AIP #8 - An update on Abracadabra fee distribution, introducing mSpell staking pools

AIP #8 - An update on Abracadabra fee distribution, introducing mSpell staking pools

Summary/Scope:

Currently the way the tokenomics of sSpell works is that on a random date, the fees of all the cauldrons are collected and used to buy Spell from the market producing our famous Merlin Candle.

Once the Spell are bought, they are then deposited into the sSPELL staking contract hence distributed to all the sSpell holders. This process allows the sSpell holders to own more and more SPELL using the fees produced by the protocol, as time goes by and more buybacks happen.

This proposal suggests to improve this fee distribution structure adding mSPELL pools and therefore distributing both MIM and Spell depending on the pool users stake their tokens in: sSpell pool or mSpell pool.

This means you as a SPELL holder can decide what you would rather receive from the protocol: more ownership in the platform (more SPELL) or stablecoin income (claimable MIMs).

Proposal:

As mentioned in the summary above, the proposal here is to change the fee distribution from Spell to both Spell and MIM, depending on the staking pool you stake towards. There will be a sSpell Pool (only on Ethereum) and a mSpell pool on Ethereum, Fantom and Avalanche. The sSpell pool earns you Spell, the mSpell pool earns you MIM.

Current Situation:

Currently, the way that fees are distributed is via the Merlin Candle, which in order to stop front runners is done on a random date. All the fees from the cauldrons are taken in MIM, these are then all sold for SPELL. Then the Spell gets distributed as sSpell to sSpell holders. In the past weeks, we started using OTC desks to perform these buybacks, and we have already seen an improvement on the overall efficiency. We want to take this to another step though.

The current Tokenomics effect on Spell:
Current tokenomics create buy pressure for Spell, however in a downwards market it also provides more exit liquidity for people wanting to sell Spell. It also means that users that hold sSPELL receive the yield in SPELL, meaning that if they want to “realize” this yield they withdraw it from the sSPELL staking pool and then sell their Spell, again causing sell pressure.

The Merlin Candle has been great marketing for the protocol, but we believe we can now add an alternate fee sharing mechanism, one that will help the protocol even more.

Lastly, the only way for users on Avalanche or Fantom to currently participate in the fee sharing process is to buy sSPELL tokens on their chain, which can be difficult as there is not substantial liquidity for the pair SPELL-sSPELL.

How the Proposal would work:

If this proposal were pass, it would work as follows:

  1. All the fees from the multiple assets earned stay in MIM, and are shared across the different staking pools proportionally.

  2. Users will be able to choose which staking method they like the most. The can either stake for sSPELL on ETH mainnet, or for mSPELL on Ethereum, Fantom and Avalanche.

  3. Depending on the amount of users in the sSpell pool, MIM will be used to buy Spell on a constant basis, instead of in one buy.

  4. The rewards (either MIM or SPELL) are then distributed to the different staking pools across chains, based on how many stakers are there in that pool.
    In other words, MIMs and SPELL will be distributed proportionally to the amount of SPELL staked in the pool (same process that is currently happening with the sSPELL pool).

  5. For the mSpell pool you will be able to click on a Claim button whenever you like to receive the MIM in your wallet.

Technical Details:
If this proposal was to pass, we would be adding mSPELL staking pages to the 3 chains mentioned above, allowing users to take part in the fee sharing mechanism also on other chains.

Once the fees are collected, and the 25% cut is sent to the treasury, the remaining $MIM will be split proportionally to the amount of SPELL staked in each pool.

We can get the exact percentage of protocol fees going to a particular Staking Pool “A” using a simple equation:

(SPELL Staked in Pool A / Total SPELL Staked Across All Pools) = % of fees going to Pool A

MIMs intended for the sSPELL pool will be used in the same way it is used now: buying SPELL and depositing them in the sSPELL contract on Ethereum. In addition to this though, we will be using different buybacks methods (such as OTC desks) to make the whole process more efficient and less open to front runners!

On the other hand, MIMs intended for mSPELL pools will be deposited directly into the staking pools on each network, and distributed to SPELL stakers.

From a user POV, if you are interested in joining a mSPELL pool, you will just need to stake SPELL tokens on your chosen network into the mSPELL pool, and every time a fee collection happens your MIM claimable balance will increase. You will then be able to claim MIM tokens whenever you want interacting with the smart contract.

Note that SPELL locked in the mSPELL contracts will still be subjected to a 24 hours or longer lock up before they can be withdrawn.

More details on this will be made public once the AIP has passed!

It is also important to mention that all the SPELL tokens locked in mSPELL contracts on Ethereum will maintain their voting power in the governance snapshots!

Benefits of this Proposal:

There are plenty of benefits for both the users and for the protocol.

First of all, note that this proposal will be an addition to our current sSPELL pools, allowing users to choose the staking mechanism (or a mix of the two) they prefer. Imagine for example a user that wants to earn a certain amount of stable income, and the rest as auto compounding rewards: he will be able to mix his SPELL deposits betweens sSPELL and mSPELL cauldrons as he/she likes the most, given his risk profile!

Secondly, there will be less selling pressure from existing sSPELL holders that want to realize their yield as they can now just immediately stake their SPELL tokens in the mSpell pool, and receive revenue sharing in MIM. In addition, the new Merlin Candle will use different tools (such as OTC desk and cost averaging buys) to improve the efficiency of the buybacks.

Lastly, this will put SPELL on the maps of all those users that are looking to earn stable income rather than governance tokens, serving as a great marketing tool for Abracadabra in the DeFi Ecosystem!

This proposal makes it possible for people to decide what they want, own more of the protocol, or earn stablecoin income.

#Next Steps:

This proposal has passed! Check the voting results here!

Looking forward to the discussions below and on Discord!

28 Likes

Does this mechanism already exist?

7 Likes

I vote YES. Great Proposal team!

Yes :+1:
This is sounds like a great update.

1 Like

This looks great but please explain why we didn’t get this last distribution from yesterday.

Thanks Team, this proposal is well structured and clear. I will vote Yes. Kudos to the community member (who’s name I can’t recall), who proposed this a few months ago. At the time I didn’t see the point, (nor did I want the obligation to claim MIMs), but now that the proposal allows for user choice between auto-compounding SPELL and claimable MIMs, I’m a big fan. I also appreciate the clear writeup of how the MIM distributions will reduce sell pressure (albeit at the cost of reduced buy pressure). Overall, user choice = #winning !

1 Like

That’s great! I vote yes! õ/

It seems good, but I would just like to point out that the sSPELL holders on Avalanche or Fantom do not have great governance possibilities…

love this - although, if we want people to be constantly getting paid in mim, we also have to make sure to incentivize this liquidity on curve and other dex, knowing people will swap from mim into other stables/assets. Let’s get some crv/cvx PLEASE

It’s a great idea! I’ve been looking forward to this option.

Excellent proposal, as it provides flexibility in how to receive rewards.

Please don’t change the current sSPELL pool, just add the mSPELL pools, so as not to have to make movements to restake in sSPELL if you are already in there.

3 Likes

Sounds good!
Might go in good synergy with the Expecto Patronum update and benefit us all in the long run while attracting more liquidity in the protocol

A resounding YES for me. I see this helping the protocol grow long term and increasing the token price. I cant see any down side to this idea. Please implement soon :slight_smile:

Yes, that is the idea. Users that are in sSpell and like it can just stay there

4 Likes

Is the code for this complete?
How long do you expect for this to be voted on and implemented?

I’d expect a 10 day timeline

2 Likes

Awesome.
I know this is quite variable but I think UI that reports an estimated return $ per week would be nice.
My current calculation is ~$18.70 per week for $5000 worth of spell (at $0.0037).
Not sure how much the 34,140,992,314 staked spell number has changed since Squirrel’s tweet.

yes this is a GREAT idea.

1 Like

Love the proposal overall in favor of it.

A few thoughts :

1 - Adding a button to help people move from/to sSPELL/mSPELL in the UI could be helpful so people can easily switch between the two and reallocate at any time.
Having a % based slider could be good as well, input SPELL and it’s allocated x%/y% in both contracts in 1 tx sending you back both receipt tokens. This would only work on Ethereum but could save the hurdle of doing multiple transactions on the user side.

2 - How to deal with the current sSPELL/SPELL liquidity pools on Arbi/Ftm/Avax ? Also adding something for this in the UI maybe with a contract swapping out/unwrapping the LP and bridging for free to ETH and restake ? Bridge + staking fees paid by revenues ? Not sure if the staking part is possible but I guess it is if the bridging is done towards a custom contract that stake and sends back sSPELL to user it works. Also add the migration button on other networks to go from current sSPELL => mSPELL easily without bridging.

3 - Autocompounder for MIM staking rewards => SPELL => mSPELL on the UI, can also do MIM => SPELL => sSPELL on Ethereum, this adds quick compounding possibilities as well as buy pressure on SPELL for both staking methods instead of just the sSPELL one.

4 - "Use MIM rewards to repay" button where the user can select to repay a part of an open debt with it’s earned staking rewards. With this the MIM inflows back to cauldrons can increase giving more “movements” to the cauldrons and activity overall, especially on lower fees chains.

5 - Automate MIM harvests. The sSPELL one can be subject to frontrunning as it buys SPELL, but as mSPELL just moves MIMs maybe it can be automated ( same way as UST with Gelato ? ).

6 - Use the degenbox to deposit the MIMs waiting to be harvested by stakers somewhere to earn yield ? Receiving a yielding MIM as rewards would incentivize holding it instead of selling it back to another stable. If this is done with Yearn for example we could also maybe take part of the fees sharing program again ( yvMIM on Fantom comes to mind as it’s also used by SpiritSwap for leverage ).

Those are mostly convenience ideas tho, not critical, but they might give a better experience to users.

Love it anyways, awesome team delivering :handshake:

What everybody thinks ?

2 Likes

Overall I think it’s a good proposal; done right it could rejuvenate broad interests in Abracadabra. I do however feel we have to work out the details very carefully. But I will have to comeback and read it again tomorrow (too sleepy now). Just want to quickly compliment the team on your hard works, esp these past weeks. Keep it up guys. Well done!