Improving the incentive structure for the Lido on Polygon team

I would like to add some context here as a Lido on Polygon lead from the Shard Labs angle and general information about what Lido on X brings to Lido.

Our effort started sometime in July 2021. when we started researching Polygon PoS staking as a potential candidate to build a liquid staking solution.

At the time, the only way to stake was using traditional/direct staking to validators.

Polygon was the logical next step for Lido to expand due to its popularity and size. There was no competition, and the initial proposal made more sense than it makes now in terms of incentive structure and steps for milestones to capture.

What has changed in the meantime?

  • Competition deployed with strong support from the Polygon Foundation side which immediately put limitations on our ability to capture the initially planned market percentage

  • Lido on Polygon V2 was added to the roadmap and delivered to address the friction for node operators and users to allow scaling in the future after we got feedback from the market. Our response was quick and we jumped on implementing the iteration to address this friction as it is done with most of the developing products. You launch with the initial requirements and iterate after receiving feedback. With the deployment of Lido on Polygon V2 which is targeted for the end of this year (https://research.lido.fi/t/lido-on-polygon-protocol-upgrade/) we are going to onboard more node operators, reduce the security risks with simplified architecture and improve the UX.

  • Along with it, we are working on Lido on Polygon SDK which will be used by our partner protocols to have a well-documented and stable way to integrate with Lido on Polygon. The first version will be released this or the following week.

I would also argue that Lido on X is an important program for the Lido ecosystem because it is not just expanding liquid staking to other networks and helping them decentralize, it is also bringing other teams to work under the Lido umbrella. It means that we are decentralizing Lido itself, removing the single point of failure, and expanding the community. Our engineers are working together, our network is growing together.

Lido on Polygon, like other Lido on X networks is helping to diversify investment risks. Lido is not putting all the eggs in the same basket, instead, Lido is standing firm on multiple ecosystems, and if one of them fails for any unexpected reason (like what happened with Terra), there are still other networks to grow and compensate.

To pull out some numbers from the report, Lido on Polygon was launched in March this year, and in the past 8 months, it managed to capture 52M of MATIC tokens staked, and 1587 unique depositors. This data is available here: Lido on Polygon: Base Analytics

What the future brings (expansion to the plans from slides in the first post)

Polygon’s roadmap was updated and expanded with L2s and supernets which put requirements for our team to stay aligned and work on covering the whole Polygon ecosystem to keep the status of leading liquid staking protocol for Polygon. There are no immediate actions required to do there, but we are working closely with Polygon to front run any new opportunities that arise for Lido and Lido on Polygon. It requires further research as the Polygon expansion roadmap is being built, but it will enable even better market capture for the protocol.

We are pivoting to a more capital-efficient way of bringing large stakers to Lido on Polygon, that is with a referral program as @batuX also proposed above. The referral program will not directly use funds from the Lido treasury, it will rather reward our partners for bringing more stake from the rewards themselves. This ensures business alignment between us and our whitelisted partners and long-term larger revenue for both. This model was proven to be very efficient in Lido on Ethereum.

Polygon as Lido on X network is showing strength and the strongest potential to reach the Ethereum scale of TVL in the next market cycle. Compared to most of the networks, the Polygon ecosystem is developing rapidly on multiple fronts: scaling with zk, onboarding giants from the traditional finance and entertainment world to web3 through Polygon. I am very confident that this is the way to go.

Naturally, this will bring more stake to Lido on Polygon, which in turn means more revenue for Lido in long term, return on investment, and finally profit.

The only network that launched before us except Ethereum was Terra and Solana. Lido on Solana was developed by Chorus One. After Solana, Lido on X expanded to Polygon, Polkadot, Kusama, and now Avalanche.

If you take a look at the proposed incentive structure you can see 2 major differences: a shorter vesting period for Polkadot/Kusama and an initial payout without capturing any percentage of the staked amount for the Avalanche team. Now, these are just differences in numbers which is just a part of the story. Another difference lies in the ecosystem itself. Imagine being a MATIC holder. You have tons of opportunities to make returns with MATIC. I want to say that we are not just competing with liquid staking protocols (even though they are the only direct competitor), but also all other DeFi protocols on both Ethereum and Polygon that are providing different strategies and returns for MATIC token. And MATIC is present in almost every major DeFi protocol. The real competition is great, but at the same time, it means that Polygon is already reaching significant adoption and it is here to stay.

@zuzu_eeka

  1. Are the payouts for reaching a percentage of the market, or for holding that percentage for some period?

The requirement for payouts is still to hold the target percentage for 30 days before it is considered that the milestone is captured.

  1. does this vesting have a cliff?

This vesting does not have a cliff. The first 5 milestones are not vested and are supposed to be paid out immediately after the milestone is captured and retained for 30 days, while others (from 6% onward) have linear vesting of 1
2Y.

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