Minswap ADA Delegation Framework

Proposals
1

Summary

3 Possible strategies are presented to the DAO to choose between for the Delegation of Minswap LP ADA:

  • Randomized Decentralization: a List of SPOs is compiled and is ranked in a randomized manner. ADA in LPs is delegated following that random ranking.
  • Active Stake Pool Voting: a List of SPOs is compiled and a second Governance vote is conducted where MIN holders can decide on their ranking. ADA in LPs is delegated following that ranking.
  • Profit Maximization: as many MIN Private Stake Pools are spun up as needed for all the ADA in LPs to be staked there.

Due to its size and to keep it efficient, the MIN/ADA Liquidity Pool shall remain staked to the MIN Stake Pool so the Framework applies to ADA in LPs with over 1mn ADA.

1 - Background

The advanced nature of Cardano’s liquid staking allows entire wallets to be delegated to a Stake Pool without having to send out or lock-up ADA. This ADA can also be delegated while deposited in Liquidity Pools (LPs). Minswap is an AMM DEX that is based on Liquidity Pools under the eUTxO architecture, meaning each LP (e.g MIN/ADA, LQ/ADA…) is one separate UTxO with one separate stake key. This proposal describes several frameworks for the Delegation strategy of the ADA in these LPs.

Last year, the Minswap Liquidity Providers were missing out on substantial ADA rewards due to not having the ADA in Liquidity Pools delegated. A Temporary LP ADA Delegation Plan was designed and voted on in order to have this ADA from LPs delegated. Now, having had the time to analyze and collaborate on a more permanent solution, and given the MIN Stake Pool is currently oversaturated, the following proposal was constructed to be put forth to the DAO for voting.

2 - Stake Pool Requirements, Rules & Voting Procedure

2.1. Requirements and Rules for Pool Consideration (subject to change based on protocol growth and parameter changes)

Requirements (prior to Delegation):

  • Single-pool operators only
  • Pool size: 200k-5m ADA at time of snapshot
  • Fixed cost: 340 ADA
  • Minimum Pledge: 20k
  • Must be registered for at least 6 months
  • Total Variable Fee/Margin to never exceed 3%
  • Pool Operator has demonstrated technical capabilities: having minted at least 1 block

Rules (during Delegation):

  • Total delegation post Minswap LP staking: > 3,000,000 ADA for consistent block production but less than 30,000,000 ADA.
  • Variable Fee of the Stake Pool in question cannot change post-delegation
  • SPOs will be asked to run PoolTool (GitHub - papacarp/pooltool.io: A public repo to keep track of issues and feature requests in pooltool) to monitor they are efficiently producing their scheduled blocks. SPO could also only whitelist Minswap IP to query the PoolTool API.
  • SPOs with LP ADA Delegation ought to maintain good status within the Cardano community
  • The ADA Delegation Working Group has the right to vote and decide on stopping the Delegation to a Pool if it is deemed they break the code of conduct or not perform as desired.
  • If the SPO breaks any of the rules after having received delegation, they will be banned from any possible Minswap ADA Delegation in the future.

2.2. Voting Timeline

  1. One week after posting this Proposal, MIN holders will vote on the Framework for the ADA Delegation
  2. Once the Proposal is posted on-chain, a Google Form will be available for SPOs. Those who qualify (based on requirements above) will be included in a List of SPOs. The List of SPOs will be available the day Voting starts and will close the day voting ends (meaning it will be open for 2 weeks).
  3. Once the Vote is concluded after 2 weeks, and accommodating for some time to prepare the List and the Ranking of SPOs, the chosen strategy will be implemented.
  4. The ADA Delegation Working Group as well as the Minswap community will be in charge of overseeing correct implementation, and that SPOs abide by the rules.
  5. The vote on a select Framework will be valid for 12 months, after which the strategy and its results should be evaluated. However, the selected strategy may also be changed via Governance shall circumstances arise that make it necessary.

2.3. Voting Procedure

  • MIN Holders will be eligible for voting in this Proposal based on a snapshot as always.
  • For the rest of details concerning the Snapshot Voting used by Minswap DAO please refer to the Docs.
  • If the Minimum participation is not reached the vote is deemed null and LP delegation is defaulted to a MIN Stake Pool and new MIN Stake Pools will be spun up to avoid oversaturation.

3 - Frameworks for ADA Delegation Strategy

Below, we explore 3 possibilities for determining how the ADA Delegation is to be conducted in the future.

One thing to note is that regardless of which strategy is chosen, the MIN/ADA Liquidity Pool shall remain staked to the MIN Private Stake Pool. The MIN/ADA Pool is greatly bigger in terms of ADA than any other Pool currently (around 32mn ADA), which makes it difficult to manage it in the context of the ADA Delegation strategy and as such the best solution for now is for it to remain staked to the MIN Stake Pool. A second MIN Pool will be opened, but it will only be used in unexpected events.

For the rest of the ADA not in the MIN/ADA Pool, here are the frameworks:

3.1. Randomized Decentralization

First, a List of SPOs will be filtered and reviewed (according to Requirements explained in the Section above). All pools that fit that criteria at the time of snapshot will be assigned a number 1 to n, then, the first transaction ID of the current epoch at that time will be used to seed a Mersenne Twister random number generator. The List of Pools will then be ordered following the random ranking resulting in a Ranking of Pools.

Liquidity Pools with over 1mn ADA (meaning over 2mn ADA TVL - currently around 15 Stake Pools) at the time of Delegation will be delegated. If following the Ranking of Pools a LP is assigned to a Pool but after delegation of the LP ADA the SPO would still be below 3mn ADA delegated, then the next Pool will be chosen in the Ranking of Pools that would get over the 3mn ADA mark. The Delegation happens once every 3 months based on the TVL of the Pools at the moment of Delegation.

Minswap LP ADA Delegation will last for 3 months. As such, SPOs will be rotated every 3 months. The same List of Pools and Ranking of Pools will be used for 12 months, but if a SPO has already received delegation, they will not be eligible for delegation again for at least 12 months.

Pros: fully decentralized, minimum voting required.

Cons: MIN Holders have no say in the specific Stake Pools that are chosen, ADA Delegation to smaller Pools might lead to slightly lower ADA rewards for LPs .

3.2. Active Stake Pool Voting

Once the List of SPOs has been filtered and reviewed, a second vote will be held for Minswap LPs and MIN Holders to rank the List of Pools and determine themselves the Ranking of Pools. This option is the so-called “popularity contest” where SPOs battle for MIN holders to vote for them and obtain higher ranking so they can be the first to receive ADA delegation.

Stake Pools will get the delegation of Minswap LP stake keys in the order of the ranking until they reach 3mn ADA, then the next Stake Pool will start receiving delegations. The Delegation happens once every 3 months based on the TVL of the Pools at the moment of Delegation. Minswap LP ADA Delegation will last for 3 months and as such voting and change in the Ranking of Pools is to occur every 3 months. The details regarding the vote are to be elaborated by the Minswap ADA Delegation Working Group shall this Framework be chosen.

Liquidity Pools with over 1mn ADA (meaning over 2mn ADA TVL - currently would be 15 Stake Pools) at the time of Delegation will be delegated. If following the Ranking of Pools a LP is assigned to a Pool but after delegation of the LP ADA the SPO is below 3mn ADA delegated, then the next Pool will be chosen in the Ranking of Pools that would get over the 3mn ADA mark.

Pros: MIN Holders have a say in the Stake Pools which get Delegation, Stake Pools will try to find ways to attract MIN holders for their vote.
Cons: frequent voting might lead to voter fatigue, most popular Stake Pools will receive Delegation instead of smaller, lesser known ones.

3.3. Profit Maximization

Minswap LP ADA will be delegated to the private MIN Stake Pool. If the MIN Stake Pool reaches saturation, new MIN Stake Pools will be spun up and the ADA will be delegated there. This strategy is the most capital efficient, since there would be no Variable Fee paid to SPOs, private pools generate more return than public Pools, and MIN Pool has a high pledge.

Pros: easiest to implement, slightly higher ADA rewards for LPs.
Cons: by concentrating stake, this strategy does not contribute towards the decentralization of the network, MIN Holders have no say in the specific Stake Pools that are chosen.

4 - Comparison: How do other DeFi protocols on Cardano delegate ADA?

  • Muesliswap: Votes are conducted every few months to delegate ADA. Currently delegated to SMAUG and A3C.
  • Sundaeswap: ADA in LPs is not delegated.
  • Wingriders: ADA LPs vote on where the LP is staked. Each Liquidity pool can be delegated to a separate Stake Pool, but one Liquidity pool can only be delegated to a single Stake Pool. The staking rewards after the epoch go back into the LP.
  • Liqwid: 16 pools were elected by the Liqwid DAO for delegation via on-chain voting.
  • Indigo: Users who provided ADA opening a CDP can decide where that ADA is staked. When creating a CDP, the staking key automatically will be the existing stake pools’ choice for the wallet from which the ADA originates.

Authors

Lio [DEGAS] Pool, Shadow, MrTeaThyme, Idrec Noi, Adabucks, PurritoGeneral

(the ADA Delegation Working Group)

16 Likes
2

Great work team!

Lots to think about and hard to decide. Weighing up all the pros and cons, I think option 2 has the most downside in that I think voter fatigue is a very real possibility and I am not entirely sure how much interest there would be from SPOs to actively campaign for delegation. Would love to hear from SPOs in that regard, would they be willing and able to undergo this work? Is it worth their time? If not, then option 2 is the least favorable.

Option 3 makes the most sense from a financial point of view - no red tape and maximum capital flow. It may sound a bit taboo, but I am not sure how significant or important “contributing to the decentralization” of the network is given the current resilience of the network already. Furthermore, with the prospect of K increasing and lowering MinPoolCost becoming a very real possibility, the decentralizing impetus for the network is set to increase from the protocol level anyway. Thus, any effort to contribute to the decentralization of the network would only be a token gesture and cost the DAO incentivizing power for deeper liquidity. Nevertheless, I understand the difference in rewards to be very marginal so perhaps it is a moot point, and it would be better PR for Minswap to contribute to the decentralization, especially given that this ethos has already been expressed in other financial DAOs.

Therefore, on balance, Option 1 is the best of both worlds - decentralized and minimal red tape.

14 Likes
3

Well put! I agree with this. Option 1 seems like the best.

7 Likes
4

Great work guys, gratz.

I don’t want to overanalyze that so i will be brief.

  • Second option(3.2) may lead to huge system gaming like bribes from SPOs to delegators(seing that during SS scooper voting) and lending or huge buys of MIN before snapshot and then dump again. Also it will turn to a popularity contest so it will have a negative impact like in the past with similar votes.
  • Third option(3.3) is completely centralized and also presented as the most capital efficient which is wrong, below i will write down the rewards of MIN pool and another 6 random almost fully saturated single pools since the opening of MIN pool and up to 2 epochs ago(pools are well known but i won’t write name to avoid free advertising)
    MIN: 2413161,22
    Pool1: 2646193,563
    Pool2: 2669641,376
    Pool3: 2701437,524
    Pool4: 2865453,608
    Pool5: 2947233,58
    Pool6: 2745937,451
    MIN pool lost the rewards of 1 epoch so if i add like 35k that was the average that the rest took that epoch the numbers will be pretty much even, a0(pledge) still plays a small part on the blocks that a pool will get unlike luck which plays the most important role. So since luck is involved we can’t have accurate data as to if a private pool is better than a simple pool, except in theory and there is no most capital efficient way.
  • First option(3.1) might lead in the end to slightly less rewards because of the fees that will be paid to SPOs(margin and fixed fee) and because of bad luck(small pools tend to be unlucky somehow compared to bigger pools…) but will help further decentralize the network, help smaller SPOs so it will bring free marketing, be alligned with the ethos of Minswap and it is the most drama-free one to be honest meaning i don’t see how it can backfire in any way compared to the other two options.

So my vote goes to option one.

9 Likes
5

I would say option one as well.

Option two is definitely more involved and can lead to a lot of bribes. However, it does create a good history of on chain votes to increase token utility, but when compared to voter fatigue and gamification it may not seem worth it.

Option three is the best for efficiency and profits, but sacrifices decentralization.

As mentioned by Alfa, option one would be best aligned with Minswap ethos, it would allow the little guy a chance as well, and show the crypto community that we are dedicated to making cardano more decentralized.

Option 1 it is!

5 Likes
6

intent?
3M + delegation increases number of selected BP on the network?

my 2cents…
Mirror Catalyst
MIN holders vote every x epochs to the pools/causes that matter most ( or do something useful, projects etc ).
voting ranks the projects the pools are supporting, then ADA delegation fills those pools
using %y structure.

1st place - 25%
2nd place - 10%
n place - n%

This method allows the DAO votes to drive, even access - airdrops of new projects those SPO may be a part of. ( in true decentralized fashion… even if those pools were participating in a competing project! )

*maintain proper liquidity; while returning voting power and staking rights to the community, WIN WIN

2 Likes
7

I love the framework and while option 2 would be my favourite, we dont have to forget that these pool are generating income for MinSwap customers.

I’m not sure how large the minswap delegation is, but the lowerbound limit cant be 200k. I would recommend pool size between 5m and 15m, or at least nothing below 3m.

3 Likes
8

All options look good! This is very healthy proposal!

9

This would help many small pool operators in that range of 500k to 5M!

10

Definitely agree with the randomized list of SPO’s. 3.1 seems best of all options presented. Get a good filtered list and then randomize. 3.2 Not great option and gets shady fast. 3.3 Not great in that minswap centralizes stake when could be shared. Many pools have retired since staying afloat takes effort, time, and money.

1 Like
11

As much as my greedy side says option 3 in the spirit of Cardano in must be option 1.

1 Like
12

I can choose my vote but it won’t let me vote
I am logged into Minswap also ??

1 Like
13

I am looking at the ADA Delegation proposals. They all have advantages, and disadvantages. My question is if I am currently farming Minswap/ADA how will this change depending on the option selected? Will the APY go down for both Minswap and ADA or does this affect ADA only? Just trying to figure it out.

14

I also like Option 1 as it seems the easiest to implement and involves less ongoing work from all involved.

I’m also a bit of a decentralisation maxi. The more the better.

2 Likes
15

same situation for me

16

@Joseph.ADA
@jp_cardano
Please go to Minswap’s Discord and make a ticket, we will help you with this.

17

I completely agree with the idea of voter fatigue being a real thing. However I wonder if the best of both worlds between 1&3 could be achieved if SPOs are initially filtered out in a way that rewards are as high as possible, and then do the random selection. It would be sub-optimal regarding ADA rewards, but we would actively contribute to decentralisation too.

1 Like
18

I don’t think it’ll change… I believe in all cases the MIN/ADA LP will be delegated to the minswap ran Stakepool - but that pools has so much ADA already it would cause a oversaturated pool and thus we wouldn’t get rewards. So min will use their own ran pool for that.