Proposal to develop a Keyper Incentive Mechanism and (delegated) Staking

Simple Summary

This proposal aims to establish an incentive mechanism for Keypers within the Shutter Network. By operating nodes, Keypers play a crucial role in maintaining the protocol through the generation of essential encryption and decryption keys. To ensure the long-term success, decentralization, and security of the Shutter Network, it is proposed that Keypers be incentivized for their contributions.

In addition, I am proposing that SHU token holders should be able to delegate their tokens to Keypers and that the technical infrastructure is provided to earn rewards for this. This proposal seeks approval for an RFP to implement the mentioned mechanisms by any development team.

If this proposal passes, Shutter DAO 0x36 will start an RFP process where contributors can apply to develop the mentioned incentive and staking mechanism. Shutter DAO 0x36 will disburse up to 50,000 SHU tokens and 25,000 USDC to the selected contributor of the RFP to develop the incentive and staking mechanism.

The RFP and proposals should be only focused on the technical aspects of developing the necessary smart contracts, front-end and ensuring hosting of the front-end. It should be agnostic (and fully configurable by Shutter DAO 0x36) in regards to the economics, e.g. staking amounts or amount of ETH or SHU rewards over time. A separate proposal needs to be issued and discussed for the economic concept of the incentive and staking mechanism.

Goals

• Encourage Keyper Participation: Provide an incentive for keypers to participate in the network by staking SHU tokens and fulfilling their role.

• Enable Community Support: Allow SHU token holders to support specific keypers by delegating their SHU tokens, enhancing the network's security and decentralization.

• Reward Long-Term Commitment: Offer rewards to both keypers and SHU token holders who lock their tokens and support the network over time.

• Counter Selling-Pressure: The upcoming unlock schedule on March 18th and the subsequent vesting period will create selling pressure on SHU. A staking mechanism can reduce this selling pressure.

Background on contribution

The mechanism that is going to be developed should cover the following pillars:

• Creating the technical possibilities for a reward system to distribute incentives, in the form of fees generated by the system (e.g. ETH) and/or Shutter Tokens (SHU), to Keypers for running and maintaining nodes.

• Staking Mechanism for long-term commitment by allowing the SHU token holders to support specific Keypers by delegating their SHU tokens, enhancing the network's security and decentralization. Development of a rewards mechanism to lock tokens and support the network over time.

• Ensuring the mechanism is compatible with the Shutter Network's existing infrastructure for seamless integration by any development team.

Implementation

Upon approval of this proposal by the Shutter DAO 0x36, the next steps involve a collaborative and competitive process to select the most qualified contributor(s) to develop the Keyper Incentive and Staking mechanism. The process is outlined as follows:

• Open Call for Contributors: After this proposal passes, a Request for Proposal (RfP) will be issued to the community. Interested contributors, including developers and teams with the requisite expertise in blockchain development and smart contract programming, are invited to submit their proposals. Each proposal should detail the contributor's approach to developing the mechanism(s), including timelines, scope of work, and any previous relevant experience. Review and selection of the most suitable proposal by the Shutter DAO 0x36 through voting via Snapshot.

• Development and Submission: The selected contributor will develop the technical Keyper Incentive and Staking Mechanism, adhering to the agreed-upon timelines and milestones. Progress updates will be provided to the community as per the agreement/proposal.

• Contributor Selection and Funding: The selected contributor will then receive a disbursement of 50,000 SHU tokens and 25,000 USDC from the Shutter DAO treasury: 50,000 SHU tokens at the beginning of the contribution period and 25,000 USDC after the submission and quality assurance of the work. All SHU tokens are subject to the same lock-up period as the genesis allocation.

• Final Submission and Disbursement: Upon completion and submission of the work items, the contributor will present their work to the Shutter DAO for review. Upon satisfactory review and acceptance of the work, the full disbursement of funds will be made to the contributor. Approval of the funds will be voted via Fractal by Shutter DAO 0x36.

Example high-level technical requirements (for staking)

1. Keyper and delegate staking front-end

• Purpose: Allows Keypers and SHU holders to deposit and withdraw their staked SHU amounts and implements a simple dashboard to understand the general economics of the system
• Needs a way for the DAO to operate/pay for hosting, i.e. on IPFS

2. Keyper Staking Contract

• Purpose: Allow Keypers to stake SHU tokens as a commitment to their role.
• Features:
  • Uniform staking requirement for all Keypers.
  • 6-month lock-in period for staked tokens.
  • Can be funded by Shutter DAO with ETH or SHU for initial rewards.
  • Keypers should lock for X months, after which they can withdraw their principal and earn a share of the fees generated by the system in the native token (e.g. ETH) and/or rewards in SHU based on time locked.
  • Allows withdrawal of earned rewards over time and full withdrawal of staked amount after 6 months.
  • Integrated with DAO governance for validating new Keyper sets.

3. Delegated Staking Contract

• Purpose: Enable SHU token holders to delegate their tokens to keypers.
• Features:
  • Token holders can withdraw their principal and earn a share of the fees generated by the system in the native token (e.g. ETH) and/or rewards in SHU based on time locked.
  • Supports the community in choosing and backing Keypers, fostering a more engaged and participatory ecosystem.

Example Dashboard mockup (just for reference/context, the real one should be more elaborate):

Delegated and Keyper staking might require many transactions and should be accessible also to smaller holders. This could mean an L2 or Gnosis Chain deployment could be advisable.

Vote

• Vote “YES” to authorize an RFP for the development and funding of the Keyper incentive and staking mechanism

• Vote “NO” if you do not authorize an RFP for the development and funding of the Keyper incentive and staking mechanism

• Vote “Abstain” if none of the options apply