RFP-5: Exit Penalties in v2 - Protocol Mechanics

Abstract

• RFP-5 proposes changes to early exit penalties in Radiant v2.
• Early discussions around the changes proposed in RFP-5 are available here.

Motivation

In RFP-4, we outlined why most protocols in DeFi 1.0 failed, and why the proposed upgrades to Radiant v2 will usher in a new, sustainable ecosystem that provides real cross-chain lending/borrowing utility to all Radiant ecosystem users.

In Radiant v1, community members voiced their concern over the harsh 50% exit penalty applied to vesting Radiant rewards, regardless of when a user exits their vest. A user could exit on day 1 or day 20 of their vesting period and pay the same penalty.

It was requested that the Radiant DAO dev team implement a “linear sliding scale” for exit penalties - depending on when a user exits their vest.

Additionally, in order to preserve the longevity of the protocol and keep RDNT scarce, early exit penalties would be returned to the DAO (90%) and burned (10%).

Specifications

The following two mechanic changes are being proposed for Radiant v2:

1. Exit Penalty: Static vs. Dynamic Penalty

v1 Design

• 50% exit penalty is applied to vesting Radiant, regardless of when a user exits the vest
• Exit penalty RDNT tokens are distributed to lockers of RDNT

v2 Design Proposal

• Implement a linear sliding scale exit penalty, depending on when a user exits a vest
• The penalty will start at 90% and, in a linear fashion, decline to 25% by the end of the vest

Rationale

• Users who exit a vest on day 1 vs. day 27 are currently penalized in the same way, which doesn’t make sense
• This dynamic penalty will reward long-term users and penalize short-term liquidity providers who are just looking to “farm & dump” tokens
• Makes the decision less binary about whether to exit or vest

2. Exit Penalty - Token Distribution

v1 Design Exit penalty tokens are distributed to RDNT lockers and are “fully liquid” in the market.

v2 Design Proposal Exit penalty tokens are split in the following ways:

• 90% of the “Exit Penalty tokens” will return to the RDNT DAO reserve to be used for future emissions and community initiatives

• 10% of tokens are burned from circulation

Rationale This change has the net effect of significantly slowing the rate of inflation and also extending the runway of the RDNT DAO Reserve, given that emissions can be re-circulated at a later date from users who do not wait until the end of their vesting periods.

This distribution helps solve one of the core issues--given the percentage of early exits observed--that the inflation into the market was too high, relative to protocol fees generated.

Burning a portion from circulation serves as a deflationary mechanism in what is otherwise an inflationary schedule, akin to an EIP-1559 for ETH.

Steps to Implement

• Smart contract and front-end logic have been completed
• Upon completion of beta testing, code would go to PeckShield to review
• Upon completion of the audit, implementation would occur upon launch of Radiant v2

Overall Cost/Impact

• Maintenance dev cost
• No additional structured costs beyond existing time/resources spent in development

Timeline

Implementation would go into effect upon launch of v2, and would deploy on all subsequent Radiant chains (current & future).

Summary of RFP-5 v2 Design Proposals

1. Update the current 50% early exit penalty (triggered regardless of when a user exits in 28-day vest period) with a linear sliding scale, in which exit penalties are dependent on when a user exits their vest (ranging from 90%-25%).

2. Update current structure in which 100% of exit penalties go to lockers with:

   • 90% of the exit penalty tokens will return to the RDNT DAO Reserve to be used for future emissions and community initiatives
   • 10% of tokens are burned from circulation

Voting

• In Favor: Supportive of the RFP-5 v2 Design Proposals
• Against: Against implementation of the RFP-5 v2 Design Proposals
• Abstain: Undecided, but contributing to quorum