MIP-2: Should Morpheus Swap implement mLQDR Liquid Staking?

Overview

This proposal describes a new Morpheus Swap protocol feature called mLQDR Liquid Staking. mLQDR Liquid Staking enables users to obtain locked xLQDR rewards without sacrificing the ability to trade their mLQDR position. When users provide LQDR to mint mLQDR, the Morpheus Swap protocol locks that LQDR for 2 years to increase its xLQDR position. The Morpheus Swap protocol will thereby gain xLQDR voting power to eventually influence Liquid Driver protocol emissions to benefit Morpheus Swap pools, once voting is implemented by Liquid Driver.

Scope

The scope of this proposal is to:

• deploy the mLQDR contracts and web user interfaces
• create Neo Pools to distribute xLQDR rewards
• create a new mLQDR/LQDR Liquidity Pool
• reallocate some MORPH emissions towards mLQDR/LQDR LP incentives
• direct the protocol to begin locking LQDR to obtain future voting power on Liquid Driver
• vote strategically on Liquid Driver to benefit the Morpheus Swap protocol
• endorse the forthcoming mLQDR proposal to Liquid Driver's governance

Capital Efficiency Benefits for Users and Protocol

When users hold xLQDR or wrapped xLQDR, they receive Liquid Driver protocol rewards. However, there is a trade-off for wrapped xLQDR LP providers: they must forego xLQDR rewards in order to stake wrapped xLQDR for LP incentives. One benefit of the Morpheus Swap protocol mLQDR implementation is to enable LPers to receive both xLQDR rewards AND Morpheus Swap LP incentives. The mLQDR staking model incentivizes users to LP their mLQDR, which subsequently increases mLQDR swap liquidity. The proposed mLQDR liquid staking model could improve capital efficiency for users and the protocol.

What is the mLQDR user experience?

An mLQDR minting user interface (UI) will be created for the Morpheus Swap website. The minting UI will ask users to provide a quantity of LQDR that will be sent to the minting contract in exchange for a quantity of mLQDR. Users can optionally single-stake mLQDR or provide liquidity in the mLQDR/LQDR pool.

The Neo Pool UI will be extended to support staking for mLQDR tokens and mLQDR/LQDR LP tokens. Similar to current Neo Pools, xLQDR rewards will be swapped to WFTM prior to harvesting. These Neo Pools will enable users to harvest xLQDR rewards as WFTM, even for mLQDR staked as an LP token. The mLQDR/LQDR Neo Pool also streamlines MORPH harvesting, incentivizing liquidity providers.

How could mLQDR benefit users?

mLQDR provides "liquid staking" with all the benefits of locking (and staking) LQDR tokens while retaining the ability to transact mLQDR as a liquid asset. Morpheus Swap supports mLQDR by automatically harvesting xLQDR rewards, converting those rewards to WFTM, and passing those rewards along to mLQDR single-stakers and liquidity providers (based on the amount of mLQDR). These automatic processes could benefit some users who do not wish to manually manage their xLQDR positions. The mLQDR implementation also provides new staking options, which could enable new strategies for users.

How could mLQDR benefit the protocol?

By swapping LQDR for mLQDR, users effectively delegate their xLQDR voting power to the Morpheus Swap protocol. The Morpheus Swap protocol increases its xLQDR holdings in order to obtain greater voting power on Liquid Driver to influence protocol emissions.

One strategy the Morpheus Swap protocol could implement is to direct Liquid Driver emissions towards mLQDR/LQDR to compound and increase liquidity for voting power. Other strategies might include expanding to direct emissions towards other LPs, such as PILLS/FTM, in order to incentivize the development of liquidity in that pool. The protocol can be periodically updated to manage these voting strategies as needed.

Protocol revenue will be generated by assessing a performance fee during the xLQDR reward harvest & WFTM swap process. The mLQDR protocol performance fee, which is a maximum of 7%, is generally cheaper than comparable management fees which are closer to 12%.

How does the protocol implement mLQDR Liquid Staking?

The mLQDR liquid staking contracts implement several key functions:

1. mint new mLQDR when given LQDR
2. lock LQDR on Liquid Driver for 2 years to obtain xLQDR
3. vote with xLQDR on Liquid Driver
4. collect xLQDR rewards from Liquid Driver
5. swap xLQDR rewards to WFTM

The mLQDR token contract provides standard ERC-20 methods for implementing a fungible token.

Farms and Incentives Changes

MORPH emissions are unchanged but the distribution of emissions will be reallocated to support compounding of xLQDR voting power, PILLS-FTM liquidity, and the highest grossing revenue pair USDC-FTM. Proposed farm listings and emissions percentages are detailed below. Farms other than those listed will no longer be incentivized should this proposal pass.

• mLQDR/LQDR: 40% of MORPH emissions
• FTM/PILLS: 25% of MORPH emissions
• USDC/FTM: 20% of MORPH emissions
• Treasury: 15% of MORPH emissions

How is the contract secured?

The mLQDR contracts have been peer reviewed by two experienced developers known to the team, one of whom works directly with Liquid Driver.

Risk disclosures

There are risks associated with the mLQDR feature and profit is not guaranteed. The mLQDR feature introduces a mLQDR "depeg" risk, in which the ratio of mLQDR to LQDR is not maintained at a 1:1 ratio. In the case of a depeg event, users may not be able to swap back the initial amount of LQDR used to mint mLQDR. Users should perform independent due diligence to understand all the risks involved with the mLQDR protocol feature.

Voting

What does a YES vote mean?

If the community votes YES, Morpheus Swap protocols will be extended to implement the mLQDR measures outlined in the scope of this proposal.

What does a NO vote mean?

If the community votes NO, the protocol and website will remain in their current forms - without mLQDR liquid staking. An amended proposal would be prepared to launch mLQDR under revised circumstances.