Lido for NEAR - Proposal by Everstake

Everstake proposes to create a liquid staking solution for NEAR Protocol as a part of the LEGO Initiative. Please read the proposal and provide feedback over the next few days and vote for it on Snapshot. The voting period will start on May 2, 2022 and end on May 8, 2022.

About NEAR Protocol

Near is a secure, decentralized platform for creating blockchain-based DApps that can manage digital assets and identity. According to the protocol developers, the application can be deployed in just a few minutes. The sharded Proof of Stake structure allows NEAR to process up to 100,000 transactions per second.

Being in Top 10 Crypto Assets by Staked Value with more than $6,422,073,841 staked, NEAR represents a valuable expansion for Lido. To provide a better picture of potential returns to the DAO, please review the forecast below:

Market Share (%) Lido Annual Rewards (USD) DAO Annual Rewards (USD)
2 964,772 482,386
5 2,411,929 1,205,964
10 4,823,858 2,411,929
15 7,235,787 3,617,893
20 9,647,716 4,823,858
25 12,059,645 6,029,822

Formulas used for the forecast

Lido Annual Rewards = Total Stake X Market Share X Last Epoch APY X Lido Fee X NEAR Price
DAO Annual Rewards = Total Stake X Market Share X Last Epoch APY X DAO Fee X NEAR Price

Metrics used for the forecast

Lido Fee: 6%
DAO Fee: 3%
Last epoch APY: 10.50%
Total Stake: Ⓝ 449,616,910
NEAR Price: $17.03

The current NEAR DeFi ecosystem includes Ref Finance, OIN Finance, Burrow, Trisolaris, WannaSwap, and more. Based on the current data, the Total Value Locked is over $500,000,000. Considering the growth of DeFi, we strongly believe that stNEAR can be used as collateral in multiple DeFi protocols and provide additional value to NEAR holders.

About Everstake

Everstake is one of the most acknowledged validators in the staking industry worldwide. Everstake was founded in 2017 and has grown rapidly with over 625,000 delegators, and $6.2 billion crypto assets staked (as of December 2021). Each of our validating nodes is constantly maintained by professional DevOps and seasoned assistants in more than 50 blockchains.

Aside from providing staking services, Everstake is committed to developing multiple projects that support delegators, creators, and developers.

Some of the projects that we successfully launched:

Metaplex: a decentralized protocol paired with an open-source web framework that lets artists, brands, and creators launch self-hosted NFT storefronts as easily as building a website – all without writing any code.

Wormhole Terra Bridge: the Terra-Solana-Ethereum Wormhole bridge allows fast and decentralized cross-chain transfers.

StakeSolana.app: is the Solana Ecosystem Dashboard developed by Everstake. The main goal is to provide a detailed breakdown on the available staking options, in particular, assist existing stake pools to get more exposure and attract delegators.

Cosmoscan: the first data and statistics explorer for the Cosmos network. It provides information on overall network operations, governance details, validators, and much more.

Elrond Monitor: a superfast and user-friendly Elrond Network Blockchain Explorer.

Oasis Monitor: a robust and full blockchain explorer and API for the Oasis network.

Design

The main idea of the design is built around the stNEAR liquid token that represents the accumulated staked NEAR and rewards. The deposited stake will be distributed by the Lido for NEAR smart contract across validators following the logic similar to other networks supported by Lido.

We suggest that the Lido fee to delegators should be 6% where up to 3% goes to validators and the rest is kept by the DAO treasury. Currently, about 37% of all NEAR is staked with validators that have a 10% fee. We believe that setting a 6% fee with liquid staking benefits, will allow Lido for NEAR to reach a higher market share and become a major player on the NEAR staking market.

The exact user flow should be the following:

  1. User delegates NEAR to the Lido for NEAR Smart Contract and receives stNEAR
  2. Lido for NEAR Smart Contract assigns equal parts of delegated NEAR across Validators
  3. Validators then withhold their commission and remaining rewards accumulate in the smart contract

Lido for NEAR validators will be chosen by the DAO, however, we recommend keeping a certain threshold to join. This will allow decentralizing assets and make sure that only reliable validators are selected. The recommended set of criteria should be the following:

  1. NEAR seat price is met
  2. The percentage of the validator’s stake is less than 4% of the total
  3. Uptime is over 95%
  4. The commission is less than 3%
  5. Geographical decentralization of nodes among validators (avoid nodes in the same jurisdiction)
  6. DAO approval

stNEAR

stNEAR is currently used by Metapool - liquid staking provider on NEAR Protocol. To align with the Lido brand, we propose to keep the stNEAR ticker. Therefore, we wanted to discuss with the DAO options of implementing stNEAR into Lido for NEAR.

To move forward, we offer two options:

  1. Keep the stNEAR ticker, but rename it to “Lido Staked NEAR” instead of “Staked NEAR”.

  2. Discuss the acquisition of stNEAR with Metapool

Please leave your feedback regarding this section in the comments below.

Incentives

To support the long-term success of the Lido for NEAR, we propose the incentive structure that respects the interests of all involved parties. Everstake is committed to delivering a valuable solution and growing it over time, along with benefiting the DAO.

The following structure is based on the long-term commitment of Everstake to the success of Lido DAO and Lido for NEAR. We propose to issue a 100,000 LDO grant to Everstake for each percent of the market share achieved by Lido for NEAR up to 20%.

Please see the table below for detailed breakdown:

Market Share Amount
1% 100,000 LDO
2% 100,000 LDO
3% 100,000 LDO
4% 100,000 LDO
5% 100,000 LDO
6% 100,000 LDO
7% 100,000 LDO
8% 100,000 LDO
9% 100,000 LDO
10% 100,000 LDO
11% 100,000 LDO
12% 100,000 LDO
13% 100,000 LDO
14% 100,000 LDO
15% 100,000 LDO
16% 100,000 LDO
17% 100,000 LDO
18% 100,000 LDO
19% 100,000 LDO
20% 100,000 LDO

To identify the market share, we will use the ratio of NEAR staked with Lido versus all other staked NEAR based on the Validator Stats. This market share percentage, has to be kept for at least 30 days to mitigate the variability.

To support the ongoing development, maintenance, and improvements, we propose that Everstake will keep 20% of the fee received by the DAO while the other 80% is held by the treasury.

To provide a better context, if Lido for NEAR charges a 6% fee, 50% goes to node operators and 50% is retained by the DAO treasury. The suggested structure would distribute 20% of the DAO’s portion to Everstake.

Additionally, we propose that audit expenses will be covered separately by Lido.

Roadmap

Q1 2022

  • Research and specification (February - March 2022)

Q2 2022

  • stNEAR Delegation Design and Frontend (March 2022)

  • Completion of Smart Contract Development (March - April 2022)

  • MVP Development and Testnet Deployment (March - April 2022)

  • The Test Launch (April - May 2022)

  • Smart Contract Audit / Review (May 2022)

  • Validators’ Onboarding (May 2022)

  • Mainnet Release (May 2022)

  • Integrations with wallets and DeFi projects (Rest of 2022)

  • Adding liquidity and lending farming rewards (Rest of 2022)

  • Governance structure and tokenomics (Rest of 2022)

9 Likes

Great proposal;

Just have a few questions -

  1. If the recommended criteria for validators would be applied, how many validators would we be delegating to?**

Out of the current 100 validators (this is set to expand soon) there are only 30 validators with fees of 3% or less. I haven’t looked at the other criteria yet, but assuming we delegate to those thirty: Meta Pool currently delegates to 87, LiNEAR to 60, and if all your funds are going to only 30 we are very likely to push them over 4% market share, further reducing our eligible validators.

  1. Could you elaborate more on what the ‘acquisition of stNEAR’ would involve? Are we looking at purchasing just the ticker - how is the brand value of stNEAR calculated? - or are we looking at acquiring or merging with Metapool altogether?
1 Like

Thanks for your questions!

  1. We are planning to start with a small batch of 6-8 validators and expand it in the future. The ultimate goal is to be as decentralized as possible. However, in the event when validator’s fee is too high, we might allocate less NEAR to it to even out the rewards allocation.

  2. Currently, we are waiting on DAO’s feedback regarding this question. By “acquiring stNEAR” we were referring to the ticker only rather than Meta Pool as a whole. Regarding the brand value of stNEAR, we cannot quantify it. stNEAR comes from the logic of keeping the naming unified with tokens on other chains supported by Lido: stETH, stSOL, stATOM, stLUNA, stMATIC, stKSM.

1 Like

Could you please elaborate on why Lido should cut it’s fee from the standard 10% as it is across all chains to 6% for Near? Of all staked Near, it looks like Meta Pool only has ~1.8% share and I don’t see any other competitors, am I missing something? What are the fees charge on staking with Meta Pool?

Lido is the gold standard for liquid staking solutions and the brand value carries a lot of weight. One of the main benefits for liquid staked tokens is the ability to use them in DeFi - even if the liquid staking solution is more expensive than staking with a validator, I’m going to choose the liquid staking product every time because I can earn significantly more yield through DeFi.

4 Likes

Thanks for your question!

The 6% fee was brought by the overall market situation rather than other liquid staking solutions.

If we look at NEAR staking market by validator commission, the total stake breakdown would be the following:

Validator Fee Share of Total Stake
0% 0.1%
1% 14.2%
1.5% 2.1%
1.9% 0.3%
3% 6.8%
4% 1.4%
5% 19.01%
7% 0.8%
7.5% 0.1%
8% 3.0%
9% 6.3%
10% 30.0%
12% 1.2%
99% 4.2%
100% 10.5%

Based on this data, 44% of all stake is delegated to validators with 0% to 5% fees and 41% of stake is delegated to validators with fees of 7% to 12%. By setting Lido’s fee to 6% we can provide better yields for the majority of NEAR delegators.

Regarding liquid staking market, there are 2 solutions available:

  1. Meta Pool - charges 2% commission on top of the validator’s fee, and holds ~1.85% market share.

  2. LiNEAR Protocol - charges 1% commission on top of the validator’s fee, and it holds ~0.25% market share.

If I am not wrong, the staking service is provided in Aurora instead of Near itself?

2 Likes

Thanks for asking!

Currently, we are working on implementing staking on NEAR.

Aurora will be supported at later stages.

1 Like

Appreciate the response. Looking at the liquid staking market or lack thereof on NEAR, I come to a different conclusion regarding fees. As you’re aware the value add of LIDO is in the liquidity, and given that there are no players in this sub-segment of staking with more than a few % of share, I don’t believe it’s necessary to compete exclusively on fees.

What makes liquid staking on NEAR so different than on Polygon, Polkadot, or Kusama?

Some quick back of the napkin math:

Total NEAR MC: $7.9B
Total Staked at Maturity: assuming 70%, or $5.5B
Lido Market Share: 20%, $1.1B
Yield at Maturity: assuming 6%, or $66M

LidoDAO cut @ 2.4% = $1.58M
Everstake cut = $0.4M

LDO is valued at about $2.90 today, so LidoDAO would pay $5.8M. My own models suggest LDO should be valued at $5 today, under quite conservative inputs.

So at 20% market share, LidoDAO is out $5.8M (likely significantly more after the market wakes up post-merge) and and we take at least four years to breakeven for this investment. The incentives here just seem quite misaligned with LidoDAO, and as structured, makes it a bet on NEAR taking off and LidoDAO taking majority market share of the NEAR liquid staking market, neither of which are certain.

As it stands, I strongly believe the payouts need to be restructured to more closely align the incentives of Everstake and LidoDAO.

5 Likes

Thanks for a detailed question.

Essentially, staking on NEAR provides similar functionality to delegators. As I mentioned before, we were building the fee structure based on the market situation rather than specific differences of NEAR.

Regarding the model you provided, we have seen that NEAR APY fluctuates between 10.5% - 11.7%. Let’s use 11% as the average.

With updated parameters, the model should look more like this:

Total NEAR MC: $7.9B
Total Staked at Maturity: assuming 70%, $5.5B
Lido Market Share: 20%, $1.1B
Yield at Maturity: 11%, $121M
Lido DAO cut @ 2.4% = $2.9M
Everstake cut @ 0.6% = $0.7M

Based on updated amounts, it should take ~2 years to reach the breakeven.

Another aspect that should be considered is NEAR price.

If we build a similar model where NEAR price is $18 instead of current $11.80, the Lido DAO cut @ 2.4% = $4.4M

That said, the 6% Lido fee is not set in stone. During later stages, if performance is not satisfactory, we can revise the fee structure. This might involve another vote or a call where all stakeholders can share their point of view. Currently, we believe that this model is optimal.

The APY I provided was an estimate of yield at maturity of the staking market - as more NEAR is staked, won’t the APY drop similar to other PoS chains? If not, it would be great to understand why that is the case as I’m just starting to learn about NEAR.

Not sure if this is relevant, NEAR has spent <1 week above that price and the recent spike was driven by rumors of USN offering 20%+ APY, which turned out to be false.

This deal seems like a call option on the success of Lido - currently dictated by ETH and LUNA and only delivers economic value to LDO holders if NEAR takes off significantly, which is not a bet I’m sure LDO holders should make. I think the terms would make much more sense if they were restructured to more closely align with the success of NEAR rather than success of LDO overall.

2 Likes

Staking on NEAR is in a pretty mature state already. As of today, the total stake is ~67% of the circulating supply. So the model that we discussed was close to a real-time situation.

NEAR rewards mechanism does not rely solely on stake percentage. The model is quite complicated. Even though APY might decrease due to increased stake, another important aspect is the number of transactions per day. Referring to the model provided in the blog, currently, the amount staked is less than 45% of total supply, and we are averaging around 1,000,000 transactions per day. That gets us an APY of ~10% - 11%.

Please find additional information on NEAR Economics below:

NEAR Explorer
NEAR Staking Dashboard
Blog: Introduction to NEAR Protocol’s Economics
NEAR Docs: Economics FAQ
Paper: Economics in a Sharded Blockchain

The goal of that example was to provide a visual representation of what happens in a different scenario, rather than discussing/forecasting the price. We do not control this aspect and have no impact on it. Therefore, we can review/analyze cases with various parameters: If NEAR price is = $X or $Y or $Z. That way, we can forecast outcomes in multiple scenarios and prepare to take a certain action if needed.

Regarding the terms, we agree that NEAR plays an important role in this initiative. However, we do not believe that aligning our terms with the success of NEAR is the right decision, since we have no control over it. On the other hand, the success of Lido on NEAR is something that we control. Therefore, the terms are built around the actual work that will be performed by Everstake.

1 Like

Thank you @vma for this proposal (and thank you Everstake for the continued support of Ukraine).

FreshNEARs charges a 1.9% fee, has been active since genesis and sits on the NEAR validator advisory board. We would be very interested in participating in Lido for NEAR (we are currently active in Lido for Terra).

1 Like

Wow, @vma I think this is awesome proposal.
Hi, I am D.K from DSRV and we are so interested in joining on Lido NEAR. DSRV is a member of NEAR advisory board since its genesis and as well as on CELO.
We are currently running Lido for ETH, Solana, Terra, Polygon.
Let’s keep in touch for next move on this proposal.

1 Like