This proposal is no longer up to date. Please refer to the final version of the proposal Temp Check - $MIN Staking, Implementing a Future-Proof Model
Author: @CWSchub | Status: Temp. Check (indefinite duration)
Full Report : Hybrid $MIN Staking V2 [MIP 2.3]
V1/V2 Calculator: Data Driven Comparison
About the Author: CWSchub is a Minswap Kitty Farmer, an actively engaged community member since March 2022 and author of the $MIN Staking re-design proposal.
Introduction
The current Hybrid $MIN Staking Mechanism, since the implementation of Early Redemptions, has had a very positive impact on the total amount of $MIN tokens staked, with a ~27% increase from 433M tokens to 551M.
While this metric shows that the design is on the right path. The conducted research in the report shows that it has inherent flaws - in terms of fairness and redundancy - that will affect performance in the future (not if, but when).
The delivery of this proposal aims to mark the final stage in the development of $MIN Staking as a product. This decision needs to be governance-led and will mark the future of the revenue sharing model for Minswap.
Summary (High Level)
This MIP finalises Minswapās hybrid $MIN-staking system.
- Replaces the piece-wise Ī³ formulation with a single exponentially-decaying function, enabling smooth behaviour in all regimes.
- Eliminates the Ī³ = 1 collapse (unfair) and Ī³ āŖ 1 saturation seen in V1 (redundant).
- Lifts Liquid-pool APR by up to +100 % in out-performance regimes and smooths Tiered APR spikes.
- Introduces dynamic Ī³ (ADA-delegation APR oracle) and cleans up LBE ādust.ā
- Sets the foundations for future Liquid-Staking-Derivative (LSD) products.
Scope of Change
The changes proposed are divided into two categories:
- Minor Changes: Quality of life changes which donāt affect the reward-splitting logic, but ensure long term adaptability and positive user experience.
- Major Changes: Changes that affect the reward-splitting logic. They aim to prevent researched critical issues and ensure proven: resilience, fair distribution and higher APRs in a wide range of market conditions.
Minor Changes
| Category | V1 | Proposed V2 |
|---|---|---|
| Ī³ source | hard-coded 2.86% | 30-day avg. ADA-delegation APR |
| LBE ādustā | persists forever | convert sub-10% residue to ADA** |
**the ultimate decision shall befall the Managing Members of the Minswap DAO or the relevant working group assigned to manage LBE dust.
Major Changes
| Category | V1 | Proposed V2 |
|---|---|---|
| Ī³ formula | Ī³=min(dAPR/sAPR, 1) (piece-wise) |
Ī³ ā [0,ā) (no longer clipped) |
| Liquid APR | Ī³ Ā· tAPR (flat when Ī³ ā¤ 1) |
tAPRĀ·Ļ(Ī³, exp{-Ī³}) (monotone, bounded) |
| Tiered APR | tAPRĀ·[1+(1-Ī³)Ā·r] |
tAPRĀ·Ļ(Ī³,r,exp{-Ī³}) |
Background and Motivation
The Hybrid $MIN-staking program (launched 29 Oct 2024) and has seen a 27% increase of 433M to 551M staked $MIN at its peak but exposed two design flaws:
-
Ī³ = 1 collapse ā Tiered & Liquid APRs become identical, yet Tiered stakers still suffer an early-withdrawal fee.
This represents an unfair distribution of rewards relative to withdrawal penalties. -
High-performance saturation ā When MIN out-performs ADA, Liquid APR locks flat while Tiered APR skyrockets, draining liquidity to the Tiered option.
If all the capital flows to the Tiered option, then there is an element of redundancy which needs to be addressed by making Liquid Staking more attractive.
Community feedback during the earlier MIP 2.2 temp-check highlighted similar pain-points around reward predictability and negative loops. These flaws can be explored in the following V1 Hybrid $MIN Staking Calculator.
1. Collapse of APR(LS) and APR(TS) to equivalence
As has been described earlier, the current parametrization of Ī³=min(dAPR/sAPR, 1) causes both options to ācollapseā to equality when Ī³=1. This affects Tiered Stakers by far, as they are still subject to early withdrawal fees.
This issue becomes worrying when many different combinations of $MIN price, total $MIN Staked and daily $ADA rewards can cause this to happen:
2. High-Performance Saturation to Tiered Staking
As can be seen in the following image, when Ī³<<1, the Tiered Staking option exceedingly outperforms the Liquid option, due to it remaining constant as rewards increase.
Therefore, the proposed solution must:
- Cause APR(LS) to scale smoothly, removing the ācollapseā when
Ī³=1. - Eliminate the behaviour of constant APR during periods of high performance.
Proposed Solution
IP disclaimer
Due to IP concerns, the full formulaic approach will not be publicly disclosed unless the proposal passes with Option B being the winner and the author will relinquish any copyright claims to the released documentation. This protects the author in case of a failed proposal.
A New Formulaic Approach
For a formal definition of V2ās formulaic approach, please see section 4 of the published report.
This new approach utilises exponentially decaying functions of Ī³in order to overcome the forced piecewise definition used in V1. By implementing this new logic, both flaws are resolved elegantly.
The following graphical representations showcase the asymptotic convergence between Liquid Staking and Tiered Staking plotted for V2 (right charts) compared to the current, V1, plots (left charts):
Financial Impact Using a Model for Capital Flow
Section 6 delves into how $MIN holders would behave given different scenarios and how, in turn, the resulting āexpectedā APRs for both the Liquid and Tiered Staking options would look like.
The entire model is based on utilising a āminimum break-evenā timer Tmin where $MIN holders are able to unlock their rewards from the Tiered option while staying at least as profitable as if they had chosen the Liquid option.
The following plots represent the Expected APRs according to a defined break-even timer Tmin.
Oportunity Costs
The report analyses the financial impact V1 had on its predecessor, Boosted $MIN Staking. It identifies that implementing V1 could have saved $MIN stakers around 200k - 700k $ADA.
Analogously, considering V2 performs a change in the reward-splitting logic, the opportunity costs associated to not implementing V2 are in line with the changes it seeks to implement
Opportunity Costs of not implementing V2 for Tiered Stakers at Ī³>1
The following table provides an estimate Oportunity Cost on a monthly basis for $MIN Stakers who have selected the Tiered Staking option if the transition to V2 didnāt happen at current prices (1$MIN=0.0346$ADA) and total $MIN Staked: 551M $MIN.
Opportunity Costs of not implementing V2 for Liquid Stakers at Ī³<1
The primary motivation regarding implementing V2 for Liquid Stakers is to provide better returns when $MIN Staking enters into high performance market conditions. The following table provides an estimate Oportunity Cost on a monthly basis for $MIN Stakers who have selected the Liquid Staking option if the transition to V2 didnāt happen at current prices (1$MIN=0.0346$ADA) and total $MIN Staked: 551M $MIN.
Utilising the same method as before, but for Ī³=0.292.
Future Developments
V2 is proven to be resilient to all kinds of market conditions. Notice that all graphical representations of both V1 and V2 have the x-axis scaled logarithmically. Furthermore, the x-axis doesnāt represent time, but a relative performance parameter. Therefore, the entire approach in this report has evaluated market conditions two orders of magnitude apart.
Once the conditions of smooth behaviour and resilience under market conditions orders of magnitude apart have been met, it is possible to build derivative financial instruments on top.
The perfect target for such financial instruments should have an indefinite investment horizon and should be fully liquid. It is no coincidence that V2 has been developed in order to support Liquid Staking Derivatives.
Enabling Capital Efficiency Using Liquid Staking Derivatives (LSD)
Implementing an LSD system would improve capital efficiency, making the staking mechanism and the $MIN token a much more attractive investment option. This could be facilitated via two different technical implementations:
- Fungible LSDs
- Non-Fungible LSDs
For more information, please refer to the (slightly out-dated, but still relevant) following article by CoinGecko:
Conclusion
The current state of $MIN Staking is, unfortunately, not a sustainable one in the long term. The only real solution to offering a fair reward-splitting logic is by attacking the APR formulation.
Therefore, the author has reached the conclusion that $MIN Staking will only be sustainable in a future where:
A) There are no locking periods and there is only one Liquid $MIN Staking option.
Or:
B) A non-piecewise definition for the Ī³ parameter is provided, enabling smooth transitions between low performance to high performance and Tiered Staking beats Liquid Staking at all times. V2 offers an elegant future-proof solution.
Or:
C) $MIN Staking is discontinued - Fee Switch redistributed back to DAO Treasury
Proposed Compensation
As per described in section 9 āScope of Workā, the proposed compensation is:
In order to establish a fair balance between an hourly rate and the value associated to the financial impact of implementing V2. The author proposes a fixed payment and a variable one based on performance after implementation of V2, to be honoured by the DAO treasury:
4.a 10000 $ADA upon approval and release of full formulaic description.
4.b
In the event of the winning voted options are 1) or 3)
4.c 15000 $ADA upon approval so as to honour the dedicated time.
4.b describes 0.5% of total daily $ADA (excluding LBE) rewards over the course of 9 months distributed by Minswapās MIN staking, multiplied by a performance coefficient. This coefficient is to be determined utilising the 60-day moving average of total $MIN staked to prevent malicious behaviour.
Voting Options
A) Transition to fully Liquid Staking. (4c Compensation)
B) Implement V2 hybrid $MIN Staking. (4a + 4b Compensation)
C) $MIN Staking is discontinued. (4c Compensation)