Authored by Milamber on 12 Jun-24 with review from the Treasury Council
Proposal: Wayfinder PRIME Staking Proposal - Google Docs
Summary
We propose to stake 400,000 PRIME tokens in the Wayfinder staking contract, representing the vast majority of our liquid PRIME. We propose to stake 150,000 tokens for three years yielding a points multiplier of 85.19x, and the balance of 250,000 for 21 days yielding a points multiplier of 1.05x.
We propose to continually extend the lock duration on the 21 day lock dependent on treasury goals and strategies, adjusting over time in-line with these where required (i.e. to move an amount into the various LPs for yield-earning, to use as collateral, to purchase assets or use in liquid staking protocols).
We propose to leave the existing PRIME in the Uniswap PRIME/ETH LP (c.200,000) in-line with the existing yield-earning strategy which contributes towards the buyback and burn initiative.
Motivation
The Wayfinder Foundation (https://www.wayfinder.ai/) is creating an AI tool specialising in finding and navigating blockchain pathways for optimal user experiences. It is a primary partner for Parallel’s Colony game and is distributing a 50% share of the token used by the protocol (PROMPT) to the community, 40% of which is reserved exclusively for community members that cache PRIME in its staking contract.
The caching contract allows caching of PRIME tokens for a minimum period of 21 days for a multiplier of 1.05x, up to a maximum of three years for 85.19x. In return a cacher is awarded points which accrue daily and which will determine the token allocation at TGE, which is expected within the next 12 months. Further multipliers exist including badges rewarding positive behaviours that may adjust the multiplier. Extending an existing lock (e.g. 21 days) will also increase the multiplier for the remaining lock period. The caching contract is available on both Ethereum mainnet and Base where gas costs are cheaper.
The DAO has c.600,000 PRIME tokens at its disposal, c.200,000 of which are deposited in a PRIME/ETH LP and earning yield which contributes towards the buyback and burn initiative. The remaining 400,000 are considered liquid and available to be put to productive use. The DAO signalled to the community as part of recent tokenomics changes it intends to distribute 90% of future PRIME earnings and airdrops to PDT stakers, including PROMPT which it earns from caching in the Wayfinder caching contract.
Given the volatile industry we operate in, the Treasury Council has agreed that it would not be prudent to lock up 100% of PRIME holdings for three years due to the uncertainties surrounding PROMPT such as when TGE will be and how allocations will be determined, potential need to access PRIME holdings for other purposes i.e. liquidity provision to earn yield, asset purchasing or funding development, as well as overarching general market and technical risks pervasive to the industry to consider.
The Treasury Council has therefore been tasked with determining what an optimal strategy to take advantage of the high multipliers on offer and reward PDT stakers, grow the value of the treasury and signal its commitment to the Parallel ecosystem long-term, balanced against the various risks involved.
Specification
Identify the available amount of PRIME available for caching
The DAO has c.600,000 PRIME tokens at its disposal, c.200,000 of which are deposited in a PRIME/ETH LP and earning yield which contributes towards the buyback and burn initiative, which the Treasury Council wants to remain in place, leaving 400,000 PRIME available to be deployed.
Determine a strategy for caching PRIME across the various tranches
Based on individual and group research, some of which is shown in the workings on the next page, and detailed discussion amongst the various appropriate teams, the Treasury Council is proposing the initial deployment to be 150,000 PRIME towards the three year lock-up for earning purposes.
The balance of 250,000 to remain semi-liquid within the 21 day lock-up across multiple tranches (extended as required) so it is able to be used in the PRIME/ETH LP for ongoing yield-earning purposes.
This initial proposal can be adjusted over time, and has been determined to be a good balance of risk:reward, satisfying the various stakeholders and allowing operations to continue as intended.
Determine on which network(s) to cache PRIME in the contract
The caching contract is available on both Ethereum mainnet and Base where gas costs are cheaper. Given the shorter lock will need continually extending, it is cost-efficient to cache this PRIME on Base. This is not the case for the 3 year lock, meaning risk can be diversified by deploying this on mainnet.
Transfer assets to relevant networks and multisig
The DAO has recently created a new Treasury multisig on both Ethereum and Base which shares the same address, for purposes such as these. The required PRIME will be moved and bridged as required.
Await enablement of caching from a Safe multisig
Caching is recently available from a Safe multisig, however the DAO needs to confirm no issues first Given the value of assets involved and time period it is prudent to continue using the DAO’s multisigs.
Cache assets in the Wayfinder Foundation contract
The Treasury Council will meet at a specified time as soon as possible and before the expiry of the maximum three year multiplier to cache the assets in the required contracts on the chosen networks.
Continue to monitor locks and extend as needed in-line with Treasury Council strategy
The three year lock is the maximum multiplier and cannot be extended. The 21 day lock will need to be extended at the end of each period for at least 21 additional days, with discretion to increase this.
Workings
Initial estimates are extremely attractive for three year staking
While there are a large number of unknowns at this time including when TGE will be, what benefits or multipliers will be applied to badges, how much PRIME will be cached or what valuation PROMPT will have at TGE, we can start to make high-level estimates at what a reward might look like per PRIME.
The table below shows the estimated $ emission per PRIME token cached in PROMPT across various lock options based on the 40% distribution to the community and based on a $1bn FDV. While it does not account for inflation, it is a good starting point to assess potential ROI, with c.10m cached now. For example, with 12.3m PRIME cached overall and 2.2m of this for three years, 1 PRIME cached for three years could return $153.09 of value back over that three year period at an average $1bn FDV. An unknown % of this value will be delivered at TGE, and the remainder over the course of the lock.
(Initial high-level estimates calculated by @Daveeemor)
Lockups over various duration are not required for the most effective reward strategy
While this is only an estimate based on a number of assumptions that are highly likely to be wrong, e.g. more PRIME may be cached or FDV may be higher, the risk:reward is very attractive for caching at least a portion of the DAO’s PRIME to be able to return PROMPT to PDT stakers and the backing of PDT.
Given the disparity in multipliers (absent further information) the Treasury Council has determined that the best risk:reward is achieved by applying the barbell strategy, i.e. smaller amounts in the highest risk highest return option and the remainder in a relatively low/no risk option. By avoiding intermediate tranches and slightly increasing the amount allocated to the longest option from initial preferences, the same multiplier x value can be achieved while having less tokens locked up for longer periods.
Rationale
PDT owned PRIME will benefit PDT stakers with PROMPT
The DAO signalled to the community as part of recent tokenomics changes that it intends to distribute 90% of PRIME rewards and airdrops to PDT stakers, including PROMPT it earns from caching in the Wayfinder caching contract. PROMPT distributions will supplement PRIME rewards once transferrable.
It makes PDT a liquid staking option for earning PROMPT
While we understand that there are liquid staking protocols being built for PRIME, these may carry fees and be operated by unknown entities. By purchasing and staking PDT, stakers receive ongoing PRIME, PROMPT and other airdrop distributions from a known entity, get exposure to Parallel assets, earnings from bonds and benefit from tokenomics changes including buybacks, all while remaining in a liquid token that is currently valued under its NAV backing and which can be staked and unstaked at any time.
The caching mechanism allows the DAO to be agile while still receiving large rewards
The desired approach is subject to change if Wayfinder introduces new mechanisms to reward varying tranches. Until there is further information, the balance of the DAO’s PRIME can be placed in the lowest lock-up (21 days), while still achieving the desired overall PROMPT output from the long lock-up.
This enables the DAO to remain relatively agile, where after each 21 days the lock-up can be extended to achieve a higher multiplier over time, removed and placed in a new lock-up if new material changes are introduced, or a portion can be removed and deployed into the PRIME/ETH LP if the
It is a signal to the Parallel team and community of our commitment
Numerous large stakeholders in the Parallel ecosystem such as the team and investors have signalled their commitment to the community and belief in Wayfinder by staking large amounts of PRIME across various tranches including the three year option. As the largest asset holder and a partner to Parallel, such a gesture from the DAO will be well-received as well as contributing positively to key metrics.
Timeline
Deployment within one week of this proposal, subject to Treasury Council approval at its next meeting. Adjustment of assets on an ongoing basis as required to align with Treasury Council strategies.
Costs
In addition to the proposed 400,000 PRIME to be cached, minor costs relating to the gas fees for caching and extending the lock on Ethereum mainnet and Base will be required.