Adjusted DONUT rewards for users transferring over 25% of lifetime earnings

Current situation

The Donut DAO rewards users through monthly DONUT distributions based on their governance score and participation in r/EthTrader. The problem is, some users consistently transfer a large portion of their earned Donuts right after receiving it.

Right now, there are no penalties for this, even though it adds constant sell pressure on the token and reduces the number of holders who actively support the ecosystem.

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Problem

Users who regularly transfer most of their DONUT earnings directly hurt the Donut ecosystem by:

• Adding consistent selling pressure on DONUT
• Reducing the number of long term holders
• Earning rewards without contributing to the community's / ecosystem's growth and / or DONUT utility

This hurts sustainability and decentralization, especially when others are holding or using their Donuts for Special Memberships, LPing, or community engagement.

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Solution

Implement a distribution multiplier penalty for users who transferred 25% or more of their lifetime DONUT earnings. This penalty would reduce the amount of Donuts they can earn in future distributions.

To make it easier to read and understand, I wrote the important details of this mechanism in bullet points:

• The multiplier range would be from 0.1 (minimum) to 1.0 (maximum)
• If you transferred < 25% of all the Donuts you've ever earned, your multiplier is 1.0. Meaning no penalty
• If you transferred 100%, your multiplier is 0.1
• Anything between 25% and 100% will scale linearly between 1.0 and 0.1
• This check would be retroactive. Meaning it looks at a user's total DONUT earnings since their first distribution
• Donuts used for Special Memberships or added to our liquidity pools would not be included in this mechanism
• The calculation includes Donuts in the user's registered wallet (as per the donut-bot database) and LP positions.

Formula for the multiplier, with an example:

• If % of DONUT sold < 25%: multiplier = 1.0 (no penalty)
• If % sold ≥ 25%: multiplier = -0.012 * x + 1.3 (where x = % of lifetime DONUT earnings transferred)

We're using a linear equation to scale the multiplier between:

• 1.0 (no penalty) when 25% or less of DONUT is sold

• 0.1 (maximum penalty) when 100% of DONUT is sold

We know two things:

• At 25% sold, multiplier = 1
• At 100% sold, multiplier = 0.1

These give us two points:

• (25, 1)
• (100, 0.1)

We use these to create a line using the formula: y = ax + b, where:

• y is the multiplier
• x is the percent sold
• a and b are constants we calculate

To find the formula, we add the two known points:

• 1 = 25a + b
• 0.1 = 100a + b

Subtract equation 1 from 2:

(0.1 = 100a + b)

-(1 = 25a + b)

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-0.9 = 75a -> a = -0.012

Now add a = -0.012 into one of the original equations to find b:

1 = 25(-0.012) + b

1 = -0.3 + b -> b = 1.3

So the final formula becomes:

Multiplier = -0.012 * x + 1.3

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Advantages

• Reduces selling pressure from people farming and dumping monthly
• Rewards long term holders and people who actually use or stake their Donuts
• Encourages more ecosystem participation through LPing or membership subscriptions
• More fair and sustainable distribution model
• Includes exceptions (LPs and memberships), unlike other subs

Disadvantages

• It may be punitive to users who used Donuts elsewhere
• LP balances can change with volatility / impermanent loss, which might affect the calculations. However, this is a risk users should or may be willing to take. At least the exception applies to LPing
• Adds complexity to the distribution logic

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Conclusion

By implementing this mechanism, we would be putting the cherry on top of the cake to create a fair and more advanced system to reward DONUT holders and reduce aggressive farming.

We would find a balance between sustainability, decentralization, and fairness by penalizing people who transfer their Donuts regularly, while protecting users who use their Donuts within the ecosystem.

This model is an improved version of what other communities have used and fits the needs of the Donut DAO more accurately.