8IP#3 - Distribute MPH staking rewards in MPH

Author: Zefram Lou (zefram@88mph.app)

Specification

Currently, all protocol income (interest fee + farmed tokens) are converted into DAI and distributed via the MPH staking pool.

We propose that a new staking pool should be deployed and migrated to, with the following updates:

• The reward token becomes MPH rather than DAI
• Staked MPH becomes a transferrable ERC-20 token (xMPH)
• The distribution period becomes 14 days rather than the current 7 days

In addition, because the migration would require existing stakers to spend gas on exiting the existing pool and enter the new pool, 500 MPH should be allocated to the first distribution period to incentivize migration and compensate for the gas cost. These MPH tokens would come from the governance treasury.

The initial discussion by the community can be seen here.

Argument for

Creates MPH buy pressure

Using protocol income to purchase MPH allows 88mph to autonomously generate buy pressure for MPH. Price up good, price down bad🤷‍♂️

Native yield-bearing MPH

Distributing staking rewards in MPH allows us to create a yield-bearing MPH token that only depends on 88mph itself rather than third-party lending platforms.

Reduces gas cost

MPH stakers are likely to be long-term believers & investors of the 88mph protocol, meaning it's likely that they would use the DAI rewards to buy more MPH anyways. Integrating MPH buying directly into the staking pool means that these purchases are grouped into a single transaction, which is a lot more gas efficient.

Changing the distribution period from 7 days to 14 days also decreases the frequency of exchanging the protocol income into the reward token, making it cheaper in the long run to distribute the rewards.

Argument against

Confusion for inflation

Many not-so-reputable projects often create farming pools for their token that simply uses inflation to give out rewards in the same token. Such farming pools dilute the token supply and usually cause the token price to drop.

While the MPH staking pool is nothing like those farming pools, the difference may not be obvious to the less technical users, and explanation of the differences is certainly needed. This may cause confusion.

Stakers who don't migrate within 14 days won't get gas compensation

Long-term believers of 88mph might have chosen to stake their MPH and forget about it, letting the MPH earn the DAI yield. Therefore, they may not be able to react to the launch of a new staking pool quickly enough to take advantage of the gas compensation.

Dilutes the staking pool

Currently, staked MPH is not an ERC-20 token and cannot be transferred between users, so if someone is an active trader or liquidity provider of MPH, it is in their best interest to not stake their MPH. This means only the long-term believers of 88mph, who do not expect to move their MPH around much, will stake their MPH. These stakers are rewarded for their long-term investment with a boosted APY, since fewer MPH tokens are earning yield.

If staked MPH became an ERC-20 token, holding or trading staked MPH is strictly better than holding raw MPH, so even the short-term speculators are incentivized to stake their MPH and trade the staked MPH. This will dilute the MPH staking pool, and decrease the staking APY for the long-term stakers.

Required actions

• Develop and deploy the updated MPH staking pool contract.
• Deploy a new Dumper contract that sells tokens into MPH instead of DAI.
• Call FeeModel::setBeneficiary() with the new Dumper contract as the beneficiary, so that protocol income is sent to it.
• Distribute 500 MPH in the first 14-day reward distribution period.
• Notify existing stakers of this change.