvements and that it actually makes more sense to upgrade tokenomics as soon as reasonably possible in order to help us get to those other milestones vs waiting for the milestones to do anything.

(2). All for milestones we can get to in order to make this entirely automated and eliminate humans wherever we can here (both at genesis and over time).

(3). Definitely could be plenty of refinement to be had and details to flesh out here.

I can see arguments both ways, for starting lower, and starting higher. As stated in the original post the numbers are just starting places and I don’t have a super strong opinion about what is the right amount. We already have one community member arguing for higher above (@murat) and this argues for lower to start. I think either could be right and ultimately this should be up for governance control as you say (and that is already what is stated in the original post).

I think it is important its high enough to be interesting and incentivizing to FOX holders from the genesis of this, but what that threshold is, is very debatable. My gut is that 5% is probably too low too entice FOX holders, but maybe something between 5-25% per param could work and would love to hear further community thoughts on that.

Regarding the minvolume trigger, if the community wants triggers that up the %'s numbers along the way that could work and I would be fine with that, though I don’t think we should have a volume trigger just to start the process at genesis based on my comments above as I think that would negatively affect the flywheel benefits that this tokenomics upgrade could bring the DAO day 1 if we don’t have that. That doesn’t mean we couldn’t start small and ramp up as volume grows though with such triggers if that is what the community prefers though.

This is an interesting idea, so what you are saying is that in order to claim their rewards users would need to burn some of their stake (their FOX) in order to claim if its a shorter period of time and after some threshold the amount they burn to claim goes down linearly until it reaches 0 and they can claim without burning anything? That could be an interesting mechanics closer to a veTokenomic model. This seems to add further complexity, but I could see it being beneficial if that is what the community would like to see.

Maybe a simpler version of this is simply that you need to lock for a longer period of time (maybe 4 or 8 weeks minimum) and that if you want to claim your rewards you need to burn some % of your stake to unlock early, or you have to wait the whole unlock time before any rewards are available to claim?

Or alternatively another way to do this would be that when you first lock you can only claim a small % of rewards and once you are lock for X period of time (1 month, 3 months, or whatever is set) then you can claim your full % of rewards without having to burn anything? There is probably a lot of ways to skin this cat, definitely open to these type of ideas and would love to hear more community thoughts on these aspects!

Good thoughts here, I am not sure what the “right” amount of time for staking lock and unstaking time should be. Similarly to above I think there can be arguments for shorter and longer periods that could be convincing, we probably will need to just find what seems right to the community at genesis, have it be another param that can be adjusted by governance, and iterate as we get more information. Again I don’t have a strong opinion, I can see anything from 14 days - months or years make sense depending on the details.

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So this was talked about this some on the tokenomics call yesterday, I personally think some burning at least to start would be good, however if community prefers something like FOX put in a stream back to the treasury or locked up in a hedgey for the treasury we could look into that as an alternative.

We could also always start with the burn parameter and governance could change this to something like a stream or lock down the road if we think we are burning “too much” at any point.

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Yayy. Happy to reply and help steward revisions in whatever way it’s helpful.

i’d love to double click on this. What makes you think that way? Have you pitched the idea to larger fox holders and RUNE community members? Throwing some numbers together projecting possible returns for holders of FOX and expected RUNE would really help the most.

In general, product is moving away from gut led decisions and governance would hopefully do the same. This proposal is a good place to dial in on specifics and models, lez goooo.

Appreciate the perspective. Adding extra words doesn’t change the underlying outcome. Whether you call it “profit sharing,” “revenue distribution,” or “routing protocol revenue via emissions to stakers,” the key concept remains the same: a portion of the revenue generated by the DAO is being allocated to FOX token stakers. That being said, if there are more sophisticated parameters for diverse emissions coming down the pipe, then my point is moot. I for one would love to see that scoped as the ultimate goal as part of this and subsequent proposals (build that FOX economy through specific milestones).

This is a bit circular, I’m having trouble understanding. Are you advocating that we dial in the parameters to start and leave the rest for later? There is urgency but there… isn’t?

Anyways, what i think is being said is “wait off on minVolume.” Another point advocating for crunching some numbers because the theorized flywheel could grow volume, help runway, and acquire users. But it could also backfire or get abused, and FOX holders would appreciate mitigating risks.

Could you elaborate on the flywheel? I think you might have articulated this really well on a call this week. You made a great point about native RUNE that’s worth restating. Probably writing it makes it easier to refer back to. Bonus points for an excalidraw.

Precisely! :handshake: And again it should be in months not weeks. There MUST be safeguards against stakers gaining all the profit they can every month. That doesn’t sound aligned at the moment.

Also, I think it’s worth calling out that if we can get specifics out in the wild and keep refining we could use this economic model upgrade as a repeatable DAO-2-DAO community-alignment playbook. Again, I will strongly emphasize “…if the DAO has enough to survive,” otherwise who else is gonna build it :wink:

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I believe that this economic model can be very beneficial and healthy for the entire Shapeshift ecosystem. Removing the selling pressure by replacing rewards with Rune and implementing burning to deflate the tokenomics seems promising. Congratulations on the initiative; I am excited to see this unfold.

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Yea this is fair feedback, I have talked to a number of larger FOX holders and general RUNE community members and they seem to be excited about this as currently proposed (and it seems they would be less excited the more the starting %'s drops). Hard to determine what a “sufficient” amount of data is going to be here, but regardless there is clearly some excitement around the ideas in this proposal among those who would be most interested.

Ultimately, with something like this its hard to get past gut feel and intuition because we will only really know by trying something and iterating, my suggestion is we try this or something like this and then proceed to iterate from there.

Asking for models/projections is certainly reasonable though, and with some help from @willyfox I have put together a model here anyone can play with to get some better idea of what this might look like:THORFox Modeling - Google Sheets

If you look at the attached tabs you will see base/bear/mid/bull cases that I have put together. I actually think most of these cases are still quite conservative given the bull market I believe we are about to step into, but anyone can copy the model and play with the variables themselves to see what would be more realistic from their perspective (I am sure some will see the current cases as too aggressive, and others will see it as not aggressive enough, so I encourage anyone to play with it and create what they think makes sense).

I hear you here, I think the more sophisticated parameters are likely to come about from a combination of additional revenue sources the DAO adds (like THORchain lending and other features that may be added in the future) but also as an additional evolution into something like veTokenomics which I think this proposal sets up a great foundation for if/when the DAO wants to go that route.

I am saying, have some initial parameters we start with, and then iterate from there yes. We will need to try something in order to have any real data about where to adjust this and I think trying something here is significantly superior to trying nothing or starting with a volume trigger that takes time to meet and get us any actionable data.

With regards to the minVolume trigger, I am saying we shouldn’t have that to start, though if we want to have smaller starting parameters that are then triggered to automatically increase later as volume grows I would be open to that if the community would prefer a setup like that (though I am also okay leaving that out to not increase complexity and just let governance iterate on the % buckets as we get more data).

I am not sure under which scenario you see this “backfiring” to be honest, could you explain more what your concern is there? From my perspective the worst case is this doesn’t have the effect we want it to and a small portion of a small amount of RUNE revenue is paid out to stakers and some FOX is burned and I don’t see that as particularly risky or how that would backfire. If on the other hand the volume grows substantially as a result, the reward for stakers, FOX holders, and the DAO will be asymmetrically positive.

If a tokenomic upgrade like the proposed is passed (or something else like it), the best case scenario is that we get a flywheel of people buying FOX to stake → attention of rising FOX demand and the “stake fox, earn RUNE” narrative bringing more people (especially members of the THORChain community looking to earn native RUNE yield) to try ShapeShift THORChain trading (and telling their frens about it!) → which leads to rising volume → which leads to a rising staking APR → leads to more FOX demand → more people buy FOX to stake etc

Rinse and repeat if this is working how we hope. Such a flywheel would have tremendous organic positive effects on user acquisition, raising THORChain trading volume for ShapeShift, and helping demand for FOX grow among a number of other intangible benefits.

I am less concerned than you that the current proposal doesn’t align the stakeholders from the feedback I have already seen on the forum and elsewhere, I think it does, but I am open to something like what you propose here though as always the devil is in the details and it adds further complexity.

Would love to hear more what this might look like in specific detail in regards to the lock/burn mechanism, I could see it being included in the next phase of this proposal if we can propose potential details of how it works that the community likes, I could also see it being another iterative update after this proposal sets the foundation for future tokenomic upgrades.

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“the better RUNE and THORChain does, the better the ShapeShift DAO does as well” +1

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