[RFC-07] veDUST Short-Duration Lock Reward Cap
Summary
This proposal introduces a cap on DUST rewards for short-duration veDUST locks. Users who claim DUST rewards earned from supplying and borrowing activity and lock them into positions between 30 and 90 days will receive 75% of the standard reward amount.
The adjustment targets repeated short-term farming activity where participants claim DUST rewards, lock them for minimal durations, and sell into the DUST/USDC liquidity pool. This behavior has contributed to sustained sell pressure and the liquidity challenges the protocol has experienced.
Locks longer than 90 days (including 1-year and permanent locks) remain unaffected and continue to receive the full reward amount.
Objective: Reduce the incentive for low-commitment looping while preserving longer-term participation options.
Problem Statement
DUST rewards are generated from supplying and borrowing activity across Neverland’s lending markets. When users claim these rewards, they can lock the DUST into veDUST positions to gain voting power and future revenue share.
The system allows fully custom lock durations in one-week increments from 30 days up to 358 days, plus 1-year and permanent options. Because veDUST positions are minted as transferable NFTs, users can exit early by selling on the secondary market.
This structure has enabled a recurring pattern of short-duration locking: participants claim rewards, lock for 30–90 days, and sell the resulting DUST (or the veDUST NFT) into the LP. This activity has persisted over an extended period and has been a contributing factor to ongoing liquidity pressure.
Low Level Details
Proposed Reward Adjustment
| Lock Duration | Current Reward Amount | Proposed Reward Amount | Notes |
|---|---|---|---|
| 30 – 90 days | 100% | 75% | Capped for short-duration locks |
| 91+ days / 1 year / Permanent | 100% | 100% (unchanged) | Full amount retained |
The change applies only to the amount of claimed DUST credited when locking into positions of 30–90 days. Voting power mechanics and NFT transferability remain unchanged.
Treatment of Withheld Rewards
The 25% of DUST rewards not paid to 30–90 day locks will be permanently burned. This maintains consistency with the existing early unlock penalty mechanism, where burned tokens reduce circulating supply and benefit longer-term participants.
Rationale for 75%
75% is proposed as a reasonable starting point for community discussion. Stronger or weaker reductions (for example 50% or 66%) can be considered during the RFC process based on feedback.
Implementation
A 0.75 multiplier will be applied to DUST rewards when they are locked into veDUST positions with durations between 30 and 90 days. The remaining 25% will be burned at the time of locking. Existing short-duration locks will be subject to the adjusted rate going forward. All other lock durations and claim options remain unchanged.
Expected Effects
- Reduced economic incentive for repeated short-term claim-and-sell cycles.
- Lower sell pressure on the DUST/USDC LP from 30–90 day positions.
- Improved relative reward share for longer-term veDUST participants.
- Additional deflationary pressure from burned rewards.
Security & Governance
No changes to token contracts, locking mechanics, early withdrawal penalties, or veDUST NFT functionality. The adjustment is isolated to the reward amount applied at the time of locking and is reversible via future governance action.
A 4–6 week review period after implementation is recommended to evaluate impact on participation and LP metrics.
Closing Statement
Capping the DUST reward amount on 30–90 day veDUST locks at 75% of the standard rate, with the withheld portion burned, provides a targeted adjustment to address short-duration farming activity that has contributed to LP pressure. Longer-term and permanent participants continue to receive full rewards. This change supports more sustainable incentive distribution and liquidity stability.
This proposal is submitted for community discussion prior to a governance vote.