Lido Referral Program achieved its goals in growing TVL (681K ETH rewarded stake).
At the moment 2/3 of the referral rewards pool is paid out (9.27M LDO).
Some Lido community members suggest switching the referral program to a strictly targeted mode (only targeted integrations with wallets and protocols) to use the remaining referral rewards pool (5.7M) most effectively. At the current run rate, the referral program will run out of funds after the 19th period(March 28th - April 11th) See Lido’s public report for more details Public Report - Google Sheets
To support the coming big integrations referral rewards pool needs to be extended (see details below), otherwise, we would need a separate rewarding pool for those.
Important input data to consider
Solana
For potentially coming soon integrations and partnerships we would need to extend the rewarding pool:
Solana Foundation might be able to provide SOL incentives.
A potential Phantom integration potentially could bring million(s) of SOL per month which would need a reward of millions of LDO per month.
These two big integrations already outsize the remaining budget after the coming period (18th) rewards payout.
Ethereum
Ledger has multiple millions of ETH not staked yet and they propose to drive that liquidity to Lido and receive a referral bonus, arrange co-marketing, education, and other stuff. Also requested some additional rewards or some kind of incentivization for their users.
This is open to debate and I hope that everyone comes and gives their input. However, many in the community feel that a decision needs to happen soon because the referral funds will run out soon! I want to initiate a vote on this in a matter of days.
Move the referral program to targeted/limited mode as soon as possible
Pros:
-This would mean dropping all referrers except for big integrations like Ledger, Argent, MEW, strategic DeFi protocols, etc.(whatever partnerships the Lido community wants)
-Focusing more energy into a few partners like Ledger and Phantom could be more cost effective and grow Lido’s total value locked faster than the current referral program.
-However, this wouldn’t prevent the exhaustion of the remaining funds for the referral program because most of the referral rewards being paid out are paid to the bigger partners already. Lido would still need to top up the referral programs funds
Cons:
-Could alienate Lido community members who are receiving referral rewards now
Top up the referral program and continue the program as is
Pros
****-A referral receives 1% payback in LDO of the ETH staked with their referral link. Referral reward amount in LDO is calculated each payout week based on ETH/USD and LDO/USD 14 days (whole referral period) TWAP to be 1% payback. The minimum reward amount is 5 LDO and the maximum reward amount is 20 LDO per 1 ETH staked.
-If the community feels like this was a good value for the growth in stETH/stSOL then there doesn’t need to be any changes
Cons:
-At today’s prices topping off the referral program to previous levels would be 10 million LDO, or $40 million worth of LDO
-Some LDO community members are starting to get concerned about the amount of LDO the DAO is spending for the value it is bringing in
Reduce referral rewards paid out to referral partners
Pros:
For the Ethereum ecosystem, stETH is growing rapidly and gaining market share
Now that network effects are taking hold the amount of referral rewards that are paid could be reduced while still maintaining growth
Maybe a higher payout could still be maintained for the Solana ecosystem since Lido is still trying to gain market share
Maybe a 2-10x reduction in stETH referral rewards would be a good compromise for the Lido DAO and it’s referral partners
Cons:
Current partners will probably not be happy that they are receiving less LDO referral rewards
The 3rd option seems a no-brainer to both delay the referral program from running out of funds and reduce the amount of LDO the DAO is spending. Also, it’s compatible with option1 (which I don’t love because goes against the decentralisation ethos).
Is there a real risk that current (big and small) referrers would shift to referring other staking solutions?
A lot of teams are monetarily driven so there is of course risk or the potential for delays in integrations if there isn’t a clear economic benefit to them. Of course defi activity on platform is also valuable.
I think for new ecosystems (SOL, MATIC, KSM etc) we should consider using the referral program as a tool to bootstrap network effects similar to ETH.
For ETH, I think we need to consider the relative impact to the amount we are spending. Gaining $1M USD on KSM is a huge percent increase while that is trivial on ETH. Until the merge, ETH staked with Lido is incredibly sticky. Also 4% yield on ETH and 1% payback of LDO is a 5 year ROI time horizon based on protocol revenues which is incredibly long in this space.
My opinion is that we should still have referrals available on ETH but modify the % payback to limit the speed of spend from the treasury. I do not think completely shutting down ETH referrals makes sense due to the availability of some strategic partners and growth opportunities.
Thanks for everyone’s input! Based on what people are saying I believe this could be a good plan moving forward:
-Top up referral program back to 15 million LDO to prepare for future expansion into other blockchains
-Reduce LDO two week TWAP payout for Ethereum referral program 4x( ETH/USD and LDO/USD 14 days (whole referral period) TWAP to be 0.25% payback, not 1% as it is currently).
-Keep the ETH/USD and LDO/USD 14 days (whole referral period) TWAP at 1% payback for Solana and future referral programs
-Do not drop smaller referral partners from the program because the relative impact of referral rewards will not be affected and not slow down the amount of LDO we are paying out each period
Adding some perspective from the partner side as Argent is benefiting from Lido referral.
First, referral should be sustainable and be a raisonnable share of the protocol profit. 1% of Eth deposited is likely too high as represents several years of profit. But the referrer plays an important role in customer acquisition so getting 20% to 30% of the protocol profit wouldn’t feel unreasonable. We’ll need more time to understand Lido LTV per user as until withdrawals are enabled we can’t really measure retention.
Now back to the current proposal and assuming 0.25% is the right value for now. I think we need to manage the transition carefully as suggested by @etinvest
Changing from 1% to 0.25% overnight could send the message that Lido is not a predictable partner and can change terms at any time. Argent is well funded and doesn’t depend on that revenue to pay wages but you could have smaller referrers planning around that. Also if someone just integrated Lido on the basis of this referral program, it could feel as being rugged to see a change so abrupt.
This can also play a role for other chains, a Polkadot referrer might think twice about an integration as the referral could disappear overnight.
What you’d typically expect from a partner is predictability and a proper heads up of many months before significant changes.
So gradually changing to 0.75 then 0.5 and finally 0.25 over several months would make sense.
A separate discussion should happen around the longer term referral structure (eg. a revenue share collected monthly or yearly)
If Lido wants to be known as a reliable partner, it’s not a good idea to change the referral program at short notice.
What amount of notice is required is a function of the cost to integrate as a referal partner. If that cost is high, notice should be long (6mo+). If it’s low, then I would be more fine with making rapid changes.
I don’t know how costly it is to integrate Lido referal but think this info is key input to the decision, so hopefully someone can add more color on it.
I agree based on contention, the vote should not be passed until further discussion is completed. It seems like a more tiered approach might make more sense in the medium term.
True revenue share is a practical impossibility with the current set up. How would we track someone who stakes, triggers referral, unstakes, and then restakes at a much later date? With a different partner? Etc.
I think the points here about radical and short-term changes are very important. I recall – many, many years ago – when Amazon dramatically cut the affiliate payouts quite suddenly to their Associates (referral/affiliate) program. Entire (though perhaps small) businesses were built upon the program, business cases were dependant on the existing payout rates of the program. Many such operations were forced to close down and go out of business. Jobs were lost, etc. There are examples from the same era of Google doing the same with its Adsense program. Thats said, I have no idea to what extent – if any – there are businesses with a similar level of reliance on the Lido referral program, but I think its worth considering. For bigger integrations, pulling the rug out from under them may not have a material impact on their businesses, but it could definitely send the message that Lido is not a predictable partner, as mentioned by @itamarl and @Hasu above.
As such, practically speaking, if the pool is about to become empty, perhaps the short-term option is simply to extend (top up) and defer program reform to a subsequent proposal. (my 2 cents)
I think a tapering off like this makes a lot of sense. Agreed with Hasu that we should think through how long these types of integrations take for partners and what they payback period is for implementing them. Seems reasonable that a full reduction would apply over a few months at least so that teams have time to plan for it. I’d suggest getting a bit more input from the affected partners before voting, or, if there is a desire to reduce emissions ASAP, to do no more than a -25% reduction.
Thanks for all the feedback guys! I’m glad we are finding holes in the current plan and adding ideas that could solve those issues.
Some additional things we could add to the referral program’s Terms and conditions are guarantees on rate of change the rewards could be changed(i.e. referral rewards can only be reduced every X number of days) to create more certainty for referral partners that have built their business/livelihoods around the referral program.
From the DAO’s perspective, Lido wanted the ability to turn off and pivot the referral program quickly to mitigate potential black-swan events or activity that could drain the funds without much benefit to the DAO. I think the DAO community members are also unsure if the referral program will be a permanent feature of the Lido DAO.
Another idea:
I can talk to our analytics team and see if they have the bandwidth to manage and track a graduated bracket that pays out less rewards as more ETH is staked through a referral address, per period. For example:
Referral partner stakes 20k ETH in a 2 week period
1st 5,000 ETH earns 1%
Next 5,000 ETH earns 0.75%
Next 5,000 ETH earns 0.50%
Next 5,000 + ETH earns 0.25%
-Inspiration came from a comment V left in the discord
One thing we could do is, alternatively, switch goals of referral programs from “mostly TVL, integrations/stakers a nice bonus” to “mostly integrations/stakers, TVL a nice bonus”.
One potential way shape the program that way is:
incentivize first X ETH greatly (not per period, total per partner)
incentivize ETH > X less
incentivize amount of stakers where we it can credibly checked/analyzed to be not a sybil attack.
-Top up referral program back to 15 million LDO
-Reduce LDO referral rewards for Ethereum referral program to 0.75% payback (ETH/USD and LDO/USD 14 days TWAP) which cannot be changed for a set amount of time and written into the Terms and conditions(3 months?).
I think this addresses the main concerns for all parties involved which are:
-Lido DAO is spending too much and current payout is not sustainable
-Lido DAO community still believes that the referral program is important now, and for future integrations
-Referral program is running out of funds
-Gradual reduction in rewards will not drastically harm referral partners that rely on the program for revenue
Questions for the community:
-Do we like the change to 0.75% payout?
-How much time should the new 0.75% payout be fixed and guaranteed? 1 month? 3 months?
I will start a snapshot vote on Sunday if this proposal seems fair for everyone.
This is a continuation of Lido’s efforts to gradually reduce rewards to a more sustainable level without drastically cutting rewards for partners that rely on the referral program for revenue.
Background information : Stake DAO is a non-custodial platform built on top of decentralized protocols that enables anyone to easily grow their crypto portfolio, which launched options vault strategies last August for ETH (call/put) and BTC (call) (see more Strategies | Stake DAO )
How you intend to make use of the Lido referral program : StakeDAO will release a new wstETH covered call options vault strategy - allowing anyone to deposit every week their ETH for wstETH into Stake DAO’s covered call option strategy to benefit from smart risk management and best-in-class yields. We will kickstart this referral program by encouraging our 9 272 ETH users deposits to migrate towards the new wstETH covered call option strategy.
