Staking HOP for portion of fees - anti-whale

I propose a staking program for HOP token. Those staking get a portion of the fees generated by Hop Protocol. I’d like to also make it anti-whale. Half the fees get given out proportional to the amount you stake, the other half of the fees is spread evenly among any stakers who are also airdrop recipients, regardless of how much you stake. Thank you.

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I do not have enough voting power to create this myself. Someone mentioned doing that on Discord. I am not a whale. BUT, if you delegate to (this username) dot eth, and that account gets enough delegations that it can make the proposal–it will be made–and then voted Yes by the same account. Unfortunately, I do not think there’s a way for someone to delegate back a portion of their voting power. If so, I would invite anyone who wants it redelegated back to them after delegating to this account, to send ETH equal to the amount of gas it took to delegate to this address. But a) don’t know yet how much it takes on Tally to create a proposal–just that I do not have enough b) don’t know how to tell how much and by whom was delegated to an address, such as the aforementioned, and c) I don’t think there’s a way to partially delegate votes, all I ever see is delegating /all/ your votes. As a result, no promises what that account would do with the votes, besides creating and voting on the proposal on the off-chance it was clear to that account that enough votes were delegated to it that it could make the proposal / vote on it. [EDIT: 6/10/22 - I realize now that you, yourself, can re-delegate after this passes. Thus, if this proposal is created and I vote on it, I will add another message saying it I have done the most I promise to do (again if I realize I have the votes and it is reasonably possible for me to do it). At which point, you may want to re-delegate yourself to yourself or someone else.]

I like this but I would really like to see the devil’s advocate argument against this.

Also, maybe add a vesting period before being able to claim?

We definitely need staking. Also, we need to decrease the voting power required to create a proposal. 1M is too much, only 2-3 people would be able to create proposals.

Hi! So are you proposing just single-token HOP staking? I personally have become less keen on solo staking but am a proponent of rewarding the pain for LPs. Ideally we could build liquidity for HOP on Optimism, Arbitrum, and or Polygon.

The lower gas fees make for easier management of concentrated LPs or I guess one could just LP the whole range like in v2. No doubt, we need deeper liquidity for HOP.

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I’ve just seen that RocketPool does require you to hodl some RPL to be a node provider. What would speak against the same mechanism for HOP? The token would have a utility: to provide liquidity and have rewards, you must hodl HOP, the access token of the protocol. It could also align even more the incentives between LP and the HOP ecosystem. What do you think ?

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Devil’s advocate would be tricky for me to do. Seeing as I think it’s a wonderful idea, here’s some arguments against it:

  1. Staking can be seen as only an excuse to prevent sell-pressure. But I generally think that’s only true when all you get is more of the same token: ApeCoin & the death of staking - Cobie . Now, to counter this, reward stakers in something other than more HOP token. I didn’t detail this, because I don’t know /exactly/ how fees are taken. But my guess is that the treasury takes a bit of USDC if you hop USDC, a bit of ETH if you hop ETH, etc., and does no extra swaps with what’s taken. (I.e. If a fee of ETH is taken, the ETH is not then swapped for USDC before storing in treasury.) And since the only hop-able assets are quality assets (recent market downturn notwithstanding with regards to ETH), getting those tokens for fees are fine by me. Thus, while you are in the staking contract, it collects a bit of ETH, a bit of USDC, a bit of USDT, etc., when it collects enough that you lose no more than 1% in transfer, the contract transfers the tokens to you.

  2. If it is now a profit-generating staking model, it is arguably more like you are directly “invested” in the success of the Dapp. And that could make HOP token be considered more of a “security” and less some weird “governance thing,” and thus more likely to get the attention of Gensler, et Al, and potentially cause complications for US holders, particularly those that are non-accredited. But I hope that regulators sensibly approach the issue of whether any crypto is a “security”–when/if they ever do. Regardless, most likely any changes brought by regulators will be regarding future activity, and not penalize the previous actions of “investors.” Thus, in the meantime, stakers will at least get some value out of the token, while otherwise there is very little value for the average holder / airdrop recipient.

Regrading 1: I have not mentioned on which chain(s) I envision staking should occur. At first, I envision this staking contract would be on Ethereum, as that is where the airdrop occurred, and where HOP tokens currently exist. But someday, if HOP is readily available on other chains, then I see no reason why one shouldn’t be able to stake on other chains, where fee transfers would likely be cheaper, and staking rewards can be dispensed more regularly. To facilitate this, there can be a separate staking and signing-as-airdrop-recipient transactions. This would be a feature even Ethereum stakers might want, particularly those with multiple accounts for multiple types of activities. I could see many potential scenarios this way. Scenario A (most typical): Stake on Ethereum, then sign immediately. Scenario B: Stake on Polygon, then switch chains to Ethereum, then sign on Ethereum. Scenario C: Stake on Ethereum with non-airdrop-recipient wallet, switch wallets to airdrop-recipient wallet, sign on Ethereum.

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I agree. 2-3 people is pretty much centralized. The point of airdropping governance tokens is to decentralize. I am not convinced “voting power” should determine if you can make a proposal, or be proportional to the amount of HOP you have.

Rewarding the pain for LPs, with what? More HOP? That people will want just so they can sell it? Is the only thing HOP is good for, then, is to sell it? Then it is likely not much better than a farm-reward token that is given on your average Dex clone. And farm-reward tokens, particularly those that are infinitely mintable and really do nothing but spew out as you lock liquidity (e.g. in theiir Dex), are truly the “greater fool theory” that Bill Gates was talking about this week with regards to some parts of crypto. Per my response to theDragonDaniel, the staking reward would not be more HOP but whatever was collected as fees. Ether powers the world’s computer. USDC is, well, the US dollar. Lots of utility there. Now, if you want to have liquidity reward programs on top of a staking reward, sure. And that would be useful if you are to allow staking on chains more than Ethereum. But it would still be the staking reward that is giving HOP utility. Not the liquidity reward program (assuming your typical liquidity reward program).

Rocketpool FAQ:

Some users may be confident in running their own node but do not have the 32 ETH required for the deposit. If they join Rocket Pool's decentralised network of Ethereum node operators, they only need 16 ETH minimum to solo stake.

Oh, only 16 ETH. Every program that involves being a “node provider” that I’ve seen has been prohibitively expensive. Maybe not so expensive that node providing is only for whales, but node provider programs definitely do not seem to be friendly to the minnows among us.

That said, even RocketPool does not require you to just hodl. You have to stake. I think that makes a lot of sense. I think there has to be a staking mechanism. Otherwise, a lot of the rewards would just go to centralized exchanges if/when HOP gets listed, and I don’t think cexes shoud get those rewards.

Of course I wanted to say “stake” and not “hold”, but if you stake you hodl too :smiley:
I’m from Switzerland and in my country the regulator did define multiple tokens types, already in 2018. Following this definition, IMHO HOP would be a utility token, something that gives you access to an application, in this case the LP side of HOP protocol. I know that US regulators are more powerful, but still interesting.

I think as an economic agreement, only when the economic income is completely consistent with the token share can more people be encouraged to buy and increase $hop tokens. If you follow your plan, whales will sell a lot of tokens, resulting in price squeeze, and ordinary users will follow suit.

Whale will meet a stable return of 5%-10%, but ordinary users will not. They need an excess return of 100%-1000%, so it is certain that tokens will be concentrated in whale.

This could be a meaningful discussion in a couple of years, but now it’s far too early!

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“whales will sell a lot of tokens, resulting in price squeeze, and ordinary users will follow suit.”

I am not a whale, so I don’t know. But I suspect if there’s /no/ utility for the HOP token, they’ll definitely sell it. If there’s /some/ utility, even if it’s whale-nerfed, they’ll be less likely to sell it.

While I am not a whale, I do think I am a bit reflective of an “ordinary user.” And we “ordinary users” didn’t get much in the way of dollar-value in airdrop, either when we were first aware of it, or right now at it’s current price. If the price drops more, doesn’t matter much to us. For many of us, the cost of gas to swap makes it worth it to just wait it out. But if I’m guaranteed a flat rate by staking: Then not only will I not sell it, I will stake it immediately.

“Whale will meet a stable return of 5%-10%, but ordinary users will not. They need an excess return of 100%-1000%, so it is certain that tokens will be concentrated in whale.”

Where do these numbers even come from? I only wrote: “Those staking get a portion of the fees generated by Hop Protocol.” I don’t know what that portion would be. And, of course, whales will get more than “ordinary users” as I wrote: “Half the fees get given out proportional to the amount you stake.” But “ordinary users” will definitely get /something/ no matter how the tokenomics play out. And that’s what I want. How the tokenomics will play out, I don’t know how anyone can foresee, and I am curious how you got these “5%,” “10%,” “100%,” “1000%” numbers. Maybe you can give me an examples. Alice has # x tokens at $# per that give #% of revenue which gives $# annually, Bob has # tokens, etc. Because I want to see your math, it might actually help me see what you mean.

Why is it too early now?

My feeling on this is that for the time being the protocol is better off having all fee’s generated going to LP’s in order to incentivize liquidity. Once the L2 ecosystem and hop protocol mature, reaching the top of the s-curve in growth and generating a significantly larger amount of revenue, that is the time to activate a “fee switch” and start apportioning the protocol revenue between LP’s, token holders and HOP treasury.

The way I think of it is like this - paying all protocol revenue to LP’s right now in the ramp up phase is equivalent to re-investing 100% of the profits back into the protocol, we will get a return on this investment by becoming the dominant bridging protocol (everyone will use it to bridge because its where all the liquidity is, which in turn means all the LP’s will want to LP on Hop because that’s where all the users are and it will become a virtuous cycle) and generating significantly more revenue in the future which can then be apportioned to token holders.

I like to think of staking opportunities as being a way to quickly/easily get invested in all the products of a protocol at once, as opposed to having to, say, provide liquidity in one pool or another. Instead of trying to pick individual stocks, and dealing with re-balancing and possibly having to buy a whole stock when you only wanted a partial stock, you get an ETF of the S&P 500. Stake instead of trying to find the best LP to put your funds in.

If you really want to keep the fees to LPs the same, there is a way.

So, staking makes the token illiquid. Right now, probably 30% of HOP is effectively liquid: Sitting in wallets, on exchanges, in personal LPs, etc. While 70% is effectively illiquid: 60% in the treasury, and 10% still vested for Team/Investors. If that 30% liquid became 15% liquid and 15% staked, then the token should theoretically double in value. That 60% treasury is now worth double. If it puts 15% back into circulation by selling it, the value should then go back to what it was, there would still be 45% in the treasury. No loss to the treasury. So what does the treasury do? It sells the HOP for assets that go into the LPs.

Again, the fee percentages won’t change, but yes, non-HOP liquidity providers will have to share them with HOP now, so their returns will reduce a bit. But, as you say “everyone will use it to bridge because its where all the liqudity is”–so this will actually benefit long-term and will probably make up for the fact the non-HOP liquidity providers will have to share because more people will be hopping and more fees.

Now what about that 15% in staking? Again, I think staking should happen on multiple chains. And each chain would be a bit like an index ETF of that chain, however much is staked on that chain it sells from the HOP treasury for the necessary assets according to the trade volume and current liquidity of each pool within that chain.

Otherwise, if it’s just on one chain (e.g. Ethereum), then it’s like an index ETF of all the chains and the HOP treasury sells HOP either on the chain that needs the asset, or buys on a different chain and hops it. Regardless, it’s all done by HOP nice and efficiently.

Just to chime in briefly, this is correct. Staking does at the margin reduce liquidity of the token. Given that HOP has particularly poor liquidity at the moment, this also impairs its ability to serve as collateral for users or the treasury. Staking may have benefits, but it’s important to remember that it does also lower liquidity, which can also result in price swings in both directions.

In the case of a protocol that is still running at a loss, it’s also important to consider whether removal of liquidity from the market is the best use of HOP. While it often has a negative effect on token price, simply paying for services that are accretive to the protocol’s fundamental value proposition may be preferable to paying existing holders to (temporarily) withhold liquidity from the market. Staking may counteract some price movements downwards from emissions, but it also removes some of the liquidity that emissions create in the market.

Great discussion! Looking forward to seeing more lively debates on the forum.

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I’m willing to venture that it is entirely a question of why liquidity is lower as to whether causing illiquidity increases or decreases the price.

If the liquidity is lower because there’s no enthusiasm to provide to Liquidity Pools or provide liquidity in other ways, then it is correlative, not cause and effect. The enthusiasm is lower and that’s why its price went down. No enthusiasm, no buy pressure. But if the liquidity is lower because enthusiasm is high, namely there is enthusiasm for a vehicle that turns that asset illiquid, then it should be a sign of enthusiasm for the asset as well as the vehicle. One would only make their asset illiquid if there was more perceived upside to locking it up than being able to sell the asset at a moment’s notice. There is a direct connection to the making of the asset illiquid. Not just an after effect, not just correlation. Higher enthusiasm, more buy pressure.

I am curious to see some examples of lower liquidity causing price to go down and some examples of lower liquidity causing price to go up and the “why” in each case.