Author: Stake DAO Association

Summary

This proposal aims to migrate Stake DAO’s governance and staking system from the current veSDT (vote-escrowed SDT) model to the new vlSDT (vote-locked SDT) model. This evolution will improve user experience, increase governance participation, and lower the barriers to entry inside the Stake DAO ecosystem.

Regulatory & Legal Notice

This proposal is presented for governance and technical purposes only and does not constitute an offer of securities, financial instruments, or regulated services under applicable European Union, Swiss, or international financial regulations, including Regulation (EU) 2023/1114 on Markets in Crypto-Assets (“MiCA”).

The implementation of vlSDT does not create any entitlement to profits, dividends, or guaranteed returns and does not constitute investment advice, financial promotion, or solicitation.

Participation in staking, governance, or migration mechanisms is voluntary and undertaken at the sole risk of users.

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Motivation

Limitations of the Current veSDT Model

The veSDT model, inspired by Curve Finance, has several constraints:

1. Linear Voting Power Decay: voting power continuously decreases over time, forcing users to re-lock regularly to maintain their influence. It is very frustrating, as a user who committed for 4 years with the protocol, to see their voting power progressively decay.

2. Management Complexity: users must actively manage their positions to optimize their voting power and boost. They are incentivised not to claim any rewards to avoid updating their boost at the theoretical rate, which introduces unwanted “cheating” behaviours (users can benefit from their max boost without relocking as long as they do not interact with the gauge contracts).

3. Barriers to entry: locking for up to 4 years represents a significant commitment that may discourage new participants.

4. Boost selling constraints: the linear decay of veSDT leads to unnecessary complexity when selling veSDT boost to sdTKN users willing to increase their governance impact.

Advantages of the Proposed vlSDT Model

The vlSDT system brings the following improvements:

1. Non-decaying voting power: 1 SDT locked gives 1 voting power.

2. Soft lock framework: Rather than a hard lock for 4 years, suffering from a painful delay de facto reducing the use of the token by half on average over the 4 years, a vlSDT user who wants to exit can still do it after a medium term cooldown period. Furthermore, a user who wants to be able to immediately exit can still do it, paying a penalty to other vlSDT holders.

3. Cycle proof: thanks to its medium term cooldown period, SDT should still be fairly immune to quick price actions as holders of vlSDT will not be able to instantly sell when the price moves, unless they are willing to pay a penalty.

4. Desynchronised unlocks: unlike the classic vlTKN model, this one does not have fixed periods, avoiding massive unlock events and the corresponding price action and speculation.

5. Simplification of SDT use: with the fixed amount of vlSDT per SDT locked, everything is simpler, especially boost selling.

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Technical Specifications

vlSDT Architecture

Core Principle: Stake SDT → Get equal voting power (1:1)

Staking Mechanism:

• Stake SDT to receive equal voting power immediately
• No lock period required
• Staking can be done on behalf of another address
• Voting power = Staked Amount - Pending Unstake Amounts

Unstaking Flow:

1. Request unstake for a specific amount
2. Voting and boosting power drops immediately upon request
3. After 8 weeks, withdraw the requested amount

Unstaking Rules:

• Multiple concurrent unstake requests allowed (each tracks its own timer)
• Requests can be cancelled before completion (amount returns to voting power)
• Partial unstakes are permitted
• Users cannot unstake if their boosting power is currently delegated out
• Available to unstake = Voting Power - Boosting power delegated out

Staking While Unstaking:

New stakes are independent of pending requests and do not cancel or modify them.

Example:

Initial: 100 staked, 0 pending → Voting Power = 100 Request unstake 40 → Voting Power = 60 Stake 50 more → 150 staked, 40 pending → Voting Power = 110

Early unstaking:

Users can request an immediate unstaking. They would receive their SDT immediately, after paying an instant-unstaking penalty which linearly decays over the unstaking period from [25]% to 0%. The unstaking penalty starting fee can be adjusted by governance, allowing for flexibility.

Rewards:

• Pending unstake amounts do not earn fees
• Fee distribution excludes pending amounts since voting power drops immediately

Balance Checkpointing: vlSDT checkpoints user balances and total supply on every balance change:

• Stake
• Request unstake
• Cancel unstake
• Complete unstake
• Migration from veSDT

These checkpoints allow FeeDistributor to read balances at week boundaries without decay math.

Protocol Change Management: Any material modification to staking parameters, cooldown periods, penalty rates, or migration logic shall require:

(i) Public disclosure (ii) Minimum governance voting period of 7 days (iii) Independent technical review (iv) Multisignature execution

Emergency changes shall be subject to ex-post community ratification.

Non-Custodial Architecture: The vlSDT infrastructure operates on a non-custodial basis. Users retain full control of their private keys and transaction initiation. Neither the Association nor any affiliated entity has unilateral access to user funds.

Migration from veSDT to vlSDT

User-Initiated Migration:

1. User calls migrate on veSDT contract
2. veSDT transfers the locked SDT to vlSDT
3. vlSDT credits the user with the full locked amount
4. User receives immediate voting / boosting power equal to the migrated amount

Key Migration Rules:

• Migration ignores remaining lock time — users get full voting power immediately

• Only the veSDT contract can call the migration credit function on vlSDT

• Governance may initiate forced migration solely in exceptional circumstances, subject to:

  • Public justification
  • Minimum notice period of 10 days
  • Right of user objection

• Governance can migrate users who are unable to migrate themselves on their demand

Migration Safeguards

• All migration transactions are irreversible.
• Migration statistics shall be periodically disclosed.

Existing boost delegated

• Boost currently delegated by veSDT holders will need to be redelegated under the new framework. Since Warden has been disabled for several months, Aladdin only rewards ongoing boost, and OTC boosts are negotiated on the ground of good faith, we don’t anticipate this to be an issue.

Contract Dependencies

Contract	Address	Role
SDT	0x73968b9a57c6E53d41345FD57a6E6ae27d6CDB2F	Token being staked
veSDT	0x0C30476f66034E11782938DF8e4384970B6c9e8a	Authorized to call migration function
BoostRegistry	TBD (new)	Reports delegated out amounts for unstake checks

Impact on Existing Features

Feature	veSDT (current)	vlSDT (proposed)
Voting Power	Decays linearly over time	Flat 1:1 (no decay)
Lock Duration	Up to 4 years	No lock (8-week exit queue)
Exit Mechanism	Wait for lock expiry	Request + 8-week delay
Boost on sdTokens voting power	Up to 2.5x	Up to 2.5x
Fee Distribution	Based on decaying balance	Based on checkpointed balance
Delegation	Decaying and limited to the lock duration. Users receiving the boost had to not perform any action with the gauge to avoid suffering from the decay.	Full integration with BoostRegistry. Non-decaying, limited to a maximum of one year, blocking exit requests for the delegated amount
Re-locking	Required to maintain power	Not needed

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Migration Process

Phase 1 — Preparation

• Deploy BoostRegistry contract
• Third-party audit of vlSDT and BoostRegistry smart contracts
• Comprehensive testing
• Complete technical documentation
• Community communication

Phase 2 — Deployment

• Deploy vlSDT contract on mainnet
• Configure migration function authorization (veSDT → vlSDT)
• Verify all contract integrations

Phase 3 — Migration Period

• Enable user-initiated migration via veSDT migrate function
• Users can migrate at their convenience
• Governance monitors migration progress
• Support available for users needing assistance

Phase 4 — Completion

• Governance force-migrates remaining positions if necessary
• Progressive deactivation of veSDT for new operations
• Full transition to vlSDT system
• Post-migration monitoring

Transparency & Reporting

The Association shall publish as part of its monthly reports:

• Migration status reports
• Security incident summaries
• Governance activity reports
• Material protocol changes

All reports shall be publicly accessible.

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Security Considerations

1. Mandatory Audit: vlSDT and BoostRegistry contracts must be audited before deployment and audit reports will be publicly disclosed.
2. Migration Authorization: Only veSDT contract can call the migration credit function — prevents unauthorized minting.
3. Governance Force-Migration: Allows migrating users who cannot migrate themselves, with appropriate governance controls.
4. Emergency Withdraw: Governance can bypass the 8-week delay in emergencies.
5. Delegation Checks: Users cannot unstake delegated power, preventing delegation exploits.
6. DAO Multisig: All critical operations require multisig approval.
7. On top of these, Stake DAO complies with EU DORA resilience expectations, including audited contracts, ongoing bounty program, continuous monitoring (Hypernative), incident response plan, public vulnerability disclosure process, and emergency pause mechanism.

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Economic Impact

For SDT Holders

• Immediate Benefit: No more voting power decay — stake once and maintain full power
• Flexibility: 8-week exit queue provides reasonable exit while maintaining alignment
• Simplified Management: No need to track lock expiry or re-lock
• Migration Bonus: Full voting power regardless of remaining veSDT lock time

For the Protocol

• Increased Participation: Lower barrier to entry encourages more stakers
• Reduced Complexity: Simpler system reduces support burden
• Better Alignment: 8-week queue and boost-delegation mechanism ensures meaningful commitment without excessive lock-up
• Fairness between users: unified boost market place without fees will allow everyone to participate without the need to negotiate OTC delegation deals

For Partners and Integrations

• BoostRegistry Integration: Clear delegation tracking for boost mechanisms and no decay to avoid
• Simpler Integrations: No decay calculations needed for external protocols
• Preserved Compatibility: Existing integrations can adapt to the new system

Market Integrity & Abuse Prevention

Stake DAO prohibits manipulation, insider trading, wash trading, or abusive governance practices.

Governance participants are expected to comply with applicable market abuse regulations.

Suspected misconduct may result in public disclosure and governance sanctions.

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Conflicts of Interest

Contributors, developers, governance participants, and Association officers may hold SDT, vlSDT, or related positions. Such holdings may influence voting behavior.

No fiduciary duty is owed by token holders to other participants.

User Risk Disclosure

Users will acknowledge and accept that participation in the vlSDT system entails technological, market, governance, and regulatory risks, including but not limited to:

• Smart contract vulnerabilities

• Governance capture or manipulation

• Liquidity and exit constraints

• Regulatory changes impacting crypto-assets

• Economic model failure

The Association does not guarantee the security, profitability, or continued operation of the vlSDT system.

Governance Authority & Legal Basis

This proposal is submitted pursuant to the Stake DAO governance framework and the Articles of Association of the Stake DAO Association (Zug, Switzerland).

The Association acts as a coordinating and administrative entity and does not exercise discretionary control over user assets.

All material protocol changes require on-chain approval and, where applicable, multisignature execution by authorized governance signers.

Data Protection & Privacy

The protocol does not collect, store, or process personal data within the meaning of GDPR or Swiss FADP. All interactions occur via public blockchain addresses. Any off-chain interfaces operated by third parties remain subject to their own privacy policies.

Limitation of Liability

To the maximum extent permitted by law, the Association, contributors, and governance participants shall not be liable for any direct or indirect losses arising from participation in the vlSDT system.

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Vote

For (Yes): Approve the migration from veSDT to vlSDT according to the specifications described. Against (No): Reject the proposal and maintain the current veSDT system. Abstain: Take no position on this proposal.

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References

• vlSDT Specifications
• Current veSDT Documentation
• SDT Tokenomics

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This proposal follows the Stake DAO Proposal Framework.