LIP-04: Increasing Reserve Factor and Rake Distribution for Stakers

This is a proposal aiming at increasing the Reserve and Rake parameters of the Lodestar Staking module

Introduction:

The protocol generates fees primarily by taking a share of the interest paid by borrowers, called the Reserve Factor. Additionally, our protocol employs a rake mechanism, retaining 50% of the generated fees in the markets as Protocol Owned Liquidity and converting the remaining half weekly to ETH for LODE staker rewards.

The Lodestar staking module empowers DAO members/token holders by enabling them to stake or lock their tokens, in return receiving a portion of the protocol’s revenues in ETH and influencing the protocol’s emissions through a weekly gauge. Since its launch in August 2023, 1.8 Million LODE tokens have been staked or locked, with stakers earning an average 20% APR in ETH.

Since its inception in April, the protocol has accrued over $100,000 from the Reserve Factor and on-chain liquidations. With the activation of the looper, an additional revenue stream for the DAO is anticipated. A detailed breakdown of market utilization and daily fees is available on our Dune Dashboard.

Proposal

This proposal has two objectives: - Growing the protocol’s revenues by raising the Reserve Factor - Raising the share of the protocol’s revenue distributed to stakers by changing the Rake

The proposed Reserve Factor change are as on the table attached to this post or below: **Current Reserve Factor Proposed Rake Factor
Total fees
GMX 33 50
DPX 33 50
Magic 33 50
WBTC 20 35
DAI 7 25
ARB 20 35
ETH 20 35
FRAX 7 25
USDT 7 20
wstETH 20 35
USDC.e 7 20
usdc 7 20 **

Post these changes, we project a 2x growth in the protocol's revenues.

Moreover, we propose amplifying the LODE stakers' revenue share from 50% to 70%. Simulations indicate that these modifications could boost the LODE staking APY by 288%, as verified by our data sheet. https://docs.google.com/spreadsheets/d/14pbsBnZCGraDn40sEAzSYzzLp4EeJ91Non4hpb1nh9Y/edit?usp=sharing

Empowering stakers

As we approach the inflation cut in a few weeks, we firmly believe that this proposal will empower LODE stakers, augmenting their revenues and amplifying their influence over the protocol. Coupled with the STIP grant distribution, we anticipate a surge in liquidity to our money market.

It's important to underscore that during an observation period, the team will remain open to further refine these parameters without going through a governance vote, but discussing it with the community in the ⁠🏦governance channel and under this post.

However, we remain convinced that these proposed changes will initiate new dynamics for our protocols and kickstart an additional flywheel.

On a personal note, I extend my gratitude to the DAO’s First Mates. Their insights during our call last friday and meticulous review of the figures and changes have been instrumental in shaping this proposal.