RFC-09 Amendments in Italics (First Round 083026)
Summary:
This proposal introduces an optional secondary DUST claim path that routes rewards into a time-locked DUST/USDC liquidity commitment, with longer commitments receiving a larger share of the Merkl rewards. Commitment may be funded using nUSDC (veDUST revenue or collateral), or their in-wallet USDC, subject to final implementation parameters.
A 50/50 ratio of DUST to USDC is required to share the existing 50/50 Uniswap V2 liquidity pool which these new claims would enter. The ratio maintains that it would take equal numbers of spot buys and sales to affect DUST price. There would be no DUST fee penalty for using this proposed claim option due to the risk of LP impermanent loss. Lock durations would be longer, initially proposed at three (3) and six (6) month options subject to approval in the final proposal in consultation with the Neverland development team
Low Level Details / Rewards:
Rewards:
Today, DUST rewards are effectively limited to immediate liquidity with a penalty or locking into veDUST for USDC revenue rewards. There is currently no lower-friction route for users who want to support liquidity without incurring the immediate DUST claim fee penalty. This proposal is intended to further support building deeper, longer-committed sticky liquidity while allowing users to partake in scaled Merkl rewards within current 50/50 Uniswap V2 LP.
Users choosing this path are betting on either netting a higher yield for their DUST rewards via the LP if the price of DUST increases or accumulating more DUST for cheap as the price decreases. This could mimic a daily cost average DUST investment (DCA) for the length of the lock duration. Since the elimination of the protocol farm-and-dump mechanics has potentially reduced the risk of liquidity provisioning, current and newer users may be more inclined to participate in LP for scaled Merkl rewards as another option to put their DUST to work.
Mechanism:
After enactment, DUST claims would pass through a redemption menu. At claim time, the user chooses either immediate claim or an LP commitment. Immediate liquid claims incur the fee penalty which is burned per the existing protocol structure. LP lock commitments incur no fee penalty maximizing user rewards.
Example LP Option (Final to be determined by Neverland development team):
- $10k total LP rewards - User owns 1% of liquidity pool
New (Secondary) LP Lock Option - Current 50/50 Uniswap v2 Pool
| Commitment Duration to Exit |
User Reward Percentage |
User Rewards Received |
Rewards Returned to Protocol |
|---|---|---|---|
| 6 months (180 days) (Exit at lock expiration) |
90% of 1% of the total LP rewards | $90 | $10 |
| 3 months (90 days) (Exit at lock expiration) |
70% of 1% of the total LP rewards | $70 | $30 |
Merkl reward percentage is based on LP lock duration and Merkl rewards returned to the protocol are held or distributed to veDUST holders.
Migration Requirements:
None for current 50/50 Uniswap V2 provisioners. Current LP users would otherwise be untouched in terms of their share of the Merkl incentives or ability to exit the LP. They would not need to migrate their positions as this is only a new claim path and shares the existing 50/50 Uniswap V2 LP.
Open Questions
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What are the optimal lock durations (3 and 6 months suggested) to prevent pseudo-farming or gaming the proposed DUST claim mechanism?
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What is the optimal lock duration scaled Merkl rewards distribution (80 and 70% suggested)
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How would the proposal be affected if or when Merkl rewards decline materially?
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Would the secondary DUST claim option remain viable with lower Merkl or different rewards?
Closing Statement:
This proposal adds a middle-ground utility path for DUST. Users can support deeper liquidity while accepting a time commitment in exchange for access to incentives. The intended result is more durable DUST liquidity and a healthier protocol-wide supply structure. There should be a tradeoff for users taking advantage of the new claim path. They retain more of their DUST while receiving Merkl rewards and at the same time support the protocol and potentially current veDUST if the protocol decides to redistribute the returned to protocol Merkl rewards.
In the long term and with the hopeful rise in the price of DUST, a deep and wide “sticky” liquidity pool benefits both the protocol and users from epoch to epoch and cushions the effects of bear markets. The liquidity pool may rebuild stronger and faster with greater sustainability in the future.
Before progressing to vote, weigh the following tradeoff; this proposal could allow pseudo-farming behavior depending on the proposed three-month (90 day) and six-month (180 day) durations of locks which may need to be adjusted accordingly by the Neverland development team. It is intended to work in conjunction with the recent protocol mechanism changes but requires modeling by the Neverland development team to ensure it does not raise further issues and that it has sustainable viability under various market conditions and buy/sell pressure.
If maintaining friction for liquidity participation or allowing those less committed to be the primary provisioners is deemed important, please share why and if modifications or another plan should be considered in this post. This proposal can evolve before reaching its voting phase.
References:
I was encouraged (probably unwillingly) to write up an RFC and consult Nal_X and those more experienced than myself (Jack Farrington), including the Neverland development team (Hyper and Catalyst). I appreciate the additional early feedback received from Argsaraus Rex and Blev that has led to the simplification of this RFC. I also apologize if by stream of consciousness I have adopted the ideas of others, because there have been a lot of good ones provided by everyone, and they are welcome to take credit in the comments. Also, thanks to Nadette for her review and helping me think through the proposal in greater depth. The Neverland development