$LDO Staking Rewards and Protocol Revenue Linking Mechanism
Objective of the Proposal:
This proposal aims to optimize the incentive structure for $LDO stakers, addressing the inflation issue within the ETH ecosystem while driving the value growth of $LDO. By linking $LDO staking rewards to protocol revenue, we seek to ensure the long-term growth potential of $LDO, break the existing rigid interests of some entrenched stakeholders, and achieve a fairer and more sustainable ecosystem development.
Proposal Details:
1. $StETH Rewards for $LDO Stakers:
$LDO stakers will earn rewards through the protocol’s StETH reward program. The rewards will be based on the amount of $LDO staked and the overall revenue of the protocol. This mechanism ensures that stakers can earn stable returns from the protocol’s long-term growth, while also boosting demand for $LDO in the market.
2. 10% of Protocol Revenue Distributed to $LDO Stakers:
The protocol will allocate 10% of its net revenue to $LDO stakers. Given that a large portion of the protocol’s revenue needs to be reinvested for project development, the initial distribution will be set at 10%. However, as the protocol grows and revenue increases, this distribution will gradually rise to 30%-50%. This distribution model is inspired by successful projects like Solana, ensuring a higher level of profit sharing and incentivizing broader community participation.
3. 1% - 5% of Protocol Revenue Allocated for $LDO Buybacks:
The protocol will allocate a percentage of its annual revenue for the buyback of $LDO tokens. All buybacks will be conducted on Uniswap, with full transparency to ensure fairness and clarity. This buyback mechanism will help stabilize the market, increase the value of $LDO, and reduce its circulating supply.
Considering the importance of market visibility, we recommend conducting monthly buybacks accompanied by enhanced publicity to maintain constant market engagement.
Adjustments Based on Annual Protocol Revenue:
The buyback allocation will be adjusted according to the protocol’s annual revenue (calculated from January 1st to December 31st), as follows:
- Revenue between $5M and $10M: 1% of the annual revenue will be allocated for monthly buybacks.
- Revenue between $10M and $50M: 3% of the annual revenue will be allocated for monthly buybacks.
- Revenue more than $50M: 5% of the annual revenue will be allocated for monthly buybacks.
- Revenue below $5M: No buybacks will take place. However, the foundation must publish a plan to increase protocol revenue and ensure that buybacks can occur in the following year.
4. Introduction of the $LDO Staking Module:
To further enhance the incentive structure, we propose the introduction of the $LDO Staking Module once the protocol’s treasury net revenue exceeds $20 million. This module will allow users to stake all $LDO tokens directly, earning rewards based on protocol revenue and growth. The initiation of this staking module will not occur immediately; instead, it will be launched only after the protocol has captured a sufficient market share and generated enough revenue. This ensures that the staking module is introduced when the protocol is in a strong position, with ample preparation time to sustain its long-term growth.
The $LDO staking module will:
- Enable all $LDO tokens to be staked within the protocol, ensuring greater community participation and engagement.
- Distribute staking rewards based on revenue and performance, offering additional incentives for token holders to stake their $LDO.
- Strengthen $LDO’s utility and demand in the market, while aligning token holders with the protocol’s success.
- Offer a streamlined staking process to encourage more participants and promote broader token distribution.
This approach ensures that the $LDO staking module is launched only when the protocol is sufficiently established, creating a sustainable path for future growth and ensuring the long-term success of the protocol.
Rationale for the Proposal:
1. A Path to Deflation: The Only Way Forward:
The current inflation problem with ETH has become a major pain point in the crypto space. The constant issuance of new ETH has flooded the market, leading to an oversupply that negatively impacts the value of ETH. The “inflation” of ETH severely undermines its role as a store of value. Most established stocks maintain stable growth due to buybacks—this is a strategy proven by the market, and it is the only correct approach for stabilizing and growing $LDO.
2. Countering the “Anti-Victory” Mentality of Existing Stakeholders:
Some entrenched stakeholders may oppose this proposal, fearing that changes to the current profit-sharing structure will undermine their earnings. However, we must make it clear that the current system is not unchangeable, and opposition to innovation often stems from a protective, conservative mindset. The reality is that the existing rigid structure will limit the protocol’s long-term development, while further alienating new participants and smaller investors. Those resistant to change—the “anti-victory” crowd—need to realize that the future lies in embracing innovation, not in clinging to outdated practices. By implementing a fairer and more transparent system, the protocol can attract more community members, ultimately ensuring its healthy and sustainable growth. If we fail to break out of this stagnation, the long-term success of the protocol will be compromised.
3. Stabilizing the Protocol’s Long-Term Development:
By allocating part of the protocol’s revenue for $LDO buybacks, we can reduce the circulating supply of $LDO, stabilizing its price and creating stronger demand for the token. This buyback mechanism will help strengthen $LDO as a long-term asset, contributing to a more stable and reliable market environment. As buybacks continue, the scarcity of $LDO will further increase, driving its market value higher.
4. Encouraging Community Participation and Profit Sharing:
Linking protocol revenue to $LDO rewards ensures that profits are distributed more equitably among all $LDO holders, enhancing community trust and engagement. As the protocol’s revenue grows, staking rewards will gradually increase, motivating more users to participate in the development of the protocol. Ultimately, the interests of $LDO stakers will be closely aligned with the protocol’s success, creating a virtuous cycle of shared value and community-driven growth.
5. Transparency and Sustainability:
The buyback mechanism outlined in this proposal will be conducted with full transparency on Uniswap, ensuring that the process is visible and can be audited by the community. As the protocol develops, the gradual increase in staking rewards will ensure flexibility and long-term sustainability. This approach will allow the protocol to adapt to changing market conditions while maintaining its commitment to fair and transparent growth.
Conclusion:
This proposal offers a well-defined strategy to address the current inflation issue in the ETH ecosystem while linking $LDO staking rewards directly to the protocol’s performance and revenue. The introduction of the $LDO staking module will further incentivize token holders, contributing to a stronger and more engaged ecosystem. The buyback mechanism, revenue distribution, and new staking options will not only stabilize $LDO’s value but also ensure long-term sustainability for the Lido protocol.
The adjustments based on protocol revenue ensure that the project has flexibility to react to market conditions while maintaining long-term sustainability. These measures provide a clear and responsible path forward for Lido’s future growth.