Proposal Discussion: Penalty/Early Exit system

Product feedback
1

Author:
Konijntje - Sperax Community Manager.

Created:
May 23, 2023

Simple Summary [TL;DR]

Creating an option for early unlocking SPA tokens - for a penalty that benefits stakers and burns SPA in the process. I’l call it the Early Exit system.

Motivation

At Sperax and other projects, we often see the question if it is possible to unlock tokens earlier then the lock time ends. Of course the answer is no. Maximum locking time increases rewards and is a sign of trust from the user. It is not that we lack compassion for users who are in need to unlock, there can always be circumstances that users may want to choose for this option. But rules are in place to protect and strengthen the Sperax ecosystem, and users know the rules when they start a lock.

But what if we could help these users who want to unlock, while also helping the Sperax ecosystem in the process?

Implementation

I would like to propose an implementation of a “Early Exit” system, where the user may exit their locked SPA positions for a penalty.

What happens with the penalty that is imposed on the user who wishes to unlock early? I propose that half of the $SPA is burned, and half is distributed to loyal stakers who remain staked. This creates additional burning of the $SPA token, and creates an additional revenue stream to people who remain staked. Basically the same as we are doing for USDS buybacks. Lastly, the user who needs to unstake due to circumstances, has the option to do so, with getting more tokens back the longer he is staked.

Discussion:

Of course, it’s nice to hear everyone’s thoughts if they like this idea or not, but if you do, the biggest remaining question is the penalty amount. What is reasonable to start with, and towards what percentage does the penalty decrease if the user is very close to unlocking? I was personally thinking to start with 70%, no matter the lock period set by the user. This percentage decreases the closer you get to unlocking, and perhaps it’s good to have 1% remaining when the unlock is two weeks away or so.

Furthermore, the question is if there should be a minimum lock time until this early exit system is unlocked, and if there should be a maximum lock time until it remains the same percentage until the unlock is there.

I am not a tokenomic designer or math genius though, so feel very free to make suggestions here!

Technical Specification

None yet, need some help from devs if this proposal is liked enough to be moved to a vote, and is finalised in specifications.

Thanks for reading and I am looking forwards to your feedback!

5 Likes
2

Good idea. It increases SPA’s utility while also allowing investors more flexibility. Definitely would like seing it implemented.

3 Likes
4

Acceptable idea! Contributions to the self-sustainability of Sperax ecosystem.

1 Like
5

This proposal can bring a positive effect to the ecosystem: it will add flexibility to SPA staking, and at the same time will reward loyal stakers at the expence of early withdrawers and make pre-term unstaking bound to circulation decrease (burn).

It would be good to model influence of parameters of this proposal / benchmark vs. other projects - % of penalty, penalty decay pattern, presence (or absense) of minimal mandatory lock.

All in all it can be a good move.

1 Like
6

@konijntje I like the proposal overall. In the blockchain space there should always be liquidity. I feel the only issue here would be that this leads to an increase in the circulating supply even further. With the circulating supply of SPA tokens being so high it has already been a very volatile token. It is very difficult to imagine what would happen if the majority of the stakers were to withdraw their balances from the staked position. Can we get some estimates on the veSPA users who would remove their staked balances.

Also we have to perform more technical analysis to evaluate the technical feasibility.

1 Like
7

I don’t think there is a way to for certain say how many will unstake, but if the people who staked 4 years would quit with the above percentages after, say after two years, they would lose 35% of their tokens. half from that 35% is burned forever, and half is redistributed to stakers (perhaps we should only distribute it in locked position as well?)
Even if we get people who would immediately unstake, it still burns a lot of tokens in the process.

What is also possible is only allowing new positions to stake under these terms. I don’t know if code-wise it is possible for the current staked positions to become eligible for this system, anyway.
The technicalities would need to be internally discussed anyway, if the proposal gets enough enthousiasm to proceed.

8

Option for early unlocking SPA tokens could bring more locked coins in middle-term and long-term time period. We have to agree that 4-years lock is long time for crypto, projects come and disappear, needs for liquidity in some pools come and disappear etc. in much shorter time. And if you lock on 1-year than you simply have disadvantage comparing with users who locked on 4-years, so you may ask yourself “Do I really need this”. With option “early unlocking” I see more people would use this opportunity to stake spa, lock it and use veSPA for voting (governance, demeter pools etc.).

Penalty is also bonus, I am not scared of someone unlocking earlier, especially at current MC of SPA, and I am even more motivated to stake more of my SPA if I could get part of “penalty” from earlier unlocking from others. Burn is also great bonus.

This idea simply makes spa token more dynamic, it gives more revenue for long-term stakers, it burns more, and it gives knowledge that if someone wants to “leave”, he can leave.

At the moment there is ~300M SPA Locked on average ~3years so there is 900M veSPA.
“I was personally thinking to start with 70%, no matter the lock period set by the user. This percentage decreases the closer you get to unlocking, and perhaps it’s good to have 1% remaining when the unlock is two weeks away or so.” - This is fine.
Let’s say 50M SPA is early unlocked, at 70%, it would give them 35M SPA back, 7.5M SPA should definitely be burned, and the rest (7.5M SPA), well, probably it’s too (tehnically) complicated to send it to existing loyal stakers (there are chances it would cause “dead loop” where stakers would even get extra motivation for early unlock if they receive too much rewards from earlier unlocking from others), maybe just burn it also or just send to DAO treasury.

1 Like
9

This is a great idea but could lead to a greater number of SPA tokens to be released in the market which would further lead to huge sell pressure on SPA. We should certainly promote liquidity and a lot of the early backers and stakers are no longer interested in participating in the current process. If we can get some more feedback in terms of how many users are interested in executing this, we could come up with a governance proposal supporting this.

1 Like
10

Hi @Konijntje,

It is sense to have a penalty that gets smaller as the unlock period gets closer; this could assist meet user needs & keep long term staking incentives intact.
I would recommend implementing the proposed penalty of roughly 70% initially & modifying it in response to community comments.