RFP-33: Strengthening Foundations for Growth and Innovation

Abstract

As Radiant Capital approaches its two-year anniversary and gears up for the launch of Radiant v3, it is important that the DAO is adequately capitalized to incentivize the introduction of dozens of new assets and facilitate expansion across additional networks.

“Situazione vantaggiosa per tutti” is a traditional Italian phrase that translates to a “win-win situation.”

As this proposal is designed to present a beneficial scenario for all involved parties within the Radiant ecosystem, the DAO believes that this concept perfectly encapsulates the essence of RFP-33.

RFP-33 seeks a strategic adjustment to the maximum RDNT token supply in response to the evolving DeFi landscape and the need for competitive yields ahead of Radiant’s v3 launch and expansion. It outlines a plan for a potential supply increase of 50% over the next three years, alongside the option to maintain the current supply.

To mitigate the dilutive effects from increased supply, 25% of the new tokens will be allocated to all current dLP lockers, pending ratification. Details of the distribution mechanism and eligibility will be specified in a follow-up proposal (RFP-34).

Radiant dLPs are the foundation of the protocol, providing long-term liquidity vital for its success. This measure targets compensation for currently locked dLPs, with a proposed period for users with liquid RDNT to lock in and qualify for the snapshot.

With this supply increase, eligible dLPs would receive a stream of 125,000,000 RDNT.

This strategy aims to boost Radiant's emissions framework for v3, support expansion across new chains, enhance opportunities for dLP lockers, and foster business development and community engagement.

Motivation

The initial one billion max supply and distribution strategy were crucial for Radiant’s rapid adoption and foundational stability. However, recognizing the dynamic nature of the DeFi landscape and the imperative to adapt, this proposal seeks to extend Radiant’s capabilities beyond the initial scope envisioned two years ago.

The decision to propose this strategic adjustment is not taken lightly and was the result of thorough deliberation among key Radiant stakeholders and advisors. The points below detail the critical factors that underscored these discussions, highlighting the need for a recalibrated approach to emissions, market responsiveness, and expansion strategies.

Insufficient Emissions Runway Due to Lack of Exit Penalties

RFP-8 was designed to extend Radiant Capital's emissions runway from two to five years by lowering monthly inflation and depending on exit fees from early RDNT withdrawals, boosting the DAO Reserve. In v1, exit fees were a key component of emissions sustainability.

However, the introduction of a scaling exit penalty in RFP-5 and the option to zap vesting RDNT into dLP as per RFP-19 significantly altered user behavior, reducing exit fees to nearly zero.

The result has been a dramatic shortfall, with only 193,584 RDNT recaptured in exit fees, much less than expected, underscoring the urgent need to recalibrate to maintain emission sustainability and support expansions.

Increase in the “Risk-Free Rate” During Bull Markets

During the v2 launch, Radiant Protocol's money market yields were highly competitive, spurring significant asset reserve growth through Q3 2023.

However, a broader crypto market rally, including the rise of memecoins, has shifted user interest towards higher-risk investments, away from the passive income strategies offered by money markets and lending. This shift is evident in the decline in asset reserves across all chains.

Additionally, stablecoin market utilization rates have soared as users leverage on-chain, putting pressure on liquidity. To strengthen liquidity management, the DAO engaged Chaos Labs (RFP-29), aiming to enhance protocol resilience.

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This shift in market dynamics is widespread, with DeFi lending protocols across all chains experiencing similar trends. The combination of soaring asset prices, frequent airdrops, and memecoin popularity has driven the “risk-free” rate higher, challenging Radiant’s strategy of aligning emissions with a five-year plan.

Radiant v3 and Further Multi-Chain Expansion

The proliferation of Layer 2 and non-EVM platforms is expanding the DeFi ecosystem and attracting more users. To capitalize on this growth, Radiant aims to extend its reach to these emerging platforms.

Strategic deployments across new chains and the support of established assets with strong risk management will draw new users, motivating them to participate in the protocol by locking dLP, lending, borrowing, and engaging in DAO governance.

Initially, Radiant’s emissions plan targeted a select number of additional chains, understanding that expansion might reduce yields on existing deployments. However, with user growth now surging predominantly on platforms beyond Radiant's initial scope, maintaining competitive yields and seizing business development opportunities is crucial for ongoing relevance and success.

Metrics

The dLP mechanism stands out as one of DeFi’s most effective incentive systems, securing over $100M in locked LP token value, which not only benefits user-protocol interactions but also supports anticipated liquidity increases through future expansions. These efforts boost Radiant’s interoperability and accessibility across the crypto sector.

Currently, 216M RDNT tokens are locked in dLPs across three chains, amounting to nearly 50% of the circulating supply of 480M—a consistent figure since the protocol's inception. With the potential supply increase, it's expected that no more than 50% of the total supply will be in circulation at any given time.

With the upcoming launch of Radiant v3 and further expansions, including new chains and strategic partnerships, the stability of this locking ratio is crucial for sustaining the protocol's growth and relevance.

Prioritizing Dynamic Liquidity Providers

Dynamic Liquidity Providers (dLPs) have been pivotal to the success of Radiant Capital since the launch of v2 in March 2023. It is essential to continue providing strong incentives for their contributions.

The initial ARB allocation from the Arbitrum DAO to Radiant was directed entirely towards dLPs, either via airdrops or streamed as platform fees.

Furthermore, a significant 1.8M ARB airdrop from Radiant’s STIP proposal to the Arbitrum DAO specifically targeted Arbitrum dLPs, with plans for a second STIP proposal to further support dLP lockers.

Amidst speculation on a potential LayerZero airdrop, RFP-33 proposes mitigating dilution effects from increased supply by streaming 25% of any new supply to eligible dLPs over two years.

Should the supply increase by 50% (500M), this would channel 125,000,000 RDNT to eligible dLPs.

Steps to Implement

RFP-33 proposes minting additional RDNT tokens into the RDNT DAO Reserve with a clear distribution methodology:

Intended Uses:

• Support RDNT emissions for launches on future chains.

* Fund RDNT emissions for assets within the [Radiant Innovation Zone (RIZ)](https://l.radiant.capital/GsMQ) across all chains.

* Facilitate RDNT streams to eligible dLPs on all chains, with specifics to be defined in a follow-up RFP.
* Enhance incentive programs with partner protocols.

Distribution Strategy:

• Allocate 40% of minted tokens to the RDNT Emissions Reserve for future chain launches and RIZ initiatives, vesting linearly over three years.

* Allocate **60%** to the DAO Reserve for two years of RDNT streams to dLP providers, supporting future contributors, liquidity expansion, and various partner incentive programs. From this supply, eligible dLPs would receive a stream of 125,000,000 RDNT. 50% of all DAO Reserve tokens will be vesting linearly over two years. Details on the distribution mechanism, dLP locking time window, and other qualifications will be clarified in a subsequent RFP. 

* Reserve flexibility to allocate additional tokens from the DAO Reserve for emissions, as needed, to support further deployments.

Cost

The development costs associated with the new features coming in Radiant v3 were ratified in RFP-28. Therefore, the developmental cost to implement RFP-33 will be minimal.

Timeline

RFP-33 will be implemented immediately upon ratification, enabling Radiant to accelerate new chain launches by Q3 2024.

Pending ratification, a tandem RFP will be initiated, proposing terms for dLP lockers to receive their share of the newly minted RDNT. This subsequent proposal (RFP-34) will detail the exact distribution mechanism, establish eligibility criteria, and define the locking period necessary for dLP lockers to qualify for their allocation.

Voting

In Favor: Support a 50% increase in token supply, endorsing a strategic expansion.

Against: Oppose any increase, favoring the retention of the current supply limit.

Abstain: Remain neutral, contributing to the quorum without endorsing or opposing the change.