SCP-186 rFOX LP Expansion to Include Uniswap V2 FOX/WETH Tokens on Arbitrum

Proposal Discussion
1

Summary

This proposal seeks to expand the current rFOX staking program to accept liquidity provider (LP) tokens from the Uniswap V2 FOX/WETH pool on Arbitrum. By including these LP tokens in the rFOX staking contract, we aim to enhance liquidity, broaden participation, and increase the utility and value of FOX on the Arbitrum network. Additionally, this proposal aims to lay out some KPIs regarding the liquidity impact of the rFOX program, with clear KPIs of success.

Motivation

The inclusion of Uniswap V2 FOX/WETH LP tokens from Arbitrum into the rFOX staking program will encourage deeper liquidity on decentralized exchanges, promoting greater stability and utility for the FOX token. Recognizing the entire value of the LP tokens in the staking rewards (not just the FOX portion) aligns incentives for liquidity providers by rewarding them for the total risk and capital they contribute. Having clear KPIs of success as it relates to the liquidity dimension of the rfox program will be helpful in determining how to alter parameters or its structure to maximize effectiveness of the tokenomics revamp for the DAO.

This would effectively allow FOX/ETH LP on mainnet to earn rewards in FOX tokens, while FOX/WETH LP on arbitrum earns rewards in RUNE.

Specification

ā€¢ Eligible Tokens: Uniswap V2 LP tokens consisting of FOX and WETH pairs on the Arbitrum network.

ā€¢ Reward Structure: LP stakers will be rewarded based on the entire value of their LP tokens, aligning with the existing rFOX staking mechanics.

ā€¢ Reward Changes: Current rFOX stakers will still get the same reward share (commensurate to the value of their fox as a percentage of the total value of assets staked into the rfox contract.

  • Total Value of assets staked into rfox contract would now include Uniswap V2 LP fox/weth tokens on arbitrum as well as FOX tokens on arbitrum.

ā€¢ Staking Rules: All existing rFOX staking rules will apply, ensuring consistency and fairness in the staking process.

KPIs

  1. Total Value Locked (TVL) on Arbitrum

ā€¢ Goal: Achieve a 10% month-over-month increase in TVL on Arbitrum.

  1. Net FOX Deposits vs. Withdrawals Across Chains
  • Definition: Measure the net amount of FOX tokens deposited minus withdrawn from all the liquidity pools each month.
  • Goal: Ensure a positive net amount each month, indicating growing or stable liquidity which supports sustained liquidity provision.
  1. FOX Burned from Trading Fees
    • Definition: Track the amount of FOX tokens burned as a result of trading fees.
    • Goal: Target burning at least $75,000 worth of FOX per month to actively reduce supply and contribute to token value appreciation.

Second Order KPIs:

  1. Token Price Stability
    • Definition: Utilize the Price Stability Index (PSI) to measure how stable the FOX token price is over time.
    • Formula:
      [
      \text{PSI} = 1 - \left(\frac{\text{Standard Deviation of Daily Price Changes}}{\text{Average Price over the month}}\right)
      ]
    • Goal: Achieve a 5% MoM growth of the PSI, with this getting smaller as the PSI is closer to 1, which would indicate less price volatility and greater stability.
    • Rationale: A higher PSI suggests that the buyback and burn mechanism is effective in reducing price fluctuations, leading to a more stable market for FOX tokens.
  2. Market Capitalization Growth
    • Definition: Monitor the market capitalization of FOX to assess the overall market response to buyback and burning activities.
    • Formula: Calculate the month-over-month percentage increase in market capitalization.
    • Goal: Target a steady increase of at least 5% per month in market capitalization.
  3. Slippage Metrics
    • Definition: Measure the percentage change in price for trades of varying sizes to assess market depth and liquidity health.
    • Trade Sizes: $1,000,$10,000, $20,000.
    • Goal: Maintain slippage under 0.5% for trades up to $1,000, 1.5% under 10k and under 2.5% for trades up to $20,000.
  4. Staker Retention Rate
    • Goal: Maintain a month-over-month staker retention rate of 20-30%, demonstrating sustained participant interest and commitment.

These KPIs provide a comprehensive framework to measure the impact of the expanded rFOX staking program and the associated buyback and burn strategy. By targeting specific metrics related to token stability, market capitalization growth, and liquidity, we aim to demonstrate the effectiveness of these initiatives in enhancing the value and stability of the FOX token.

Community Call to Action:
Your feedback is essential in refining these indicators. Please share your insights on the proposed KPIs and suggest any additional metrics you believe would enhance our monitoring of the programā€™s impact on the FOX ecosystem.

This structure provides a clear, measurable way to assess the implications of the rFOX programā€™s liquidity and market interventions, using detailed mathematical indicators to ensure precision in reporting and evaluation.

Benefits

  1. Enhanced Liquidity: Encourages more FOX and WETH liquidity on Arbitrum, improving trade efficiency and reducing slippage.

  2. Increased Participation: Attracts a broader range of participants by recognizing their total investment in liquidity pools.

  3. Network Expansion: Supports the growth of FOX on the Arbitrum ecosystem, aligning with our goals of expanding our presence on Layer 2 solutions.

Risks and Considerations

ā€¢ Smart Contract Risks: Integration with new contracts could introduce risks; thorough audits and testing are recommended.

Conclusion

By expanding the rFOX staking program to include Uniswap V2 FOX/WETH LP tokens on Arbitrum, we aim to foster greater liquidity and user engagement. This proposal aligns with ShapeShiftā€™s broader goals of enhancing liquidity, user experience, and network participation. Your feedback and votes are crucial for refining and implementing this initiative effectively.

Vote

For

For with Changes

Against

2 Likes
2

https://snapshot.org/#/ideation.shapeshiftdao.eth/proposal/0xa9fc1d68ec9249d1ad913307a92440b2adcd9d1d94acc32c234fc7cf2769e8db

2 Likes
3

Thanks for putting this proposal together!

Iā€™m in favor of this to avoid tempting stakers out of liquidity providing to reap potentially larger rewards in rFOX alone.

To echo/paraphrase what Tyler asked during the Governance call: what are the consequences of not reaching the goals set in this proposal?
Any contingency plan already exists in that case? More precisely, should LPers expect to see this new source of yield removed if the goals arenā€™t met? Or would the consequences affect rFOX as a whole (not just LPers)?

I know that without explicitly saying it in the proposal we have more room to manoeuvre, but I think getting the current consensus on what would likely (no firm engagement) happen might help stakers to make better informed decisions for the long term.

1 Like
4

Points im not sure about:
1: 10% month over month. is that ever attainable? (lets assume best goal $5M to match ethmain) 10% next month on that is $500kā€¦ what happens when this fails? maybe Grows or Equal (still what happens when it fails.

2 (oh there is no 2 lol) 3: fox burn doesnt relate to this lp in any way does it?

4: feels like dfcā€¦goal not for this proposal. (doesnt feel like a kpi)

6: is the main one that matters here. this should be top of the list imo. the actual goal.

7: that many stakers leave every month that only 20-30% stay? (geez the gain they got was lost in network feeā€™s. (nothing wrong here, just wow)

Overall i am for this. i think lp helps the protocol directly.

(risks- uniswap trust risk) maybe be a bit more clear here, this reads like its a risk from us(?) )

1 Like
5

Thanks for getting this posted @ProfMcC ! Just getting back from some travel and able to review a bit more in depth.

This does seem like a little bit of a departure of what I was expecting after SCP-177 https://snapshot.org/#/shapeshiftdao.eth/proposal/0xf2cf29e81dd839d3a4b74d3488d986a0db48aabb77af294982666b4dfc78e14a and I have some questions/thoughts around that:

My understanding from SCP-177 is that it created a new bucket, at the time set to 0%, for rewarding FOX/ETH LP on arbitrum. My expectation was this current proposal would simply propose what that new % would be and delineate where it comes from as it relates to the other buckets.

So, this was raised before in the previous discussion around this topic, but I am not sure how this actually works in practice if you want to basically smash this new bucket in with the current staking bucket instead of handling them seperately. Currently it reads that ā€œLP stakers will be rewarded based on the entire value of their LP tokensā€ ā†’ but how does this actually calculate? Since right now rFOX is calculated entirely based on FOX holdings, converting an LP token to FOX doesnā€™t really make sense since only half of an LP token is FOX, is it just counting it ā€œallā€ as FOX value or is there some other calculation that happens to make that work? I think if you can potentially provide an example that might help clarify, but otherwise I have trouble seeing how this actually works in practice.

If this proves too complex, I would say that simply assigning a small % to the new bucket would do the same trick without the complication (only rewarding those with LP tokens relative to their LP tokens separate from the rFOX staking bucket). It would also ensure there is ample rewards for this specific action the DAO wants to incentivize and it doesnā€™t have to ā€œcompeteā€ with the rest of the stakers. Not sure what that % should be if that route is gone, but something like 2 or 3% is probably enough to get going.

I also am curious what level of liquidity is being targeted for arbitrum as that would help hone in what the rewards would need to be to target an attractive APR for eth/fox stakers on arbitrum.

Overall I am supporter of this initiative, but I would like to see some of these questions/the formula of how this is calculated refined before this leaves ideation.

6

to me. the kpi failing, would mean more like ā€¦ maybe raising the incentive a bit to be above rfox rough % ?

7

I dont know if any of the topic points were edited or not. if you do any edits, reply a new post, so we can reevaluate from there? (this is why i miss the pre ideation stepā€¦ ā€˜brainstormā€™ orā€¦whatever the hell it was called.) so we dont have to waste time in ideation to do the small tweaks.

8

If you click on the :pencil2: icon of a message that has been edited you can see the history of edits (currently only the title has been edited once to add [Ideation], by you :laughing: ). But itā€™s true that if anything changes it should be mentioned in general :smiley:

9

Just want to try and provide some clarity on the simplest path forward from an engineering / implementation perspective given the existing contracts.

To make this clear lets talk about a hypothetical.

Currently we have 50/25/25 breakdown for DAO/fox-stakers/burn.

The simplest path would be to create a fourth category. For the sake of conversation lets say its 50/15/10/25 (I have no conviction on any of those being the right ratio). But its now DAO/fox-stakers/LP-stakers/burn.

In this scenario, there is no need to worry about relative value of the tokens or anything. Governance can manipulate the ratios as desired to attract the desired amount of stake in any given category and the participants can assess the different risks associated with each as they see fit.

4 Likes
10

Thanks for the technical explanation!

So the current Ideation proposal text could be changed and not mention the total value of assets but rather mention the new ā€œsub-bucketsā€ weā€™d create.

If weā€™d stick to the original idea presented of incentivizing them at the same rate than other RFOX participants, the two buckets would be 50% of what is redistributed to users (25%), which means 12.5% of the total rewards, shared in each bucket commensurately to their stake in that bucket (without care for the unit in that bucket, FOX or LP tokens). That would seem fair to me.

11

I agree that would be the most fair. And, as an added note, splitting it down the middle and having a sizeable percentage of RUNE going to those LP stakers will get LP onto arbitrum quicker than anything we can do besides just purchasing it ourselves.

I will revise this to include a 12.5/12.5/25/50 split, unless anyone has any strong objections to that split?

2 Likes
12

To ensure that we have community alignment, please vote on this poll, which will be up over the weekend and I will re-ideate after this poll closes in 72 hours

  • 50dao/ 15fox/ 10lp/ 25burn
  • 50dao/ 12.5fox/ 12.5fox/ 25burn
  • 50dao/ 15fox/ 15lp/ 20burn
  • 50dao/ 20fox/ 15lp/ 15burn
0 voters
1 Like
13

Are we still evaluating the idea of burning FOX and instead buying fox, selling half into eth, and burning the LP? Seems more efficient imo.

2 Likes
14

I would like to present the option to 50dao / 12.5fox/ 12.5LP/ 25 burn (LP units)

1 Like
15

No option for zero burn ?

1 Like
16

zeroburn buybackfox (and sablier stream it, or hedgey it to the dao, or ā€¦ something

17

be explicit. what does fox/fox mean here?

18

Discussed a little more in the governance thread today - but if we are going the bucket route after all I would recommend starting with what is thought to be an attractive APR for incentivizing stakers at target liquidity level and then back into the proposed % based on that.

Using the example from the governance thread today ā€œ for example, if the liquidity target on arb is 500k and you wanted to target 10% APR when at that goal (it will be higher before you get there) - that would mean approximately 4k/mo in USDC gets you there (or 800 rune/mo at $5 rune)ā€

If 500k liquidity is the target - I would say something like 5% might get us there (and if we discover itā€™s too low it can be raised again - much easier to raise the lp rewards to incentivize more than realize it needs to be lower in which case may put at risk any LP already gained via this).

Would love to hear additional thoughts on target liquidity and what an attractive target APR at that liquidity level would be from others and then hone in from there the best starting % for the new LP bucket (and where it comes from).

19

I think this could be a cool idea to explore but would recommend it be in a different proposal than this one to add something like that. This proposal will be easier to pass imo if it can stay focused on the setting of the bucket for this LP purpose (introducing too many changes at once may complicate the voting).

20

Setting up the buckets first is good. then adjust the buckets numbers based on other proposals. otherwise we get lost in the weeds.