Authored by: FlapJackson, DeFi Ted (with input from the Treasury Council and Paragons Council)
Summary
This proposal introduces a redesigned staking model for ParagonsDAO, incorporating a vote-escrowed (ve) token model to enhance governance opportunities, direct liquidity effectively, and incentivize long-term commitment and participation within the ecosystem, while giving new ecosystem participants equal opportunities to participate and earn rewards.
Abstract
The model we introduce is a vote-escrowed PDT (vePDT) model, inspired by the success of veToken frameworks in other decentralized protocols. By staking PDT for vePDT, holders gain enhanced governance influence, direct liquidity to protocol pools, and receive boosted rewards, aligning with ParagonsDAO’s mission in the GameFi ecosystem. The vePDT model promotes long-term holding and active participation, offering benefits like increased staking rewards and a say in asset liquidity direction. The proposal also details how we can significantly reduce transaction fees to enhance the user experience, and provides high-level thoughts on the process for directing our asset liquidity. The adoption of this model is aimed at fostering a more engaged, equitable, and sustainable DAO community.
Motivation
ParagonsDAO’s Staking program requires a redesign. While the core tenets of the staking program (e.g. earning a percentage of ParagonsDAO’s gaming revenues, with boosted rewards based on time held) are well received and popular with stakers, stakers’ multipliers perpetually grow uncapped (and cannot be capped in the current contract), which will soon lead to disproportionate rewards for early stakers that discourage new stakers and staking events.
Ensuring the staking program remains balanced and accessible to new participants requires a new smart contract, which provides an opportunity to further optimize PDT staking to enhance governance opportunities, direct liquidity effectively, and incentivize long-term commitment, ultimately encouraging a more engaged and sustainable DAO ecosystem.
Specification
PLEASE NOTE - these specifications are intended to describe the overall design of the proposed model. Numbers, charts, and any supporting modelling are illustrative, and use some baseline assumptions to better demonstrate the proposed design. Should the proposal pass a vote, we expect certain elements outlined below (which may include numbers, features, and implementation details) to be adjusted following in-depth technical review and scoping.
Vote-escrowed PDT
The new staking program introduces a vote-escrowed version of PDT (“vePDT” for the purposes of this proposal).
Pioneered by Curve, the veToken model has been adopted in many successful decentralized protocols, and generally amplifies a user’s governance power, allows them to vote to direct liquidity/boosts to protocol pools, and allows them to collect boosted rewards.
As a gaming-focused DAO with significant liquidity of playable assets (including >90,000 Parallel cards) with intentions to share our liquidity with other guilds and gamers, we can uniquely tailor this model to ParagonsDAO.
vePDT Utility
PDT holders will be able to stake and lock their tokens in exchange for vePDT. While both PDT and vePDT can be used to vote in DAO council elections, vePDT has a number of added benefits, including the ability to: i) Vote to direct liquidity of playable assets [described in this proposal], ii) earn staking rewards via protocol revenues (as offered in the current Staking program), and iii) earn boosted rewards in future GameFi offerings.
Vision for the additional utility vePDT could provide
When it comes to staking rewards, each vePDT is rewarded exactly the same. So the actual rewards received depend on the amount of vePDT a user has, which can be increased through locking PDT.
Staking, locking, capping, and multipliers
To receive vePDT, a user must lock their PDT in the vePDT contract. In order to receive an increased multiplier, the user must lock their PDT for a defined time period. The time locked defines the multiplier a staker will receive.
The vePDT contract would lock a user’s PDT for the agreed upon time period, which a user can choose to extend to increase their vePDT balance. Locked PDT cannot be unlocked before the agreed expiry date. vePDT is non-transferable.
As both PDT and vePDT could be used to vote in Council Elections, the intended design is that 1 PDT equals 1 vePDT as a baseline. Should a user choose to lock their PDT, they’d receive an increased multiplier of vePDT, which would be capped at the defined maximum lock period. The proposed maximum lock period is 3 years (36 months).
In order to encourage longer lock periods, the multiplier would increase on a slightly exponential curve the longer a user locks.
These assumptions produce the following exponential curve:
Decay
Once locked, the vePDT decays over time towards the baseline amount. The intended design is that this decay begins after a portion of their lock time has elapsed (a “grace period”), and begins decaying linearly towards the baseline amount. Users can combat decay by extending/refreshing their lock time.
The exponential reward defined in the prior section rewards long-term stakers more throughout their entire staking period (even when considering decay), as the linear decay from their increased lock time/multiplier will impact them less than the linear decay from a user with a lower lock time/multiplier (refer to graph above). This recognizes users who commit to a longer-term lock at an increased amount throughout their entire lock period.
Migration from current contract
To recognize existing stakers’ loyalty and minimize the transitional impact on the multipliers they’ve built, we propose a temporary grandfathering. We intend for this to take the form of a Migration Boost influenced by each existing staker’s 1) amount of PDT staked in the current staking contract and 2) average multiplier at a defined date.
The Migration Boost would provide additional vePDT to an existing staker based on the amount of time they decide to lock for. While each staker would be different, we intend for the migration boosts to allow:
- A maximum boost of 12 months’ extra vePDT at a 24 month lock.
- A minimum boost of 1 month’s extra vePDT at a 35 month lock.
The amount of PDT eligible for a Migration Boost would be capped at the amount of PDT a wallet has staked in the current contract.
Deploying on Base to reduce transaction costs for users
Deploying a new contract provides an opportunity to greatly improve the user experience and minimize staker expenses by optimizing gas costs.
The single greatest opportunity to do this is by deploying the new staking contract (and therefore PDT) on a layer 2 (L2) blockchain. We propose this L2 be Base, for these reasons:
- Base is among the top L2s with an opportunity to onboard non-crypto-native users (one of our primary future audiences), through Coinbase.
- Parallel and the $PRIME token, the primary ecosystem we support, supports Base and will eventually be fully migrated there.
By deploying on Base, gas costs to interact with the staking contract should be exponentially reduced, allowing a wider range of people to participate in our ecosystem (including significant large player bases in developing countries), and aligning to one of our key guiding principles - Reducing the financial barrier to participating in web3 gaming.
ParagonsDAO should make a bridge available between ETH Mainnet and Base, and should explore the feasibility of building the migration process from the current contract to the new contract directly through this bridge.
Amplifying token utility by directing liquidity of playable assets
Currently, a percentage of ParagonsDAO’s gameplay revenues (part of what we’re considering “protocol revenues” in this proposal) are directed back to stakers as staking rewards. We’ve also shared that we intend to lend our playable assets to other guilds who can make the most use of them.
The vePDT model will enable PDT stakers to participate in how we direct these assets to partner guilds. By holding vePDT, on a regular cadence, stakers will vote on which guilds get to use how many of ParagonsDAO’s playable assets during the next period (voters will be enabled by required guild metrics).
ParagonsDAO will collect a rake on assets shared with partner guilds. vePDT holders are incentivized to direct the liquidity to the guilds who will rake the greatest revenues to ParagonsDAO, as a percentage of these revenues are returned back to vePDT holders as staking rewards.
Initially, this would be used to direct sharing of our >90,000 Parallel cards. The technical details of this arrangement will be dependent on final designs of Echelon Foundation’s Bonds, and this utility may need to be implemented after the launch of the new staking contract.
Paragons can look to use simplified, existing voting mechanisms (e.g. Snapshot) to stand up the process of directing liquidity, before developing a more elegant user experience integrated into the website.
Rationale
Given the staking contract required a new version to address the issue of uncapped multipliers, this seemed like the perfect opportunity to rethink the staking model entirely to enhance governance opportunities, direct liquidity effectively, and incentivize long-term commitment, ultimately encouraging a more engaged and sustainable DAO ecosystem.
The veToken model incentivizes long-term holding and active governance participation, addressing current model limitations. We made certain adaptations to traditional veToken models based on perceived limitations:
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Most veToken models decay to 0 at lock expiry. We liked the idea of allowing PDT to vote on council elections, and allowing users to hold unlocked vePDT and participate comprehensively without penalty—we do not want users feeling bitter about a perceived forced lockup to participate in governance, while at the same time, we want to incentivize greater governance power and rewards for long-term holders.
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Most veToken models have a linear increase with lockup. We feel a linear increase doesn’t do enough to incentivize long-term locks. We prefer a slightly exponential increase to make long-term locking (and its associated decay) more attractive.
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Most veToken models have linear decay that begins immediately. We feel that providing a grace period before decay begins creates a much better user experience where stakers don’t need to relock their vePDT at an annoying frequency. The grace period also rewards long-term lockers more generously.
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ParagonsDAO’s liquidity is not traditional for veToken models. But we feel the opportunity for stakers to direct the DAO’s playable assets provides a compelling ecosystem that aligns staker incentives and behaviors, and empowers stakers to help drive protocol revenues.
We also explored the feasibility of launching a new contract on both ETH Mainnet and Base simultaneously. We’ve decided not to propose continuing on Mainnet given gas costs are already prohibitive for many users. While it might be technically possible to deploy on both chains, it would add significant complexity, development requirements, and attack vectors.
Copyright Waiver
Copyright and related rights waived via CC0.