SD Mega Burn: Proposal to reduce total $SD supply

Non-grant related Proposals
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Synopsis

As part of Tokenomics redesign, StaderDAO proposes SD Mega Burn, a one-time burn for optimising token supply by 30 Mn $SD & bringing it down to 120 Mn $SD vis-a-vis current 150 Mn $SD.

Introduction

Over the past three years since its inception, Stader Labs has become a leader in the LST space, now boasting over $500 million in TVL and the trust of more than 85,000 stakers. Key insights gained during this period include designing an optimal rewards structure, enhancing incentive mechanisms, and gaining a nuanced understanding of ecosystem fund requirements.

Stader’s trajectory took a significant leap forward with the launch of ETHx last year, integrating $SD into our business model by linking the token with validator bonding requirements. The introduction of the SD Utility Pool marked a pioneering step in our tokenomics, providing unprecedented utility to the token and establishing a unique “sink.” The $SD bonded by permissionless ETHx validators and the SD Utility Pool have cumulatively resulted in the lock up of over 10% of the $SD circulating supply.

Following extensive consultations with several community members and advisors, we have outlined a series of strategies for stronger token utility and sink to enhance the $SD token economics. As the first critical step in this journey, we propose SD Mega Burn - a one time $SD burn of 20% of the total token supply, reducing the total supply to 120Mn $SD.

SD Burn - Proposed Category-wise Token Distribution

The current distribution of SD tokens stands as follows:

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the pie is a lie2400Ă—1350 225 KB

Proposed token distribution post SD Burn:

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the pie is a lie-12400Ă—1350 233 KB

Reducing our total supply is a pivotal step in optimizing SD tokenomics. We firmly believe that SD Burn - a one-time trimming of the excess from the Rewards, Ecosystem and DAO funds will enhance the sustainability and long-term viability of the Stader ecosystem alongside supporting our ambitious growth targets.

As always, community’s feedback and opinions are critical and we would love to hear your thoughts with regards to the above proposal.

Update on the proposal -
Over the last 3 years, Stader has established itself as a leading multi-chain liquid staking player. As the largest LST on Polygon and Hedera; and one of the fastest growing LSTs on Ethereum with $500M+ in TVL in just 9 months of launch, Stader is positioned well to achieve its ambitious goal of becoming the LST of choice on major L1 ecosystems.

With partnerships with leading industry players such as Ledger, Metamask, OKX, Safepal, Anchorage and BitGo, Stader has established a strong playbook for growth in the industry. On the basis of this playbook, we did extensive rewards planning to sustain our ambitious growth targets over the next decade and have proposed the below revised token economics:

  1. Doubling our current rewards rate and assuming zero price impact on SD, we need 36M SD in rewards over the next 10 years to achieve a minimum of 10X growth. Given that this is a fairly conservative estimate with a very long runway, the extra unvested SD of 7.5M is value dilutive for the community and it might be prudent to burn this excess supply in the rewards bucket.

  2. The DAO Fund was intended for any additional incentives beyond the rewards spend. With delegations to universities, ecosystem partners and community advocates to strengthen community governance, we have utilized 2.5M SD so far. A burn of 15M SD from this category, leaves us with ample allocation of 5M SD for future governance and incentivisation purposes.

  3. The Ecosystem Fund was intended for additional team, partner incentives and any future fund raise along with any POL. A burn of 7.5M SD in this category leaves us with a buffer of 2.2M SD which as per our historical requirements and future growth assumptions, more than suffices for upcoming needs in this category.

This tokenomics burn plan has been proposed after detailed discussions with community members and token holders who had concerns around the low float and high FDV of SD token. With a much better understanding of incentives and rewards required to meet our growth objectives, the SD Mega burn proposal addresses these concerns.

4 Likes
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Thrilled to see this initiative! Great move. Will be a big win for value accrual to SD holders and streamlining the tokenomics. Big Yes.

1 Like
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Big ups to Longterm SD Holders

5

This is a great idea to boost the token value !
How did the team define the value of 20% and it’s repartition ?

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Could you please explain how this will enhance the sustainability and long-term viability?

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Thanks to all for their feedback thus far and thanks to the Stader Team for making a bold proposal.

It is a good start for a proposal. There could be a few clarifications in addition to the one mentioned by @defiwarrior and @Geeno.

  1. How could the tokens be better put to use instead of burning them? What other uses were considered?
  • Boosted rewards for adding new non-permissioned nodes/validators and and also for staking with Stader (focus on EthX)
  • Boosted rewards for kicking off liquid staking on a new chain (Solana, Aptos, others?)
  • Focused DeFi Rewards - avoid fragmentation of liquidity if possible
  • What other things does the Stader team have cooking that could utilize this tokens move effectively?

  1. How does the reduction in token allocation effect the DAO Fund and Ecosystem Fund? How has the team’s thinking changed such that the reduced allocations are sufficient to support the project long term?

  2. Would allocating tokens to the Team and Advisors support expansion of the Stader project and support expansion in a positive way for the token?

Generally, I have mixed feelings about burning tokens. For a large and stable protocol, this may make sense. For a established but still growing project like Stader, I’d prefer capital (tokens) be put to use continuing on the fast growth trajectory.

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Hey Geeno,

Thanks for your vote of support. We have updated the proposal with the numbers as to how the team arrived at a cut of 20% & rationale for each. Request you to review and share your thoughts.

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Hello ser,

The token burn seeks to address the concerns received from the low float & high FDV of the SD token. The extra tokens proposed to remove are those which, while being available, would not have been added to the circulation. These would have exacerbated the concerns brought forth by the community members around low FDV and low token float. The deeper insights gained into rewards allocation, incentives designing and ecosystem sustainability have enabled us to suggest the same, the numbers for which have been updated in the proposal.

Request you to review and share your thoughts.

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Thank you for sharing your thoughts Ser. We have updated the proposal to provide a comprehensive answer to the rationale behind the 20% burn, the use cases of SD considered for this decision making and the consequent impact on Ecosytem and DAO fund.

Please find the answer to the other specific questions below:

Regarding covering of rewards, our projections show that 46.5 Mn $SD allocated shall be sufficient to support a min of 10X growth (refer to the proposal update above). The reward planning considers incentivization for the below use cases :

  1. Scaling Permissionless node operators
  2. Growth on current L1 ecosystems
  3. Expanding to new Web3 horizons such as BTC staking, RWAs etc.

Next, the SD Mega Burn is the first of multi-part series of initiatives under the SD Tokenomics revamp that will be rolled out over the next several weeks. Prior to this, we have also launched the SD Utility Pool, that is a first of its kind token utility innovation. It rewards $SD holders for contributing to the decentralization of Ethereum, by supporting permissionless ETHx node operators, while earning double digit rewards.

The team & advisors allocation has been kept constant as before as it more than suffices incentivization of the team needed to support the planned growth. Should the need arise, however, Ecosystem/ DAO fund can be leveraged to incentivise the team and partners, post approval from the DAO.

As for the last point mentioned, As Stader has scaled across chains, its growth playbook has gotten fairly solidified. With a much clearer visibility on incentives and rewards needed to fuel projected growth and conservative assumptions to allow for a buffer, we believe we are well positioned to remove any token that has no foreseeable utility in the future and is bloating up the FDV. The numbers for the same have been updated in the proposal.

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I love the proposal to improve the tokenomics of the SD token.

However, what I find concerning is that the tokens burned will be taken from literally all categories, except from the “team + advisors” category, basically increasing your allocation by 4.21%.

Could you please elaborate what guided your decision making in that regard?

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Thanks a lot for your response and raising this. A few numbers for context:

  1. Stader team + advisors have 17% allocation instead of the current benchmark of 23-25% by other projects i.e. 30% lower than current benchmarks. This allocation is critical to keep the current and future team incentivised and motivated.
  2. The burn exercise was primarily meant to reduce the excess supply that has limited use in the long term future of Stader.

Happy to answer further qns if any. Thanks again for your engagement.

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I’d prefer dropping 20% of Kelp tokens to SD holders. It’s the same project. Why making new token?