K9 Product Fees & Reward Distribution Structure

Development
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Charging some rate to get the LSD tokens makes sense, but 100% of the validator rewards does not. What is then the point of a liquid staking derivative? where is the added value? One could get the same risk exposure by not delegating to Bone Crusher at all.

Comment: I do now see the estimated 10% farming reward, it would be great to see the entire picture here, where is this
Coming from, I also see the fixed esKNINE reward per second.

Having an entry/exit fee is fine, but with the zapping fees,uhh, here i think we need to tread very carefully. If there is one thing regulatory entities such as SEC, ESMA, FSA’s look at in terms of investor protection, it is asymetrical fee structures specifically charged to retail/novice investors (”who do not have the skill”). Eventually, there could be allot of novice investors being onboarded here. Moreover, fees generated internally from “unskilled”holders going into a rewards pool also raises a red flag. In general, Income rewarded to holders should come from cash flows generated externally outside to the Dapp. I don’t want to say it, but I will anyway, the reminds me slightly of a Ponzi scheme. I am not saying it is, but it should be discussed and analyzed, and if implemented carefully monitored.

I do think eventually it will be more fees to collect when other devs build ontop of K9 and more products are released.

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Shib Arium

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When you delegate BONE through the Bonecrusher dApp, you receive knBONE, which is a liquid representation of your staked BONE. However, it’s important to understand that you do not automatically earn staking rewards from the validator just by holding knBONE. Instead, these rewards are directed primarily to KNINE stakers, as outlined in the proposal.

Earning Rewards:

To earn rewards, you would need to actively participate in other activities within the K9 Finance ecosystem, such as:

  • Liquidity Farming: Pairing knBONE with BONE and providing liquidity.
  • Staking KNINE: Locking and staking KNINE tokens to earn a share of validator rewards.
  • Other DeFi Protocols: Using knBONE in other decentralized finance (DeFi) applications.

The main benefit of knBONE is that it provides liquidity—allowing you to use your staked value in various DeFi activities while your BONE is still technically staked. The value of knBONE comes from the flexibility and additional opportunities it unlocks, rather than from passive earnings on the knBONE itself.

1:1 Backing:

The proposal ensures that for every 1 BONE you delegate through Bonecrusher, you receive exactly 1 knBONE in return. This 1:1 ratio is crucial because it maintains a direct equivalence between the amount of BONE staked and the knBONE issued.

Why No Direct Rewards for BONE Delegators?

The reason for not giving any validator rewards directly to BONE delegators is to maintain this 1:1 backing ratio. If BONE delegators were to receive rewards directly from the validator, it could potentially create a situation where the total value of knBONE (if it also started accumulating rewards) would exceed the value of the original BONE deposited. This would disrupt the 1:1 backing and could lead to knBONE being worth more than the BONE it represents, which could destabilize the system.

Contributing to Shibarium’s TVL:

Even if you’re not taking part in farming, simply by delegating your BONE through Bonecrusher and holding or using your knBONE in other activities, you’re still contributing to the Total Value Locked (TVL) on Shibarium. This is critical because BONE is the gas token on the Shibarium L2 network, and the Bonecrusher dApp is specifically designed to increase TVL on Shibarium. A higher TVL strengthens the Shibarium network, driving more value and usage across the ecosystem.

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#when_your_dev_is_actually_good_at_mathematics.

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What Funk said here^ is something we should all keep in mind when we start questioning proposals and roadmaps from our devs. (Edit: not that i mean we shouldn’t, but think before smashing the buttons…)
By now, we should recognize that everything is very extremely well thought out, like this post from Buzz, which he mentioned took over a week to write, iirc. So, any response to his/their proposal really needs to be respectful. Starting to throw around accusations like calling it a Ponzi scheme… well, that kind of talk really gets to me, so I’m just going to leave it at that. Before throwing out nonsense, take the time to read the post multiple times, run the numbers for different scenarios you can think of, and if you have a different perspective, back it up with solid data.

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I love your use of editing, crossing out and ‘bolding’ to create a dramatic effect in a written medium. Very moving :face_with_hand_over_mouth:
I just use emojis :man_shrugging:t2::rofl:

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No one No One should read this.

No One should use emojis!

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Hi Orion. Thanks for the post. I’ll answer sequentially:

Risk for those delegating BONE

  • A user delegating BONE to the Validator yes, does generally incur a slashing risk. This risk is minimized as K9 is one of the top performing validators on the network. Slashing risk is inherent in validators in general, but I believe here the risk in this proposal is moreso incentive alignment and smart contract risk (mitigated through using proven codebases & publishing thorough audits) since the proposal is saying 1 knBONE always = 1 BONE. So the risk for a delegator is that the contracts do not perform properly

  • Yes, you are right that in K9 holders in this PROPOSED (key word here is proposed, because this is open for adjustment since it is a DAO proposal) share in the majority of BONE rewards. However, a goal of this system is to give those who are delegating BONE a higher yield rate than they would currently earn through simple delegation of 2.4% in BONE APR. This is done through esKNINE and uniquely attempts to 4x the RoR while giving a risk profile tradeoff whereby the knBONE/BONE farmer must adhere to longer vesting parameters in order to obtain higher yield, and must become a participant in the entire system to earn their true yield; paving a logical pathway for a BONE holder to be incentivized to hold KNINE

  • You are certainly right to point out the stakeholders in this response and that with this proposal the knBONE liquid staker currently doesn’t receive native yield, but receive esKNINE yield, which could disincentivize liquid staking, and if it does, the proposal outlines tangible steps for monitoring and incentive realignment. Again, this can be adjusted, but in the preface of this proposal this was chosen for simplicity and the infinite ability to go up from 0%

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).

Next I would like to address the point above. Yes, this can be set to greater than 0%. That is what this proposal is about. The tradeoff is that the 2.4% needs to be shared with BONE delegators, K9 DAO, and KNINE stakers. It’s choosing the right values we’re going through in this exercise. The peg to BONE does not change. 1 BONE = 1 knBONE. It is the accrual of rewards being discussed here and which stakeholders to share them with to balance potential rates

Transaction Fees on ShibaSwap

  • No these are not accounted for in this model. It is 0.03% on the total volume, so in raw numbers the current volume is immaterial, especially so with impermanent loss. However, it is captured in the model that there is DAO revenue contributing to BONE BONUS in the model, which comes from a variety of different areas within K9 and could be captured here eventually

Zapping Fees

  • While I am not a lawyer, we do consult our DAO lawyer for these decisions and for proposals in general. This has not been flagged as a risk for the DAO, and ultimately yes the 2% fee is high, but that is what this proposal is for. If there are those in favor of lowering it we can certainly do so. The justification to build this feature in the first place was to capture fees for the DAO. We will have ample how-to guides for novice users, and convenience fees are common in tech products and in our world. The right fee value for that is the crux. The fees are not going to a reward pool. They are going to the DAO to decide on what to do with the fees - just like this proposal is doing. I do disagree with the definition of “unskilled” here. A zapping transaction in my opinion is a convenience fee that is not for the unskilled, but for those who value time > fees. There are 4 transactions to be made, and it is very visible and documented how to make these transactions to bypass that fee. If a user does not want to do that, they can zap, and for that I believe it is fair to pay a convenience fee to do so, but you are correct in that it must be fair, while also worthwhile for innovation to occur. Otherwise - what incentive is there to provide convenient features for builders in general and improve user experience other than philanthropic endeavors? There is no internal fee income being rewarded in this proposal to a shared pool.

The ponzi scheme comment

A ponzi scheme is defined as: an investment scam that pays early investors with money taken from later investors to create an illusion of big profits

My interpretation of this would be that a ponzi scheme, in this regard, would be stealing peoples’ delegated BONE and giving it to others. K9 never has custody of one’s BONE. this proposal recognizes that there are rewards coming to the liquid staking protocol, proposes that there are different ways to reward different stakeholders to allocate these rewards, & asks for feedback on how to adjust these.

Frankly, this is quite a disappointing comment that perhaps highlights a need for the DAO to create better collateral to illustrate how liquid staking works.

As a final note: we do as a community need to come to quorum on the proper rewards distribution structure and fee structure for the product. A proposal needed to come to be the first pass at a potential solution. As in any proposal, there is room for active suggestions to adjust certain parameters and all comments are reviewed by the Roundtable of Dogs (of which I do not have voting power in)

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Very much in favor of removing the 2.5% delegated BONE redemption fee, as it was noted in a voice chat with the DAO that this could limit the ability for fair market pricing and arbitrage of knBONE and BONE. A sage comment

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I cannot speak to how Shib will handle this on their front end. The product will be directly interacting with the contracts. It is a good question, and should be included as an implementation plan, as a delegator could still delegate on the shib.io website, and not receive liquid staking benefits unless they interact with our contracts on our site. They would just receive the normal 2.4% rewards and no knBONE. You would need to use our smart contrast to receive the benefits of liquid staking and use K9

Perhaps as an implementation plan amendment to this proposal it can be to ask the Shib team to redirect traffic on their front end to the K9 site

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Oh the suspense! The anticipation! I love a good surprise :gift:

If only we had gifs here… I’m like fish without water - without gifs :rofl:

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Thank you for the long and detailed feedback and response.

I don’t think comments like this should be disappointing, and I think it is better to give the “hard” feedback now rather than an influx of it later.

However, I should have phrased it differently, and for that I apologize.

For the record, I am not accusing K9 Finance to set up a product to trick or steal users money. It is a product set up for holders to make more money on their holdings. I am after all an investor myself and have no intention of liquidating my holdings.

That said, you will get users on here that are clickers, don’t read, don’t educate themselves, don’t know what percentages are, etc. People who have been recommended to check out Shib and K9 Finance by their neighbours or family members that don’t have any investment background. “Do zap, its easy, it will save you time, it’s going to make you money” Do zap/unzap on five different pools, and whoops that is 10% of your holdings.

I know I am coming off hard, its not my intention to scare people off or insult K9 devs and architects, you have done a superb job, and I am excited for the future of K9 Finance. I think theses kind of discussions are healthy and necessary.

This is my individual opinion, I am in general, against the use of “convenience fees”. Charge competetive fees on products/services that make holders money - Make investors money, make it easy, make it convenient (free?). This creates satisfied investors, positive recommendations, more holders wanting to use the product, more income, TVL, higher demand for KNINE, BONE++

This is the reward for innovations like this.

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Post more, I like participation from critical thinkers. The “I support” comments, which I myself am guilty of, are fine but they don’t add to the discussion.

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I also want to add that your response provided valuable insights.

Thank you for taking the time to write all that down—it’s truly appreciated.

This is what makes a DAO so valuable. Every holder gets to express their opinions, views, and concerns, and be challenged on them, which leads to more information and better decisions for the entire community. I encourage everyone to think critically and share their thoughts, even if discussions can get heated.

This is exactly what happens in board meetings: people argue, tensions rise, and sometimes it feels like everyone’s ready to go at each other’s throats—especially at that person with the rude inputs and bad ideas. But afterwards, they grab pizza, have a beer, and talk about Funk’s six-pack at ETH Toronto. The difference is, we’re now doing this at a much larger scale.

On point from now on! :slight_smile:

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I support this proposal. Very well thought out with what seems to be very achievable goals and metrics. I am very much looking forward to September 18!

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It’s very easy for for me just to say I 100% support this proposal… Here’s why when you know who’s behind this proposal (team) you know how much effort thought and heart was put into it. We who have been here from the beginning know how the team delivers. That being said the team does want well thought out feedback before launch and after for the health of the DAO and success of investors. I 100% support this proposal and any well thought out adjustments made before September 18 LFG

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Buzz excellent proposal! I fully support this proposal. Especially all the feed back!

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Thanks for apologizing, I know you didn’t mean the phase and Buzz did a great job of answering and remaining tied to the facts, he defined it, lol…fire.

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  1. We need a diagram or infographic for this proposal.

  2. Keep the Zap at 1 percent for the BONE/KnBONE pair as it secures the network, increases transactions aswell as creates TVL for Shibarium.

  3. As stated already by some and Buzz himself 2.5% is too high so removing is good. I thought it was too high IF value from $KnBone will be “rebalanced”, I see them as connected. Also, I theorized to Buzz months ago that the tokenomics of $KnBONE suggests that $KnBONE WILL ALWAYS OUTPACE $BONE! I believe this theory was proven true during the K9 Testnet as $KnBONE outpaced $BONE until the rebalance. Full disclosure I have no proof for the rebalance but deduced that’s what created some parity between the pairs on Puppynet. One more thing on this point, this is bittersweet for me and I’m kind of sad tbh, as this was one strategy I was planning on seeking. Regardless this should help the ecosystem and KNINE Holders if done successfully, perhaps this rebalancing alone could sustain this ecosystem as it will produce massive value.

  4. 10% for Instant Pool seems high BUT has solid reasoning as it impacts adversely yield rates, no suggestion.

  5. All these points should be revisited in 3 months. (Sooner if Roundtable of Dogs deems it urgent.) December 18th will be 3 months after K9’s Bonecrusher is released but before the holidays…? Great time to tie loose ends, make future proposals and start the year even stronger!

Hail SHIB!

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Absolutely love reading all the various frames of thought in this discussion and proposal. I support this proposal.

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