KIP-123: Launch $KSX (Community Temp Check)

Simple Summary

This KIP introduces the $KSX token, a liquid staking derivative of KWENTA, designed to simplify the staking process and offer greater flexibility and utility for KWENTA stakers.

The $KSX Phase 1 strategy will involve implementing a publicly callable function to claim staked $KWENTA rewards in the position backing KSX, as well as compound $USDC rewards back into the $KWENTA token through purchasing and staking $KWENTA using these rewards.

$KSX will be upgradable to allow future changes to the staking strategy and composition of the backing tokens.

Abstract

This proposal introduces the $KSX token as a liquid staking derivative within the KWENTA ecosystem, aimed at enhancing the staking experience by simplifying processes and increasing the utility and flexibility for KWENTA stakers.

The core of the $KSX wrapper contract is a mechanism for the claiming of $KWENTA staking rewards and the compounding of these rewards through the purchase and staking of additional $KWENTA as well as claiming and reinvesting $USDC rewards back into $KWENTA.

$KSX is upgradable, accommodating future modifications to staking strategies and the composition of backing assets. Upgradability ensures the ability to modify the staking strategy as well as implement additional token accumulation or staking strategies in future phases.

This proposal establishes both minting $KSX through locking $KWENTA, as well as burning $KSX to unlock $KWENTA to ensure redeemability in both directions as well as changes in governance to grant power to $KSX holders.

Motivation

The $KWENTA token began as a token which was primarily focused on rewarding early loyalty at the cost of passive or inactive holders. The mechanism by which the $KWENTA token did this was through inflation, allowing users who staked, frequently compounded, and traded on Kwenta to maximize their share of the token supply. While this flywheel was successful in many ways at fostering a dedicated early community, there were some tradeoffs to this system. As Kwenta matures there should be a shift of priorities to accomplish a new set of goals. Advantages for this new model as Kwenta matures include:

1. Broader Distribution and Inclusivity: KSX aims to foster a wider token distribution, encouraging a larger and more diverse community by making staking and participation more accessible and less complex.

2. Support for Liquidity Provision and Market Making: By addressing the imbalance between LP incentive yield and inflation, KSX makes it more financially viable for liquidity providers and market makers to participate, contributing to a healthier and more liquid market.

3. Simplified Reward System: The complexity of the escrow system and the deterrent effect of long lockup periods are addressed with KSX, aiming for a straightforward and more attractive reward system that could lead to greater engagement and satisfaction among holders.

4. Cross-Chain Compatibility: Removing barriers for holding $KWENTA tokens outside of Optimism, KSX facilitates a multichain presence, making it easier for the token to be adopted and utilized across different blockchain ecosystems.

5. Direct Benefits from Protocol Growth: KSX holders directly benefit from the protocol's growth through a system that reinvests staking rewards and compounds value within the ecosystem, aligning the interests of holders with the long-term success of Kwenta.

6. Branding Alignment: An opportunity to build on and expand Kwenta’s brand into something larger, reflecting the larger vision for the DAO.

7. Avoiding disruption of $KWENTA staking: While increasing $KSX participation removes inflation from the market and provides benefits in the form of buybacks, these benefits can be realized without retracting any popular policies such as $USDC staking rewards. This all-carrot-no-stick approach provides a directly democratic method of adjusting tokenomics, allowing stakers to choose their own strategy.

Specification

For more information, visit the: Kwenta State Log