Issue Statement
With the rollout of Stargate v2, the AIPM and Hydra’s demonstration of superior capital efficiency, the need to aggressively accumulate Protocol-Owned Liquidity (POL) at current levels has diminished. The Stargate DAO proposes adjusting the distribution of protocol earnings, increasing the share allocated to veSTG stakeholders to 50% of total earnings while retaining an equal 50% as POL.
The existing Vote-Escrowed Stargate Token (veSTG) mechanism cannot be upgraded. By increasing the distribution of protocol earnings, we aim to incentivize token holders to stake STG and participate in ecosystem governance. This shift aligns incentives with a dual mandate: fostering the protocol’s long-term growth while delivering reasonable returns to Stargate DAO stakeholders.
Allocating 50% of transfer fees and investment income to veSTG holders enhances the value proposition of the STG token for all holders. Simultaneously, retaining 50% as POL ensures sustainable operations and supports the Stargate Foundation, which relies on treasury STG sales to fund ongoing activities.
Proposed Solution
The updated fee structure for Stargate is as follows:
- veSTG Holders: 50% of the previous calendar month’s transfer fees and investment income, distributed by the 10th of the current month.
- POL: 50% of earnings retained as Protocol-Owned Liquidity.
Measuring Success
In June 2022 (see “Value Accrual for STG Stakers”), the initial target was 15 million STG tokens staked, with an average lockup duration of 2 years. Following SIP#18 (Staking Reward Distribution Plan), the actual amount staked has doubled to 36 million STG. However, the average staking duration has fallen to approximately 300 days—well below the 2-year goal.
Despite achieving significant growth over the last three years, the STG token price has underperformed (after accounting for market conditions and sales of tokens from treasury used to fund Stargate operations).
Four primary factors explain this:
- Investor Expectations: Stakers require higher returns to compensate for long-term risks, including duration risk, smart contract vulnerabilities, opportunity costs, rising competition, and technological obsolescence.
- Farming Rewards: Liquidity providers to pools were until recently paid in STG placing a constant sell pressure on the token. Although incentives for liquidity providers have been turned off, STG is paid as incentives for other sources of liquidity such as Boyco pools.
- Governance Misalignment: Large STG holders, including team members with vested allocations, have been excluded from governance participation and from earning a staking yield.
- Margin Compression and Competition: not all competitors are acting in ways that are sustainable. Many are pushing models that are not financially viable, can’t scale or settle high value transactions economically.
This proposal addresses these issues by rebalancing incentives to better align stakeholder interests with the protocol’s financial performance. It aims to encourage staking STG to provide an attractive income stream as a reasonable market return for long-term investing in the Stargate ecosystem.
A separate proposal will follow, seeking DAO approval for employee staking and governance participation after the team allocation vesting period concluded in March 2025.
Execution, Timeline, and Costs
If approved, implementation will begin on June 1, 2025, with the first distribution under the new 50/50 structure occurring on July 10, 2025, reflecting June’s earnings. Financial accounting and implementation costs will be covered by the existing Stargate DAO budget.
Summary
Market signals indicate a need to evolve the utility and functionality of the STG token. This proposal balances earnings distribution to encourage staking and reinforces long-term commitment to the protocol. While POL growth remains important, the interests of veSTG stakeholders are equally critical to Stargate’s financial success. By aligning these priorities, the DAO can strengthen the ecosystem and enhance value accrual for all.