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