With staking around the corner, I feel that its important to have a discussion and gain consensus regarding how the protocol fees should best be distributed to stakers.
The original forum post mentions for the staking proposal $IDLE should be the reward token:
However I would like to propose that wETH (wrapped ethereum) should instead be distribution token to stakers.
The purpose of this post is to explain the rationale behind wETH, and to get comments from the community regarding this. A snapshot vote will subsequently be created to finalise the decision.
Staking IDLE to earn more IDLE is a very questionable move, and does not improve the utility of IDLE. It is similar proposition to “Send me 2 ETH, and I’ll give you 1 ETH”. Put simply rewarding staking of an endogenous token with more of that same endogenous token provides more ammo for others to criticize the legitimacy of our protocol.
This is s similar argument that was put forward in
- pickle finance forum: [RFC] Staking Reward Token - Governance - Pickle Finance
- curve finance forum: CIP#28 - What token should admin fees be distributed to veCRV holders? - Proposals - Curve.fi Governance
For all intents and purposes, ETH is the standard currency in the Ethereum ecosystem. The purpose of staking $IDLE was to increase the tokens utility, and long term sustainability, in this case it makes sense to distribute a more stable currency. Staker’s who wish to purchase more $IDLE from their distribution can easily do so, but it also gives people the flexibiliy to trade for what ever token they want.
Rewarding ETH also provides stability because, relative to IDLE, ETH price is a lot less volatile. Indeed this was the reasoning for curve finance choosing 3CRV in the first place since it’s basically equal to a dollar (plus a little yield).
How does this benefit the protocol?
By distributing in wETH is gives the protocol additional legitimacy, and increases the utility of the $IDLE token. Stakers are essentially incentivized to stake by “staking x $IDLE for y weeks I can expect a yield of %z”, using wETH makes the expected yield more stable than if it was distributed in $IDLE.
Doesn’t distributing $IDLE act as a buyback from the protocol?
Yes and no, while its true that by distributing $IDLE, the protocol will need to market purchase $IDLE these are not taken out of circulation, but instead redistributed to existing holders, this is essentially a zero-sum game, and the buying pressure you created, is just offset whenever the fees are traded again.
Why wETH and not IDLE_wETH_BestYield
This is actually a good alternative, though it would require additional technical effort to add which would doubtlessly increase the gas costs for claiming. Instead we could have a button on the UI to optionally deposit the fees into IDLEwETHBestYield. In this way giving the maximum flexibility to stakers.
I am very interested in what the community thinks about this, and am looking forward to having a discussion and coming to a consensus