Improve staking efficiency by allowing reinvestment of locked ADA rewards

Proposals
1

Introduction

Currently $MIN stakers are rewarded with fees from the transaction fees in each minswap liquidity pool, as proposed and voted here: https://app.minswap.org/gov/e4d7010585068a58a2e4694e87a51db0da23427ab7770774644bf4b445b9346f

The challenge: Increase staking rewards, making staking an easier choice

The solution:

Allow $MIN stakers to deploy their accrued share of $ADA rewards. The proposed options are:

  1. Buy-and-stake MIN: By reinvesting their rewards into MIN, they can increase their share of MIN staking rewards and increase $MIN buying pressure.

  2. Zap into MIN-ADA and farm: By reinvesting their rewards into the LP and farming, they can accrue farming rewards (more $MIN) and as well increase $MIN buying pressure.

Benefits:

  1. Capital efficiency: By allowing stakers to reinvest the rewards, they can compound, incentivizing long-term staking.

  2. Buy pressure: Both options include some form of buying pressure. Option1 offers more buying pressure while Option2 offers half the pressure but also increase MIN-ADA pool liquidity.

  3. Transaction income: By allowing those operation, more transactions can be made, generation more fees for the protocol.

  4. Some protection from dilution and opportunity cost: If the capital can be used before locking period expires, stakers can be use their rewards to keep more shares of the pool in case $MIN price is falling, profiting from small prices to increase staking shares.

All rewards, including first-order rewards ($ADA from fee-switch) and second-order rewards ($MIN and/or LP farming tokens) are kept locked until the locking period expires, as it happens currently. If the locking is not respected, the user forfeit all accrued rewards.

Data Analysis
TODO: need data to know how staking options distribution looks today

Impact Analysis (november 2023)
Daily Staking rewards are variable depending on transaction volume and quantity of min staked. Current snapshot shows ADA rewards in the 4k ADA level.

  1. MIN Buy pressure analysis (best case):
    If everyone decides do buy $MIN with their rewards, everyone would keep their share of staking rewards, and at current price, that would have a buy pressure of around 18,45% of current $MIN emissions, which is not negligible and could easily be much more if volume increases.

  2. Increase APY analysis:
    hard to do, too many variables

Foreseeable Difficulties

  1. Define a threshold for reinvestments, to avoid compounding small sums and harm stakers because of fees.

  2. Have a good UX explaining the concept and allowing managing those locked investments in a intuitive fashion.

4 Likes
2

very nice, a tradeoff between the disincentive of inflexible locking and the the ability for stakers to lower their average entry price on their stake should prices go lower from their entry.

2 Likes
3

Nice proposal, I however would think option 2 is not viable, becasue I think creating a time lock for farms is not viable.

I believe that for option 1 we need to specify that the Min staked again should be locked for the same period of the original stake where it came from, otherwise if could be used to unlock funds early with nothing in return.

1 Like
4

You have a point. I think option 1 is definitely better, more impactful and easier to implement. I will edit it to remove option 2 for now, maybe introduce it in the future even extending for other farms. Eventually we will not need the boost and the locking.

5

I doubled check and if buyback all MIN-staking rewards, that would have a buy pressure around 18% of current $MIN emissions

6

Which is not negligible.

1 Like
7

I like option 1 as long as you convert your accrued ADA into MIN and reallocated to the staking pool that the accrued ADA is in.

Like it was said previously, taking out accrued ADA from the staking pool early would be not a grand idea as it would entirely negate the incentive to keep MIN locked for the required period.

I would assume that the nominal transaction fees of converting ADA to MIN would be applicable so it would likely not make much sense to do unless the fees are covered. You had mentioned this in the difficulties.

Honestly…the idea of zapping your accrued ADA into a liquidity pool and then farming off that would be sweet. I don’t think that it would work for rewards from staked MIN, however it is not a bad idea for utilizing earned rewards from farms. I could see viability to reinvest farmed rewards with less fees and/or steps involved. There may even be potential for some DRIP style reinvestment of farmed rewards.

All in all, nice proposal!