Lido for Polygon - Proposal by Shard Labs

Motivation

Decentralization is one of the cornerstones of every blockchain project. Having a more decentralized project means that it’s also becoming more robust and resistant to attacks of any kind. With this proposal we aim to help improve decentralization of staking on Polygon even more and that way contribute to the decentralization of the Polygon but also Lido. Also the advantage of using Lido on Polygon is that users won’t need to have matic locked in a staking contract, but will be able to use stMATIC inside the defi ecosystem on Polygon which then greatly improves incentives for users to delegate and stake their tokens.

Suggested Design

Proposal’s base is to create a liquid staking token (stMATIC) that will accrue staking rewards and represent staking positions with Lido validators on Polygon. The stake deposited to the Lido contract on Ethereum mainnet will be distributed to these validators following a logic similar to the Lido Ethereum liquid staking solution. Full logic will be implemented on the Ethereum mainnet, and the users will need to move stMATIC to Matic chain via bridges if they so like. This version of Lido will have a fee mechanism similar to that of stETH, allowing splitting fees between node operators and Lido treasury (e.g. to be used for insurance funds). Lido node operators, and parameters such as the fee, will be controlled via the governance of LDO holders on Ethereum. In the initial version, governance decisions will be carried out by the Lido DAO. If the decisions become more frequent or complex, there is a possibility to spin a new DAO. Ideally, in the future, there will be a multi-chain DAO that will decide on all the decisions of LIDO-built solutions like stETH, stMATIC, stSOL etc.

A more detailed approach is defined under: Timeline and Future work & Next steps.

Why Polygon?

Quite successfully for some time now, Polygon (ex. Matic) has been the DeFi chain of choice for many. Because of that, the utility for Matic tokens is real and vast. Due to the staking mechanism on Polygon (Matic) which locks matic tokens inside a smart contract on layer 1 (mainnet). Those same tokens can’t be used for other DeFi related dapps and protocols on the Matic chain itself. Due to the reason mentioned above, we propose using Lido design for ETH staking and to create a similar solution for staking Matic tokens (more details in the following sections).

Why Shard Labs?

We are a startup founded in 2018, and we accompany our clients on the path to a holistic digital transformation. Profound blockchain tech knowledge coupled with business understanding allows us to create unique solutions and deliver excellence.

We believe and enjoy working on blockchain, especially when projects bring alliances, partnerships, and talent from every aspect of the blockchain ecosystem.

Shard Labs is a team of researchers and developers oriented towards cutting-edge initiatives such as this one. The team has extensive experience working with multiple solutions and clients such as Ethereum Foundation, Polygon, Polkadot, NEAR, etc.

Our lean team of blockchain software developers ensures all components of successful project execution, from strategy and conception to digital solutions.

We are determined to improve the Polygon ecosystem by bringing liquidity staking (stMATIC) to contribute to the Polygon DeFi ecosystem even more.

Some of the projects we currently work on:

Timeline and Future Work

  • Phase 1: Research and specification [Jul 2021]
  • Phase 2: MVP Development and testnet deployment [Jul - August 2021]
  • Phase 3: Production v1 development and audit [August 2021 - December 2021]
  • Phase 3: Mainnet deployment of v1 [January 2022]
  • Phase 4: Maintenance and support for v1 and planning for v2

Suggested Incentive Structure

It is a great challenge, but also an opportunity to build a Lido solution for the Polygon ecosystem. We are determined to put our best resources into this project to make it the best possible and grow the dedicated team and the project itself in the future.

We are proposing the following incentive structure that aligns with the long-term success of the Lido DAO as well as Lido on Polygon:

  • Lido Token Incentives: Using vested tokens distributed according to agreed milestones
  • Revenue Share: Agreed ongoing revenue share between Shard Labs and the Lido DAO

For delivering liquid staking solution we propose a following:

  • 500,000 LDO tokens issued with vesting with 6 months cliff and 6 months vesting when Lido for Polygon manages to capture 2.5% of the staked MATIC supply
  • 500,000 in additional LDO tokens vesting over a 6 months when Lido for Polygon manages to capture 25% of the staked MATIC supply

Revenue share incentives between Lido DAO and Shard Labs: will be used to incentivize future growth and cover development and maintenance costs. As the lead development partner of Lido on Polygon, we suggest that Shard Labs receives 20% of the fee going to the Lido DAO treasury, while the treasury itself retains the rest.

If the agreed KPIs are not reached, but the product is developed and delivered, we suggest the compensation of 100,000 $ to cover the basic development and audit costs.

We are excited to bring Lido to the booming Polygon ecosystem as we see this as the start of another milestone in Lido development.

We also want to thank Chorus One for their help with the proposal.

Next Steps

We are in contact with multiple stakeholders from the Lido and Polygon ecosystems. There is already a first version of the technical specification that can be viewed and the feedback provided. We will also work on the frontend integration for https://stake.lido.fi/.

We are open to proposals and feedback from Polygon and Lido communities on this proposal and the proposed specification.

Our next step is to issue a Snapshot vote to determine whether the Lido DAO favors supporting our proposal and the spec. If it passes, we will build an MVP and release it in the Polygon to boost it’s DeFi ecosystem even more.

Team breakdown per phase:

Phase Solidity DevOps Marketing Frontend
MVP 1 senior 0 0 1 senior
V1 2 senior 1 senior 1 1 senior
V2 2 senior 2 senior 1 1 senior
3 Likes

Hi,

As a user of Polygon, I like seeing a proposal to create stMATIC with Lido. On a back of the napkin calculation the fee and payment structure proposed looks good, yet it would be good for Lido to have a more complete analysis on the economics of the deal. One similar to the Delphi proposal for Aave would be great. If you need any help putting together a model, I can help out, I am not that familiar with the staking economics but I can get up to speed pretty quickly.

3 Likes

Absolutely agree with this proposal. Let’s get it done.

1 Like

Definitely makes sense. Will try to get someone from the Polygon team to also join us on this topic.

2 Likes

Thanks @Edi_ShardLabs for kicking off this proposal, and for Shard Labs’ excitement and support.

Zooming out, I like the general motivation behind the proposal and that it could be mutually beneficial to both Lido and Polygon if structured correctly.

A few specific questions/comments:

  1. Understanding the economics. I strongly agree with @josebaredes’s point – from Lido’s perspective, the critical point is to understand the rough “payback period.” It would be helpful to share a table e.g. showing the anticipated fee stream currently, and it’s sensitivity to 1) the amount actively staked 2) changes in yield as a result 3) other fees, like the proposed revenue share.

  2. Another DAO? Can you clarify: “In the initial version, governance decisions will be carried out by the Lido DAO. If the decisions become more frequent or complex, there is a possibility to spin a new DAO.”

  3. Long-term alignment. If the goal of LDO-denominated compensation is “[alignment] with the long-term success of the Lido DAO”, would you be open to adjusting the terms to a 1y cliff, followed by a linear 1y vest? This is identical to the terms other Lido contributors such as Paradigm have received.

  4. Revenue share. What is the motivation for the revenue share fee in addition to LDO compensation, and how did you settle on 20%? Without context on what this represents (in rough notional terms), it’s hard to reason about – this is where illustrating (1) could help as well.

1 Like

Hi and tnx for the questions.

  1. Definitely agree this is a crucial part and we are currently working on it.
  2. Another DAO would only be created in a case where there will be a lot of governance proposals for the current one. Idea there is only for it to be spun off if there are too many governance decisions for the current/main one).
  3. We are definitely open to doing it this way. I think that most important now is under 1. to have that clear and then all the other stuff can be discussed and changed accordingly.
  4. This is actually an even better representation of the success of this implementation as revenue share will directly be impacted by the success of the Lido on Polygon, where LDO token price depends on multiple other factors outside Shard Labs’s team reach. That’s why a combination of both is proposed, so Shard can participate in the overall governance of the LIDO ecosystem without a need to sell LDO tokens to pay for the team and other expenses. 20% was taken from the Chrorus One proposal for Lido on Solana.

Definitely feel free to propose what in your terms would be the most balanced proposal to have both Lido and Shard sides aligned for the longevity of the project. And I will update comment with economics.

And just a note, anyone coming to ETHCC let me know. Maybe we can even organize a live session with discussion around this, my handle is here: https://twitter.com/edisinovcic