Social CGP - Introducing NEXT Bonding - the NEXT Token Upgrade

Executive Summary

This formal vote seeks to establish the high-level direction for the Everclear token system.

Pending vote passing, the intended upgrades will proceed only after completing the necessary steps, including audits, simulations, and the finalization of optimal emissions and revenue-sharing details, all outlined in steps to implement.

The Everclear token system proposal introduces a purpose-built vote bonding system tailored for Everclear’s clearing protocol.

This proposal introduces a new mechanism - vote bonding, which is an evolution of standard vote escrowing systems. Unlike veTokens, vote bonded tokens can be unlocked from vesting early at a discount, and the rewarded action is more aligned both for stakeholders and the Everclear protocol.

This token system directly addresses the incentive onboarding for solvers and intent protocols, while also allowing Blockchains and asset issuers a new way to permissionlessly incentivise liquidity to their specific ecosystems.

Motivation

This proposal is published in collaboration with core contributors, Vending Machine, Veil and other community members. The motivation behind these proposed changes is to effectively address the new network objectives and system requirements of the Everclear protocol.

System Requirements

System requirements describe the necessary functions and features of the token system. The token design, distribution and functionality will be influenced by this set of objectives.

The token system’s core objective is to foster the onboarding and growth of solvers and intent protocols, ultimately increasing the volume routed through the clearing layer. Once they are integrated with Everclear, this system incentivises them to remain active and to productively route intent settlement through the protocol. This flywheel aims to perpetuate the economies of scale of natural netting, arbitrage for cross chain settlement and therefore of the Everclear system itself. This also fosters an environment of productive competition. Everclear is not directly competing with existing intent protocols but instead creating a net productive marketplace for solvers to participate within. Finally, this token mechanism, along with future token features will create clear demand for the native token within this system.

The Current Problem

There is a vastly expanding ecosystem of solvers that are limited by their capacity to rebalance liquidity across chains. This bottleneck directly impacts the prices and depth of liquidity that can be provided to users through bridges and intent protocols. The same bottleneck applies to market makers, CEXs, and other institutional actors who are limited in their activities due to the inefficiencies and costs linked to rebalancing or back-end liquidity operations.

Beyond the rebalancing bottleneck, Everclear also solves the problem of chain expansion. Bridge expansion to new ecosystems has high overheads for bridges, market makers, and CEXs but Everclear can act as a liquidity backbone for solvers/LPs. By providing a permissionless netting mechanism, the rebalancing requirements for institutional actors can be supported on any chain and new chains can be launched with ease permissionlessly. This should reduce overhead when expanding to new chains and improve liquidity management, which minimizes the risk of assigning capital to the new ecosystem.

However, chains still face further challenges such as setting up deals to incentivise liquidity at launch and negotiating relationships with bridges. New chains must spend vast sums to drive bridge integrations for their ecosystems but often bridges have limited capacity to expand due to the challenges related to liquidity management and rebalancing. The inability to establish initial liquidity and bridge integrations can be catastrophic for a chain’s launch leading to a costly and inefficient incentive playbook that attempts to foster a healthy ecosystem.

The goal of vbNEXT is to simplify and marketise the current private and manual process used by chains to incentivise liquidity ahead of demand for their chain, while also providing a mechanism for institutional actors to influence liquidity on chains they are expanding their services to. The approach described should do the following:

1. Allow chains to take a bridge-agnostic approach, as any bridge leveraging Everclear for rebalancing would earn emissions through the model
2. Allow chains to target incentives at rebalancing, the most critical blocker for bridge support, instead of incentivising all flows which can be easily gamed
3. Allow chains to self-serve and opt-out rather than needing to manage or negotiate long term backroom deals. Whilst reducing overhead as they only need to pay the cost of rewarding vbNEXT holders rather than continuously incentivising liquidity pools
4. Allow institutional actors to drive liquidity to chains they are expanding to, reducing overhead and improving operational efficiency in the chain expansion process

Key Terms and Specifications

Key terms and specifications are outlined in the RFC, and not here, due to character limits in Snapshot:https://forum.connext.network/t/introducing-clear-bonding-the-next-token-upgrade/1248

Most elements will remain unchanged, with additional details added as research progresses.

However, one important difference is that token upgrade from NEXT to CLEAR is not possible, so the token name will remain NEXT wherever CLEAR is mentioned in the RFC.

Additionally, an unresolved issue is how Everclear DAO governance may evolve with the new bonding system. The Governance Task Force will lead initial research and create a working group open the discussion for the DAO to determine the best approach. Until then, the vote bonding system and governance module should be considered separately.

Steps to Implement

The implementation of this system will rely on a number of key deliverables. The major milestones are:

1. Initial formal vote to gauge sentiment for the high level token system direction
2. Simulations and specific mechanism design of key components conducted by Vending Machine. a. Vending Machine is currently finalizing simulation of the proposed gauge system to parameterize specific mechanism components. b. This final parameterization will also be published in the forum, including the exact distribution of the protocol fees.
3. System development a. Once the final token system is designed and parameterized, Labs core contributors will develop the respective contracts and infrastructure b. The contracts that will be developed are: vbNEXT, HubGauge, RewardDistributor, SpokeBridge, and HubBridge; which will be thoroughly tested and audited by Creed DAO once completed c. The vbNEXT contract will support locking NEXT for vbNEXT on the Clearing Chain. It will track voting power, delegation, and allow auto-locking of rewards by relayers d. The HubGauge contract will be deployed to the Clearing Chain enabling vbNEXT holders to assign voting power to a Spoke contract on a chain e. The SpokeBridge will allow users to send messages from any domain via Hyperlane to interact with the vbNEXT and HubGauge contracts. f. The HubBridge will receive messages from Hyperlane, decode the commands, and call vbNEXT or HubGauge on behalf of the origin domain caller g. The RewardDistributor will distribute emissions to users to claim rewards proportional to their activity and be capable of distributing revenue shares
4. System monitoring a. Analyzing the performance of the system to ensure it is achieving its intended objectives.