Tokenomics AMA
TL;DR: The Saddle team discussed their plans for tokenomics and the benefits for SDL token holders.
Sunil| Saddle 0:00
For context SDL is the Saddle governance token, which was recently launched, I think a little bit over three months ago. So it's like nontransferable, and it's only used to vote on proposals. We see three missing pieces that we really need to figure out in order to, you know, really bootstrap and start growing the protocol. And those are tokenomics, actually enabling transfers for SDL and then the liquidity component of things. And so we basically outlined steps in each of these three major areas as part of this proposal.
And we expect that if passed, the community multisig would be able to coordinate and execute each of the plans at the same time, because you kind of need all of them for this to function as we intend. So for background, most folks are familiar with kind of the vote escrow tokenomics model that Curve is introduced, where users lock their governance tokens to gain voting power. That's generally between one to four years and then those users will vote on how to distribute token emissions or incentives to liquidity providers. Another kind of newer service that we're looking to use here is called liquidity as a service.
And this was launched by Fei protocol and Ondo. And so how this effectively works is the Saddle DAO would put up some amount of SDL tokens, they would then match that with an equal amount of Fe and they will deposit both tokens into either Uniswap or SushiSwap to provide liquidity. And then after some period, they basically will pull the liquidity returned the FEI back to Fei protocol plus a small fee and all the governance tokens go back to Saddle. And the protocol keeps the trading fees and assumes any impermanent loss.
So this effectively is a way for us to like double the liquidity for SDL, without us having to actually market sell to purchase a stablecoin or app to kind of act as the second token in the pair. And then finally, for those who have been following along Solidly is like newly launched AMM on Fantom that allows like low cost near zero slippage trades between correlated or uncorrelated assets. And so Saddle received ve(3,3) NFT as part of the bootstrapping process. And we partnered with Solidex for some voting power and additional benefits. So this will come into play a little bit later.
Yeah, so why are we doing this? So right now, the SDL token is only used to vote on governance proposals. And tokenomics are a very critical piece that we really need to bootstrap the protocol to add volume. And then on the flip side of that there must be enough SDL liquidity to mitigate undesirable price action and negative feedback loops. So that's why we're kind of taking this three-pronged approach to kind of knock out all of those missing pieces. So for the actual tokenomics component, we are looking to largely base our implementation on Ribbon Finance’s Ribonomics. And the major changes from Curve’s implementation here are support for variable variable missions rather than a fixed inflation schedule.
So Curve, for example, has a fixed inflation schedule over 300 years, and no flexibility to really change that if things aren't working. This actually feeds into the next point, which is optionality to unlock all locked SDL, had up the max four year lock, if government wants to use an alternate tokenomics model. So there's always a chance in the next like, you know, year or two, there might be a new cutting art-state of the art kind of tokenomics model that is even better. We want to make sure that, you know, the DAO has flexibility to potentially move to that, if that ends up happening. Another key change is there's a bonuscode withdrawal penalty that allows users to unlock their SDL early by paying a penalty that is then distributed pro rata to all of the remaining lockers. So this basically allows folks to have a little bit more optionality after locking their tokens.
And then if they decide to exercise that all of the other stakers got paid out. And the last major change is the ability for stakers to delegate their boost to other users-natively. And so on the liquidity incentive side, we're planning, we hope to deploy 6% of the token supply, or roughly 60 million SDL, over six months. And the graphs that are included in the token economics proposal, or just the like blended APY across all pools with this amount of incentives. And we wanted to allow six months, or only defined the inflation schedule for six months to allow some time for price discovery, just because it's going to take a little while after releasing all of this stuff, for a fair like public market valuation for the protocol to actually come into place and then it'll make sense to kind of revisit the inflation schedule to see what we want to do going forward.
As far as the admin fees, we would like to distribute 60% of the protocol admin fees to ve SDL holders weekly. And we wanted to do this as SDL/FEI LP tokens. And the kind of purpose of that is it'll provide buy pressure for the liquidity as a service pool. The other 40% will go to the community treasury to continue building and deploying protocol control value. And then lastly, we'd like to update the snapshot voting strategy to replace the current SDL voting with the SDL voting. So we are currently talking on the liquidity side with the Ondo and Fei teams on how exactly those will be structured. So we'll have more details in the next few days prior to these the snapshot proposal going live. On the Solidly side, we'll use our listing capabilities to launch an SDL USDC pair on Fantom and direct and all of our voting power to incentivize liquidity there.
The plan there is to use the Solidly emissions to basically offset what we would have to potentially pay out to incentivize that pair. And then lastly, we have a bunch of future plans that we think could be really promising for the protocol that we'd love to see the community explore. These include migrating to fully on chain governance using compounds Governor Bravo, or the Gnosis Safe, SafeSnap. Tokemak is also planning to have, I think, the third round of their reactor voting in the next few weeks. And so that's another avenue for us to explore for providing additional SDL liquidity and using TOKE emissions to help offset the cost of the protocol. We'd also like to investigate introducing a new gauge type that allows users to lock LP tokens for an extra yield boost.
This is based on practice LP boosts and is currently active for the D4 pool, if any folks are LPing for that. Also issuing additional bonds via Olympus Pro to buy and deploy more protocol to control value. And what I'm probably the most excited about is launching borrowing against LP tokens and leverage yield farming using Rari Capital’s Fuse.
So the hope is to effectively be able to offer a very similar like kind of one click experience that Abracadabra does with MIM to allow people to get leveraged exposure to any of the Saddle pools. And then lastly, as part of our SEMPI program, we'd love to start collecting airdrop and admin fees from select protocols and basically distribute that to the (-). Yeah, I just wanted to give a quick shout out to the: Curve, Ribbon, and Balancer teams for their open source contributions. It's really awesome seeing them put out new awesome work like this that we could build on to really move the entire space forward. Cool. So that is a quick overview of the whole proposal. I guess, do we have any questions?
Eric|Saddle 7:58
Yeah, feel free to drop questions in the Saddle Event Chat. I think there is one that I saw on the actual proposal itself. So PhiMarHal asked is the point of liquidy as a service compared to Uniswap, v3 LP, with single sided SDL liquidity? I guess, like, what's the difference in those two options?
Sunil| Saddle 8:20
Sure. So the liquidity as a service thing, effectively lets you borrow stable coins to provide the second asset in the pair, right? If we were just to directly use, you know, Uniswap, or SushiSwap, the treasury would have to sell SDL, for ETH, or stables to provide the second token in the pair versus using liquidity as a service lets you borrow that as algo stables from Fei, and then pay a small fee on top of that, and then this liquidity is still then deployed to Uniswap or SushiSwap. So in fact, it should provide the same advantages, but cost the protocol less since we don't actually have to dump like half the amount of SDL for the second like pair.
Eric|Saddle 9:12
Perfect, thanks. Let's see here. Christian, anything you want to say on the SEMPI partnership protocol? I think that's a huge value out here in our tokenomics compared to compared to most protocols.
Christian|Saddle 9:25
Yeah, definitely. So a couple of things I wanted to highlight at a high level is when we were looking at designing and tokenomics we really wanted to look at all corners of DeFi and see what kind of tokenomics models not only worked, but were ultimately grounded in a service that we're providing, right? We really want to stay as far away from, you know, a hyperinflationary reward token admissions that you can stake to get more of the same token, so you can stake get more of the same tokens they can go on and on. So we tried really hard to move away from that and tie the utility and the value of the Saddle token as much as possible into something that we're actually providing. Right? So, you know, everyone wants dollars, dollars on the blockchain or stablecoins, you can swap those dollars for other dollars. With, Saddle for low slippage, right? That's all very real. In the process of doing that, we CUT trading fees. And we want to distribute that back to our stakers.
The idea being, you know, take advantage of the tokenisation model, so that the participants of the protocol actually benefit from the protocol success. So when we were discussing , us all internally, we thought vote escrow made the most sense as like the foundational tokenomics model, because essentially, it's, Hey, the liquidity incentive token, you get the Saddle token, if you lock that up, not only are you pulling some Saddle out of the circulating supply, thereby decreasing sell pressure, which is obviously great for sell for price action. But on top of that, you get to vote for future Saddle incentives, depending on the pool you're in. So incentivize participation as well. And then ultimately, you're cutting trading fees. So it's very grounded in a service that's useful and a service that people want in a service that we're providing efficiently.
Now, of course, we want to distinguish ourselves a little bit. So that was the motivation behind some of the changes were to stand out a little bit. So we want to be open to the future, we want to be open to the possibility that hey, some new tokenomics, as Sunil said, might come out of the woodworks and there might be a better incentive structure. And we want to have the possibility, we want to leave the possibility open so that the community can vote to change away from vote escrow, if we think that that would be the best option. We also want to give people the option of pulling out, right, so you can pull out your vote escrowed Saddle, if, for whatever reason, financial reasons, you think your capital might be better deployed elsewhere. But in order to disincentivize that, of course, you get hit with a penalty. That penalty gets distributed to the rest of the community who is keeping the protocol afloat and secure by staking by having those rewards that were docked from the person pulling out distributed to the rest of the community.
And then going forward, right, we want to make Saddle not only grounded and have unique tokenomics. That's not just like a copy and paste job. But something that's grounded is slightly differentiating. But also we want Saddle to be kind of an all in one, decentralized community driven DeFi protocol. So that's where the future plans come in, where we want to be able to offer LP backed stable coin loans, for instance, where you can loop that around as many times. That's great, because not only are liquidity providers who are essentially the backbone of this whole operation, incentivized to provide liquidity because they get Saddle tokens. But on top of that, if they get those Saddle tokens, they can keep the assets they're providing liquidity for, and then they can lever up and either stay more in the protocol, which is great for us, it's great for trading fees, it's great for for volume for TVL. But also it gives them more optionality that can do more things, and it's all enabled by Saddle.
So we really wanted to give more naval LPers to have as many options as possible, while at the same time attracting them and incentivize them to keep their liquidity parked, right in Saddle. The idea of locking those LP tokens up for extra Saddle rewards, right, that's, that's great, that's ultimately grounded as well, we get to guarantee we have liquidity, again, the backbone of this whole operation. We guarantee liquidity, while also having these guys and girls pull out some more Saddle tokens so that they're incentivized to participate more to, to engage in the gauges to vote, to be part of governance, to cut trading fees, etc, etc. And then to your initial question, right, oh, and of course, bonding, right? Bonding is huge, you know, we don't want to be permanently renting out liquidity in perpetuity, we want to make sure that at the end of the day, we have liquidity in our coffers that enable us to guarantee these these efficient, low slippage swaps of assets that, you know, people really want and that are non, you know, speculative stablecoins, you know, some Bitcoin, some L1 tokens that are used to pay for gas or all these very real tokens.
And then to your question, Eric, the SEMPI partners, we're really excited about the SEMPI partnership partnership. So for those who don't know, SEMPI partners are part of the Saddle Ecosystem Max Proliferation Initiative, SEMPI. And the idea here is, you know, we can't deploy to every blockchain. There's so many blockchains out there, a lot of very useful, very promising blockchains. But very practically speaking, we just don't have the engineering bandwidth to be everywhere all the time all at once. So to stay in line with our core value of being decentralized and community driven, we thought it'd be best to not only use a license that allow people to fork our code and not run into any issues on like some other stable swap platforms. But on top of that, we want to enable incentivize that that forking in a way where Saddle, Saddle token holders, and the team forking our code all benefit. So the partnership, which includes things like, you know, we provide them technical support, marketing support, we'll do AMAs, blog posts, any kind of miscellaneous operations, problems they have having issues with, you know, we try and work together with them.
We're trying to have an open line of communication and make sure that they thrive. And part of that, in order to economically incentivize us to care about them, and for them to care about us. We do a token swap, they get some Saddle tokens. But then on their end, they will be funneling us not only do our Saddle token stakers get an airdrop, which is huge, right? So now you have incentive to lock up the Saddle tokens you're earning or you've purchased and lock it up for a period of time between a few weeks to several years, thus decreasing sell pressure. But on top of that, you get these air drops, and then eventually down the line admin fees.
And these admin fees will be funneled into the Saddle treasury and used to purchase in this case, the Saddle FEI LP tokens, right? So you're getting paid in a token that is ultimately grounded in at least 50% in the US dollar, which people want. But also, this ensures a constant buy pressure of the Saddle token, which is great for price action on the buy side. So all of these tokenomics proposals, this entire stack, the goal here was to create a unique incentive structure such that: there's perpetual buy pressure, there's incentive to to stake and therefore decrease sell pressure, there's incentive and many things you can do so that the community is incentivized to participate and is all done, ideally in a in a manner that that brings us towards a more decentralized, you know, community driven approach. So we think the tokenomics structure is grounded, is in the spirit of crypto and really does set Saddle apart. So we're very excited for this proposal.
Eric| Saddle 17:48
Awesome, thanks for that question. That was great. Amazing. All right. Awesome. Any thoughts from the community? Okay, there's a question here. Recent implosion of Solidly ecosystem, how this could affect the ve NFT side of the proposal. Any thoughts on that? From the team here?
Sunil| Saddle 18:12
Yeah, so I mean, obviously, that isn't what we would hope to see. But from the Solidly launch, the protocol was like, basically immutable. And all the governance responsibilities have been passed on to the other protocols. So Andre was never really planned to be involved in operating and running that protocol going forward. So this is definitely something where we need to have an avenue for price discovery, and solidly is where we have the biggest amount of governance power. So I still think it's a good place to start out with, but this is definitely something we could look into potentially, you know, discontinuing, or if there are better alternatives, when something like Tokemak runs the next round of voting.
Christian| Saddle 18:53
Yeah, and to add on to that Solidly, right, so the smart contracts, they can't go down. That's, you know, the whole point of crypto is essentially within the front-end, even if that did go down, like I think I believe the community return with us earlier that community is already putting up their own community driven front-end. So you know, Solidly is not going anywhere. And even if it did, we always have the option of taking it somewhere else. Taking the Saddle token elsewhere.
Eric| Saddle 19:23
Awesome, great. Any questions from the community? Saddle event chat? Just checking up. No? Cool, pretty straightforward, I guess. Good job guys.
Christian| Saddle 19:43
So even if no one has any questions, we really encourage people to hop on the discourse link. This is in the Discord announcement. Should be on our Twitter. You'll see the link everywhere. So we really encourage people to hop in and share their thoughts. Post any questions that occur to them later there as well, and essentially just engaging in discussion and also of course, vote. That's the whole point of this. So again very excited to get some feedback from the community.
Eric| Saddle 20:17
Great, I think with that we can wrap. Yeah, like Christian said the link is pretty much we can post it and pin it to Discord, as well as on Twitter. We'll be announcing and then it looks like we've 12 votes so far, but definitely looking to grow that number over the next few days. Cool, awesome. Well, thanks, everybody for joining really appreciate your time and taking part of this community and only looking forward to growing it all together moving forward.
Christian| Saddle 20:49
Alright, thanks for stopping by everyone.
Sunil| Saddle 20:52
Yup. Thanks all.
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