Fee Distribution Revamp

General
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Introduction

Stargate has accrued a significant amount of POL and will continue to do so. Furthermore, with the emergence of Hydra, there is no need for external liquidity, meaning emissions can be routed elsewhere. With over $130m in POL (at time of writing, 04.03.2025) and Hydra operating as intended, the amount being routed toward this POL accrual should be examined.

Background

Since its inception, Stargate has amassed nearly $70m (at time of writing, 04.03.2025) in non-STG tokens through POL accrual. The original intent was to eventually allow for Stargate to operate as a no-emission self-sustaining protocol without the need for external liquidity providers. Hydra’s advancements now render traditional liquidity provisions. Emissions toward said provisions are obsolete and can be routed elsewhere. Therefore, the rate of POL accrual, particularly given the significant capital already amassed, should be reevaluated, given this revenue could be to better benefit Stargate’s market position.

This is not to say POL is unnecessary entirely, and accrual should still occur, but at a different rate. The change in rate should go toward locked stakers instead, resulting in a higher APY, further promoting locks.

In regards to veSTG, initial targets of STG tokens locked have reached over double the expected amount (15m expected vs 36m at time of writing, 04.03.2025). However, the average stake duration is less than one year, which is less than half of the expected amount.

Proposal

Currently, â…š of fees go to POL whereas locked stakers only receive â…™. This proposal suggests 4/6 of total fees go to stakers instead and 2/6 of total fees continue to pool into POL accrual. This increase in fees will most likely be highly beneficial, heightening interest in the protocol, while rewarding long term participants.

Execution

If this proposal passes, reroute 4/6 of fees to go to lockers, with 2/6 of fees continuing to contribute to POL. Implementation should be scheduled for on June 1, 2025, with the initial distribution under the revised structure will occurring on July 10, 2025, reflecting earnings from the month of June. All financial accounting and implementation expenses will be covered by the existing Stargate DAO budget.

Conclusion

In the past few years, Stargate has amassed a large sum of POL through fees. As a result, a large amount of these fees should be distributed toward locked stakers instead, especially with the exciting new advancement, Hydra, which is currently allowing for much higher capital efficiency . Accrual should still continue, but at a slower rate

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Hi @yesyes, thanks for your proposal.

There are some incorrect statements and figures provided in your proposal that need to be amended should this topic be critically discussed by the Stargate DAO. To address these, I’ve broken my response down by segment:

Introduction

Stargate has accrued a significant amount of POL and will continue to do so. However, with the emergence of Hydra, resulting in liquidity pools and emissions soon becoming irrelevant, the amount being routed toward this POL accrual should be examined.

The emergence of Hydra doesn’t make liquidity pools irrelevant, in fact, Hydra is backed by and built on top of Stargate’s unified liquidity pools. Likewise, emissions are also not made irrelevant by Hydra, but rather can be deployed elsewhere to drive more protocol locked liquidity to increase the overall demand for Hydra itself, as can be seen in the HEP-1 proposal.

Background

Since its inception, Stargate has amassed nearly $50 million in non-STG tokens through POL accrual.

Here, you can check the Artemis “Treasury” tab for the correct figures, if you need any clarification, feel free to ask. Artemis Dashboard

Proposal

Currently, 3.7bps of fees go to POL whereas locked stakers only receive 1bps. This proposal suggests 70% of total fees go to stakers instead and 10% of total fees continue to pool into POL accrual. Partner allocations should stay the same, at 5% of fees.

This is based on Stargate v1 fee schedules. For Stargate v2, 1/6 of all protocol fees go to stakers and 5/6 goes to the DAO Treasury.

This increase in fees will most likely be highly beneficial, heightening interest in the protocol, while rewarding long term participants.

At the Stargate Foundation, this is something we’re open to discussing as well as other active members of the community that have also expressed an interest in this line of thinking. Further discussion from active members on this topic to help ensure we have the widest perspective possible will be required to advance this proposal.

Conclusion

especially with the exciting new advancement, Hydra, that will soon make emissions, POL, and liquidity pools obsolete.

As mentioned in the first segment, this is misleading and would be more appropriately worded to reflect emissions having been switched off as a result of Hydra’s adoption, removing the need for traditional LP on Stargate.

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Basically, it incentivizes staking and fosters a long-term relationship with Stargate.

However, I would still prefer a different system for staking tokens—perhaps one that allows for partnerships where staked tokens could be lent out.

Additionally, I’d like to implement a system where, instead of locking tokens, users receive multipliers for rewards from fees based on their staking duration.

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Even tough fact check says that the proposal data does not add up, it is still a good proposal in terms of more incentives for stakers.

How much Treasury does Stargate DAO needs ?

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Fully agree with the proposal intention to increase allocation to veSTG holders, you have my support.

This will increase interest for people to stake more, and stake longer. Ultimately reducing the circulating supply of STG in the market. As a result, beyond benefiting veSTG holders, I believe this also positively impacts STG token holders.

Furthermore, this will further expand our community by attracting more members who have a long-term view for the project.

We can merge 15% LP & 10% POL, as both of them will go into POL. LP reward was dynamic, not based on fee.

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Thanks for your comment and I’m glad to see the community aligning around a proposal of this kind. Indeed, Hydra continues to see great success and emissions have been switched off, presenting new opportunities for the Stargate community.

I wanted to ask for clarity around the following statement:

I think it’s worth being extra clear on the above-- namely, at present 1/6th (16.67%) of protocol fees accrue to Stakers (veSTG holders) with the remainder (5/6) flowing to the DAO’s Treasury.

Given that this fee schedule is different to the one outlined in the original proposal, what is the community proposing the increased allocation looks like?

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Agree, we need to be specific, especially for the fee allocation.

I’d like to confirm with the Foundation whether the 5% allocation to partners is still in place, as it is still listed in the documentation under the Stargate Whitelist Partner Program.

I’m comfortable with 50-80%. I believe Exahash is working on a similar proposal and would love to hear his thoughts on this.

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I was hoping to have accurate data on the protocol by now to inform our decision making, especially in relation to Top 100 STG holders, their holdings and an understanding of whether they are staked and for how long. I was also hoping to compare that to the Top 100 veSTG stakers, the duration of their stakes and cumulative rewards. We can’t have a robust discussion about altering the fee distribution without understanding the profiles of our major HODLers, our stakeholders and our fees. Many of these are key team members from Stargate and LayerZero who may have longer term goals than speculators (or even 36 month veSTG stakers) …or need to stay liquid as it is their remuneration. Locking up long term has beneficial tax advantages for my personal tax circumstances, but staying liquid might be necessary for team members with impending income tax liabilities. We also need to know how much protocol owned liquidity is necessary for us to operate the protocol after Hydra and AIPM. When we are considering using millions of POL to invest in third-party liquidity pools, I’d suggest that could be excess capital better distributed to stakers either as once-off return of capital or as a higher share of fees.

The initial targets in June 2022 (see Value Accrual for STG Stakers) was for 15 million STG tokens staked for a duration averaging 2 years. Since the implementation of SIP#18 Staking Reward Distribution Plan the actual amount of STG staked is double the expected amount (currently 36m STG staked), however the average stake duration is less than one year (currently ~316 days). Even after allowing for market beta, the Stargate price has underperformed during this period, suggesting investors now require a higher yield for long-term risks of staking on the platform (including duration risk, smart-contract risk, opportunity risk, increased competition and risks of technical obsolescence).

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While I agree, in practice this will be very difficult to do. As an example, a lot of people hold their tokens on CEX, and we cannot differentiate their holdings.

Agree with this as well, would rather Stargate focus on its products, rather than being a proxy for wealth management, in form of defi positions. Though it is a bit different in case of Hydrachains, as we’re also benefiting in terms of protocol locked liquidity

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I personally would recommend against distributing POL to stakers just because in the event that Stargate pools require that liquidity to facilitate bridging, distributing POL to stakers would lead to a smaller non STG treasury and if there’s not enough liquidity in pools to serve Stargate’s core business, we would have to switch on farms again which leads to selling pressure of STG.

Rather something we have been thinking about is to distribute portions of the yield generated by the treasury via LP positions to stakers. This would push yields much higher whilst also ensuring the Stargate treasury is constantly growing and amount of POL in our pools is maintained.

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Yep. So one of the internal criteria we have when using the DAOs treasury to generate yield is that assets are locked in our pools and minted on HydraChains and get that double benefit with earning yield on top of those assets.

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I’ve been working of something similar that also aims to improve incentive alignment.

Balanced Earnings Distribution: Enhancing Value Accrual for STG Stakers

Issue Statement

With the rollout of Stargate v2, the deactivation of fees for liquidity providers, 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 316 days—well below the 2-year goal.

Despite this growth, STG’s price has underperformed, even after accounting for market conditions. Two primary factors explain this:

  1. 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.
  2. Governance Misalignment: Large STG holders, including team members with vested allocations, have been excluded from governance participation, leading to significant sell pressure.

This proposal addresses these issues by rebalancing incentives to better align stakeholder interests with the protocol’s financial performance. 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.

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I agree with Exahash, a 50-50 split is a better long term option

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Thanks Chewbacca, I’ve been trying to get as much feedback from the community and make some compromises before making a proposal on Snapshot.

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