SIP-X: SDL Unlock, Tokenomics, and Liquidity

Summary

SDL is the Saddle DAO governance token which was recently launched ~3 months ago. SDL is currently non-transferable and only used to vote on proposals for the Saddle protocol. To ensure that all the pieces necessary for a successful protocol growth flywheel are in place, we propose:

  • Tokenomics: Introduce veSDL - Saddle’s adaptation of the popular vote escrowed (ve) tokenomics model introduced by Curve.
  • Unlock: Enable transfers for SDL.
  • Liquidity: Use Fei/Ondo’s Liquidity-as-a-Service (LaaS) and a SDL/USDC Solidly pair to offer SDL liquidity.

If passed, the community multisig will coordinate to execute each aspect of this proposal simultaneously once ready in ~1 month.

Background

ve Tokenomics
The vote escrowed tokenomics model lets users lock their governance tokens for different lengths of time (between 1 week and 4 years) to gain voting power. Users receive more voting power proportional to their lock duration. Users then vote on how to distribute emission or inflation incentives to liquidity providers.

Liquidity-as-a-Service
LaaS allows protocols to create liquidity for governance tokens without sacrificing the treasury to create AMM pairs or unsustainable incentives for liquidity mining. Projects deposit their token into an Ondo liquidity vault with a flexible duration, and Fei Protocol matches the deposit with an equal amount of FEI. Both tokens are then deployed as liquidity on DEXs like Uniswap or SushiSwap. After a predetermined duration, the Ondo vault returns all remaining FEI to Fei Protocol plus a small fixed fee, and returns all remaining governance tokens back to the protocol. The protocol keeps trading fees and assumes any impermanent loss.

Solidly
Solidly is a newly launched AMM on Fantom by Andre Cronje that allows low cost, near 0 slippage trades on uncorrelated or tightly correlated assets. Saddle recently received a ve(3,3) NFT as part of Solidly’s bootstrapping and partnered with Solidex for extra benefits.

Motivation

SDL was initially launched as a non-transferable governance token. Tokenomics are a critical missing piece for bootstrapping the protocol, TVL, and volume. There must be enough SDL liquidity to mitigate undesirable price action and negative feedback loops.

Specification

Tokenomics
Saddle’s vote escrowed tokenomics implementation (veSDL) will be based on Ribbon Finance’s Ribbonomics (source code). The major changes from Curve’s implementation include:

  • Support for variable emissions rather than a fixed inflation schedule.
  • Optionality to unlock all locked SDL ahead of the max 4 year lock if governance wants to use an alternate tokenomics model.
  • A vote escrowed withdrawal penalty that allows users to unlock their veSDL early by paying a penalty that is distributed to remaining lockers pro-rata.
  • The ability for SDL stakers to delegate their boosts to other users.

Saddle will deploy 6% of the token supply (60,000,000 SDL) from the community treasury over 6 months as liquidity incentives, modeled below:

The emission schedule will be revisited after 6 months to allow time for price discovery. 60% of the protocol’s admin fees will be distributed to veSDL holders weekly as SDL/FEI LP tokens, which will provide buy pressure for the LaaS pool. The remaining 40% of fees will go to the community treasury to continue building protocol controlled value. A new Snapshot voting strategy will be deployed to replace SDL voting with veSDL voting.

Liquidity
LaaS - The exact details of the arrangement are being worked on and will be put forth in a future Snapshot proposal prior to this proposal being implemented.

Solidly SDL/USDC - Saddle will use its listing capabilities to launch a SDL/USDC pair and direct all its voting power to incentivize liquidity.

Future plans
Although not a part of this proposal, in the future we hope the community will investigate the following new initiatives:

  • Migrate to on-chain governance using Compound’s Governor Bravo or SafeSnap.
  • Explore using Tokemak to provide more SDL liquidity.
  • Introduce a new gauge type that allows users to lock LP tokens for an extra yield boost (based on Frax’s LP Boosts).
  • Issue bonds via Olympus Pro to buy and deploy more protocol owned value.
  • Launch borrowing against LP tokens and leveraged yield farming using Rari Capital’s Fuse.
  • Collect airdrops and admin fees from select SEMPI partner protocols.

Many thanks to the Curve, Ribbon, and Balancer teams for their open-source contributions to the space!

For: Execute the SDL unlock, tokenomics, and liquidity plan detailed above.

Against: No change.

Poll:

  • For
  • Against

0 voters

3 Likes

I don’t understand the point of LaaS compared to an Uniswap v3 LP with single-sided (SDL) liquidity. It seems to me the latter solution would sacrifice even less from the treasury. What am I missing?

In favor of this proposal, in any case.

1 Like

Excellent proposal. What happens to unvested SDL tokens, can they be vote locked as well ?

Check out the LaaS launch article for a more detailed description of the mechanics: Introducing Liquidity-as-a-Service from Fei Protocol and Ondo Finance | by Brianna Montgomery | Fei Protocol | Medium

1 Like

Unvested SDL tokens cannot be vote locked and vesting will continue according to the existing schedule.