TEMP CHECK | Increasing Community Pool delegation fee to reSDL stakers

Abstract

This temperature check proposes increasing the Community Pool delegation fee to reSDL stakers from 5% to 10%. This will increase stLINK rewards to reSDL holders, while decreasing the stLINK reward rate.

I have also included calculations for increases to 15% and 20%. Discussion could take us in this direction but I think 10% is reasonable.

Rationale

By increasing the fee distribution from 5% to 10%, reSDL stakers will gain higher stLINK rewards, which should drive greater value for the token. An increased value of SDL can also have secondary benefits such as:

Increased attention for the protocol Less distribution of SDL from the Treasury for payments denominated in USD Given that the stLINK reward rate is already significantly higher the standard Chainlink Community Pool rate (~7.33% compared to 4.32%) then the expected decrease of ~0.1% will be unlikely to reduce demand for staking LINK through the protocol.

In addition, as stLINK is a liquid staking token, this provides a further point of difference and advantage compared to standard Community Pool staking.

It should also be noted that node operators can benefit from this change as they hold and can stake SDL. As per SLURP-8, 2m SDL of the 20m SDL 1 Core Contributor Allocation may also be staked by the end of 2025.

Specification

The reward rates 1 for the two pools are currently:

The stLINK calculator provides a helpful tool for showing the impact of the proposed change. The current fee shows:

By increasing the Community fee to 10% we get:

Table of alternative fees:

Therefore, for each 5% increase, someone staking 10,000 SDL for four years (90,000 reSDL) will get an additional ~1.2 stLINK. Rewards will increase with more protocol LINK is staked in the Community Pool. Note that this may be offset by more SDL being staked.

The calculation assumes the current reSDL amount of 132,924,223.02. For example:

23,200.29 / 132,924,223.02 = 0.00017453771

90,000 * 0.00017453771 = 15.70839425

Note: This calculation was updated on 18/5 as the initial calculation included a node operator delegation fee

Risks

If there was a significant increase to the amount of SDL staked as reSDL then this would place additional downward pressure on the reward rate. However, in such a situation, the reward rate can be adjusted again through a further SLURP.

Implementation

The implementation of this fee change should be straightforward by using “updateFee 1” in the Community VCS contract.

It should also be noted that a change to the rates would also likely impact a previously raised SLURP which concerns the distribution of BUILD rewards. Jonny has mentioned that it is optimal to align Pool fees and BUILD rewards and therefore this would also increase BUILD rewards from the Community Pool to reSDL stakers.

Conclusion

Looking forward to everyone’s comments on this proposal. Even if we don’t choose to progress it, it can provide good insight into the trade-offs around the reward rates and the mechanisms underlying it.