K9 Product Fees & Reward Distribution Structure

Development
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Proposal for K9 Product Fees and Reward Distribution Structure

(1) Introduction and Objective

K9 Finance DAO proposes the following product fees and reward distribution structure for the upcoming “Bonecrusher” liquid staking product being launched on September 18th. These values are suggested based on other successful liquid staking models including Lido Finance, Frax Finance, etc. The vesting module structure mimics the dynamics of GMX & SNX with potential improvements on their respective models.

It’s important as a community that we recognize the need for incentives amongst the different participants in the K9 product. These participants are BONE delegators, KNINE stakers and BONE/knBONE farmers. It’s important that there are incentives to properly reward each of these participants to create value for K9 Finance DAO and Shibarium in a flywheel fashion.

The most important lever for yield rates on the K9 product is the amount of BONE delegated to the liquid staking system. BONE holders need an incentive beyond the benefit of receiving a liquid staking token to encourage them to continue delegating their BONE and creating more value within K9 DAO and Shibarium. This reward split needs to be balanced so that there are still significant rewards given to KNINE holders to encourage them to lock and stake their tokens for the security of the network.

Yield modeling is a significant barrier in a pre-product stage due to all of the unknown variables in the important levers that determine yield rate. For this reason, this vote suggests industry best practices for fees and reward splits, but changes may be required to optimize the incentive structure among all participants once the product is live. In this proposal we are recommending that for a 90 day period the management council is able to adjust these values/structures to account for optimal incentives.

The following assumptions exist in our modeling:

  • All 2.5M BONE in current validator will move over to Liquid Staking in Week 1
  • The K9 Validator will grow in 100,000 BONE per week in liquid staking (7.65M BONE delegated to Validator after 1 year)
  • 80% of knBONE will be used in K9 protocol versus in other areas of Shibarium
  • 10% of circulating supply of KNINE will be bridged to Shibarium in week 1 & approximately 50% after 1 year on a relatively linear progression
  • 75% of KNINE on Shibarium will be used in Real Yield staking and/or locking KNINE
  • The average lock duration of KNINE will be 6 months
  • 11k BONE per week is given by the Shibarium network to all Validators and we capture ~ 10% of the network earnings as a DAO via Liquid Staking

The following targets exist in our modeling, but are very dependent on the assumptions for the model:

  • A 15% lock rate on Real Yield locking of KNINE on Shibarium
  • A 10% farming reward for knBONE/BONE farming; this is important, since in this vote we are not giving rewards to knBONE holders directly, but they can earn near 4x current delegation rewards through farming if the DAO hits this target
  • 1000 BONE per week could be earned & used to supplement yield to sustain similar rates. This would be made through protocol fees, KNINE taxes, & secondary K9 DAO products
  • $2M TVL in the knBONE/BONE farm in 3 months

As a DAO member, please note that there are significant assumptions made in this modeling and significant deviation may occur. These assumptions are made from a mixture of our Validator performance, industry standards, Shibarium performance, and like-kind products in Web3.

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The following Variables are proposed for the Product:

  • Validator Rewards
    • Bone Delegators (0%) - this ensures that the backing of knBONE to BONE is exactly 1:1 & never >1
    • K9 DAO Treasury (5%)
    • Liquid Staking Instant Reward Pool LSIRP - (0%) - Initial recommendation is 0% due to the fast unbonding period Shibarium of 1.5 hours on average
    • KNINE Stakers (95%)

Zapping Fees (0.5%)

Bridge Fee (knBONE Redemptions) (0%)

  • This is high for industry standards, but it is important for those using Liquid Staking to keep the system stable at the beginning, so there is a higher penalty for redeeming at the start. A user could still swap knBONE to BONE on Shibarium to bypass this fee, so it is only relevant for those taking knBONE off of Shibarium for BONE.

Instant Pool usage fee (10%) (not used at the start, but this needs to be high for ease of use. This BONE does not earn the DAO money when sitting in the pool, so if it is used, it would reduce yield rates. We should penalize this since the average wait time is only 1.5 hours; therefore there should be a significant convenience fee)

Lock multiplier 13x 1 year (month lock + 1 is your multiplier)

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Vesting Ratio 1:1 (KNINE given for each esKNINE earned)

  • Every esKNINE earned can be converted to 1 KNINE according to the vesting period

Vesting period: 365 (esKNINE unlock)

Backing Ratio = 2 (number of KNINE needed to be locked to vest esKNINE to KNINE)

esKNINE per second rewards 420.69 (13B esKNINE in 1 year)

  • When esKNINE is converted to KNINE the DAO has a debt obligation to deliver KNINE to the contract, but the redeeming wallet must have 2 KNINE locked into RYS for every 1 esKNINE they can convert to KNINE

NOTE For the first week, Bonecrusher won’t have collected any rewards from the validator yet. The rewards will be fueled from topping up the RYS reward pool with all of the BONE that would be distributed over week

Please refer to the K9 Product Docs for an in depth overview of the administration fees: Protocol Fee and Rewards | K9 Finance DAO Product Documentation

(2) Benefits to K9 Finance Community

This proposal offers several advantages to the K9 Finance community:

  • Ecosystem Growth: By properly incentivizing BONE delegators and KNINE stakers, the proposal ensures continued participation in the K9 Finance ecosystem, which will drive overall growth and stability.

  • Technological Advancements: Implementing a balanced reward structure fosters innovation and attracts more participants, which can lead to technological improvements in the liquid staking process.

  • Community Engagement: Offering significant rewards to KNINE holders will encourage more users to lock and stake their tokens, fostering greater community involvement and long-term loyalty.

  • Alignment with Shibarium: The proposed structure supports the broader Shibarium ecosystem, ensuring that K9 Finance remains an integral part of its growth & promotes TVL & transaction volume to assist in burning SHIB

(3) Proposal Details

(a) WHAT

The K9 Finance DAO proposes the following reward distribution structure for the “Bonecrusher” liquid staking product:

  • Validator Rewards Distribution:

    • Bone Delegators: 0%
    • K9 DAO Treasury: 5%
    • Liquid Staking Instant Reward Pool (LSIRP): 0%
    • KNINE Stakers: 95%

  • Zapping Fees: 0.5%

  • knBONE Redemptions: 0%

  • Instant Pool Fee: 10%

  • Lock Multiplier: 13x

  • Vesting Ratio: 1:1

  • Vesting Period: 365 days

  • Backing Ratio: 2

  • esKNINE/second: 420.69

Additionally, the proposal suggests exploring the feasibility of adding a tax to the knBONE/BONE pool to further enhance rewards.

(b) WHO

The stakeholders impacted by this proposal include:

  • BONE Delegators: Participants who delegate their BONE tokens to the liquid staking system and receive a portion of the rewards.

  • KNINE Stakers: Community members who lock and stake their KNINE tokens for network security, receiving the majority of the rewards.

  • K9 DAO Treasury: The treasury will benefit from a portion of the rewards, supporting ongoing development and community initiatives.

  • Management Council: Responsible for overseeing the implementation and adjusting the reward structure as needed during the initial 90-day period.

  • SHIB Holders: This proposal attempts to optimize on-chain transactions on Shibarium to facilitate SHIB burns

(c) WHERE

K9 Finance Platform: The rewards structure will be implemented within the K9 Finance ecosystem, specifically within the Bonecrusher liquid staking product.

Shibarium Network: As the underlying blockchain, Shibarium will see increased engagement from users staking and transacting within the K9 Finance ecosystem.

(d) WHEN

The proposed timeline for the project is as follows:

  • Launch Date: September 18th, 2024, coinciding with the launch of the Bonecrusher liquid staking product.

  • Adjustment Period: A 90-day period post-launch where the management council can adjust the reward structure to optimize incentives and ensure the desired outcomes are being achieved.

  • Review Period: Post the initial 90-day period, a review will be conducted to assess the effectiveness of the structure and consider any necessary long-term adjustments.

(e) HOW

The resources required for this proposal include:

  • Funding: No additional funding is required beyond the existing reward pools allocated for the Bonecrusher product.

  • Technical Support: Skilled developers and smart contract experts to implement and monitor the reward distribution structure.

  • Community Involvement: Active feedback and participation from the K9 Finance community during the adjustment period to ensure the structure aligns with their needs and expectations.

(4) Impact Assessment

The potential impact of this proposal on the K9 Finance DAO ecosystem is significant:

  • Short-Term Impact: Increased participation in the Bonecrusher liquid staking product due to attractive reward rates, driving up the amount of BONE delegated to the system.

  • Long-Term Impact: Sustainable growth of the K9 Finance ecosystem, with a balanced incentive structure that supports both BONE delegators and KNINE stakers, ensuring ongoing community engagement and network security.

  • Risks and Uncertainties: Potential challenges include the need for adjustments in the reward structure based on real-world performance, which the management council will address during the adjustment period. Additionally, market conditions and user behavior could influence the effectiveness of the reward distribution, requiring ongoing monitoring and possible refinements.

Metrics for Success:

  • Increased BONE Delegation: A measurable increase in the amount of BONE delegated to the liquid staking system.

  • KNINE Yield Rate: A measurable, sustainable yield rate for those staking & locking KNINE

  • KNINE Staking Participation: High participation rates among KNINE holders, leading to a secure and robust network.

Community Feedback: Positive feedback from the K9 Finance community, particularly regarding the fairness and effectiveness of the reward distribution.

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Here is a spreadsheet that illustrates the above assumptions and modeling. Remember that all the rates are theoretical and based on the assumptions above. You are welcome to download this sheet and create your own assumptions or adjust variables to understand the product better.

  • What was missing from the initial proposal is that there is a BONE rewards per second variable as well, that can be set in the DAO admin panel, but this rate must mimick the rate in which validator rewards are earned by the DAO. Therefore, much like GMX, every Wednesday this will be adjusted to align with the reward rate of the validator that week. It is important that this number is never higher than the actualized rewards, because then the DAO would run in a deficit & users would be unable to claim all their BONE rewards until the DAO tops up the deficit

There are 2 comments that are going to be changed for the proposal to the Roundtable of Dogs:

  • lower the zap fee to <1% (the community is urged to research other zap functions in dapps and suggest a more fair value)
  • eliminate the bridge fee of 2.5% & set to 0% for fair market arbitrage
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I fully support this proposal! I have always felt that those who lock up their Knine should he rewarded the most on Bonecrusher. Exciting times ahead!

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I support this proposal. Very well thought out with what seems to be very achievable goals and metrics.

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I fully support this proposal to ensure a fair distribution of rewards.

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Love it! Great proposal! Support!

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I have carefully reviewed the proposed product fees and reward distribution structure for the “Bonecrusher” liquid staking product. I believe the overall approach aligns with the goals of incentivizing participation and promoting the growth of the K9 ecosystem. I am particularly interested in understanding how the proposed yield rates will compare to other liquid staking products in the market. It’s important to ensure the reward structure remains sustainable over the long term. I encourage the K9 DAO to actively seek feedback from the community during the adjustment period to refine the structure as needed. I support the overall direction of this proposal and look forward to seeing how it develops.

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Agreed. Will certainly be taking feedback each week. GMX for example adjusts their rates every Wednesday after looking at sentiment and data. We’d want to take a similar approach.

The APR on Lido right now is 2.8%. There are many comparables to look at, but each have their own risk curve associated. The yield rates for something that is 100% is likely very unsustainable and introduces a new level of risk, which this proposal strikes to balance.

A takeaway that everyone should be taking from this, however, is that the yield rate is not set by K9. The emission rate of BONE is according to what we think we can receive from the Validator, and then we can optimize less impactful variables from there to find equilibrium that could be good for the K9 product. So while we can adjust some things - the major constraint and driver to this rate is Shibarium itself, which we do not control as a DAO

The yield rate of BONE delegated right now is about 2.4%, so with this model we hope to achieve more than that, but there are different levels of participation therein where a user has the ability to adjust their own risk curve and earn more.

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Reviewed the proposal and fully support. Very excited to be part of the K9 ecosystem!

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Thank you for your detailed response to my previous comments. I appreciate your commitment to adjusting the reward structure based on market conditions and community feedback.

Additionally, I believe it would be beneficial to provide more clarity on the factors that will be used to determine the weekly rate adjustments. This transparency will help the community understand the decision-making process and build trust.

Thank you for your continued efforts to optimize the K9 Finance DAO product. I look forward to seeing the positive impact of these initiatives.

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This is a good start, I’m in full support.

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Dear Buzz ,

I hope this message finds you well. I am writing to express my strong support for the comprehensive proposal regarding the Bonecrusher liquid staking product.

The proposal outlines a thoughtful and strategic approach to reward distribution that addresses the needs of multiple stakeholders within the K9 Finance ecosystem. I believe that the suggested structure not only fosters ecosystem growth but also enhances community engagement, which is essential for the long-term sustainability of our platform.

Key Strengths of the Proposal:

  1. Incentivization of Participation: By allocating 95% of validator rewards to KNINE stakers, the proposal creates a compelling incentive for community members to lock and stake their tokens. This will not only bolster network security but also promote greater alignment of interests among participants.

  2. Balanced Reward Structure: The careful distribution of rewards, along with the introduction of fees for zapping, knBONE redemptions, and instant pool access, ensures a steady revenue stream for the DAO while maintaining the attractiveness of the staking process. This balance is crucial for sustaining the ecosystem’s growth.

  3. Long-Term Commitment: The vesting period of 365 days and the backing ratio of 2 for esKNINE conversions are commendable measures that promote long-term investment and stability. These features encourage users to remain engaged with the platform and contribute to its ongoing success.

  4. Community Engagement: The proposal includes a robust mechanism for community feedback, which is vital for ensuring that the structure remains aligned with the needs of all stakeholders. The planned surveys, community calls, and dedicated feedback channels will facilitate open communication and foster a sense of ownership among participants.

  5. Risk Mitigation: The management council’s authority to adjust the reward structure within the initial 90-day period is a prudent approach that demonstrates a commitment to adaptability and responsiveness to real-world performance. This flexibility is essential in the ever-evolving landscape of decentralized finance.

Conclusion:

In summary, I wholeheartedly support the proposal for the Bonecrusher liquid staking product. The outlined strategies are well-considered, aiming to enhance the K9 Finance ecosystem while championing the interests of its community members. I believe that by implementing this proposal, we will not only drive immediate engagement and participation but also set the stage for sustainable growth and technological advancements within our platform.

Thank you for your hard work and dedication in crafting this proposal. I look forward to seeing it come to fruition and to participating in the continued success of K9 Finance.

Best regards,

Toxon_1405

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A well planned strategy with clear and decisive information as always.

I have one thing in question. The Zap fees, with use and time would the team be evaluating the true cost to current cost of usage to adjust the percentage or create a pricing scale? The argument would be to make the service more affordable for all and not to over value its convenience.

Over all I support and approve this plan.

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Thank you for the proposal, Buzz.

There are many great inputs here, but I will attempt to think a bit more critically. Feel free to tell me wrong.

“Most of my reasoning here excludes rewards from farming.”

I like to think that the theoretical required rate of return for any investor or holder is somewhat connected to the risk incurred when putting funds into a vehicle, or in this case, a contract. Delegators take on certain risks, such as slashing risk. Although the risk might be minimal, it’s still present and could potentially increase (assuming the K9 validator is the best validator of all validators, what is diversification? :p) as more validators get connected to K9.

In this scenario, large K9 holders or whales will benefit the most (I think). A massive K9 whale locking up for 12 months could earn substantial “validator rewards” without delegating a single bone and without taking on any delegating risk? And how will this incentivize other Bone holders (large or small) who currently do not have much K9 to stake? a large K9 whale and large Bone holder could stake K9, receive validator rewards, bridge over Bone, and contribute to another potentially stable or highly correlated pair, which may not incentivize liquid staking.

You could maintain the peg to Bone by releasing validator rewards instead of accruing them into the price of knBone (if set to > 0%)—either by issuing more knBone to the holder or by releasing the rewards directly (potentially on Shibarium).

I understand there are many pieces to consider in this puzzle, especially now that the validator rewards only sit at 2.4% APR, and to get the Bone Crusher economy rolling. I am a K9 whale myself, but I have substantially more Bone than K9, so now you know where I am coming from. :stuck_out_tongue:

I do think it seems reasonable to support and prioritize K9 initially, get Bone Crusher rolling, especially at current reward rates, and perhaps revisit the approach when targeting other Bone holders (stakeholders) who need to be introduced and incentivized into the K9 ecosystem. I think it ultimately comes down to the actual reward rates from farming Bone/knBone, which are still a bit unclear to me - Are transaction rewards on Shiba Swap (SS) included? As I understand it, transaction fees accrued to LP providers are sent back to the SS pool and then realized when settling the LP tokens (the share of the pool), any input here?

But yeah, if my take is wrong, please feel free to correct me.

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I completely support this. Those willing to hold the longest deserve the best fruits.

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Very well thought out and presented!

There’s a lot in this proposal and many functions of Bone Crusher at launch, so I’ll be updating my thoughts here as I reread over this again and again and figure out my new strategies now that we have real numbers for main net.

Delegating redemption fee: 2.5% fee to claim delegated BONE seems a bit much. For example, if I delegate 10K BONE while being long to $1, that 2.5% fee would take away $250. $2,500 @ $10, $25,000 @ $100.

To me, that’s a lot of money to give while helping secure the network! If zapping is 1% and unzapping is 1%, what is it about delegating that requires a larger fee to claim our BONE back?

Instant Pool Fee: Do we really think people will be so impatient that they wouldn’t wait up to 1.5 hours and accrue a 10% fee? That’s like selling a popsicle for $2 instead of $1. You’ll sell more popsicles at a lower price, bringing in more funds than charging higher prices for the few that’ll consider using the instant pool.

Have we considered holding less BONE in the instant withdrawal pool and putting more BONE somewhere else that’ll benefit the DAO? Maybe even consider removing the instant withdrawal altogether seeing as there’s not much of a delay anymore.

Adding tax to knBONE/BONE pool: Not a fan of exploring this. We’re already taxed to claim our delegated BONE. Taxing us to use an open pool on a DEX would make me shy away from adding to the pool. We’re already not receiving rewards for delegating on the validator. To add taxes to the same pair feels like double taxation. I’d rather the farming rewards are reduced if needed instead.

It seems like there are a lot of fee discussions to entice people into staying on Shibarium, but isn’t that why we’re here to begin with? Instead, I see the fees as a reason for people to not join in. I understand the need to fund the treasury, which we are already doing with a sell tax. My suggestion would be to reevaluate the buy/sell taxes and see if we can lower the Bone Crusher fees to keep from people FUDding their rewards being taken from them due to whatever reason they have for off ramping.

Taxes/fees known:

  • Unstaking BONE on Bone Crusher: 2.5%
  • Instant Pool Fee: 10%
  • Zapping: 1%
  • Unzapping: 1%
  • Sell KNINE on ETH: 4.9%
  • Sell KNINE on Shibarium: 3%

Potential fees:

  • BONE/knBONE LP: ?

There are some avenues to get around some of the taxes/fees. It all depends on your knowledge and skills, but we wouldn’t need to get so smart to avoid them if there wasn’t so much being taxed or having fees associated with it all.

It seems that everywhere we look there is some tax/fee associated with it. I’d rather see lower rewards with higher percentages added to the treasury funding than receiving higher rewards and having them be taxed when off-ramping.

This is just my opinion. Ultimately, we should be profitable as users of Bone Crusher. I’d just rather leave with what I’ve earned, than earn more and then be taxed on it.

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Fully support. Thank you

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In my understanding those holding a lot of Bone may delegate half of their Bone amount via K9 converting it to KnBone and bridge the other half over to Shibarium (Shib-arium :face_with_hand_over_mouth:).

Then they add both to the KnBone:Bone farm pool on ShibaSwap and start earning esKNINE which are distributed at a sexy reward rate of 420.69 per second (Devs - get a girlfriend :wink::rofl:).

esKNINE is then vested to be converted to actual KNINE after 1 year period.

Thus the incentive for Bone holders to participate in delegation to K9 Validator is earning KNINE in the end of the process.

And once they get KNINE - they can lock it and start getting rewards in BONE as well.

Having said all that - it is true that in order to vest esKNINE a person needs to lock KNINE at 2:1 ratio. So to be able to immediately place all their generated esKNINE in vesting they would need to hold a corresponding amount of KNINE already.

Thus the system incentivises KNINE ownership as well as BONE ownership (which it set out to do from the start).

Coming back to your question - a BONE whale can swap some of that BONE into KNINE to achieve the required balance between the esKNINE rewards from delegation and the required KNINE needed for locking to be able to vest esKNINE in full.

Alternatively, they may delegate only a portion of their BONE to K9 - which is proportional to their KNINE that they plan to lock to match the esKNINE rewards to their vesting ability and keep the rest delegated to different validators.

Giving all validator rewards to KNINE lockers encourages people to hold KNINE and by holding enough KNINE they get to unlock more esKNINE.

It’s true that you need to have some KNINE to get you started but in the end of the day this is K9 Finance and it makes sense that to participate in its rewards people need to invest at least something into it at least.

That’s my understanding at least.

Devs can certainly confirm or clarify better than I can.

Blessings.
No One

P.S. I would recommend everyone to try the product out on testnet to get a better understanding and feel for how the system actually works.

Do keep in mind the numbers in testnet do not correspond to the proposal exactly as it’s mostly testing the mechanics - not tokenomics.

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Zapping feature is going to be mostly used by small investors that do not know how to add their tokens to liquidity pool.

Once the amount of zap fee starts to bite - people will actually be incentivised to do some research and once they learn it - they’ll never need to zap again. They will do it manually in 3 transactions instead of one.

I’m sure Seizan or another member of community will do an easy video tutorial (if there isn’t one out there already) on how to do it.

Don’t think it’s an issue at all.

In fact higher % will encourage people to learn sooner rather than later.

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  1. I believe there is a typo below. Everything else in the proposal mentions 90 days. Here it’s 60.
  1. The proposal does not mention this - but how will delegation look like from shib.io side?
    What is going to happen to people who delegate to K9 Validator directly via shib.io portal?
    Is the delegation from there will be disabled or the commission set to 100% highlighting that all rewards are going to the Validator to be distributed in another way and not directly to delegators?
2 Likes