Issue Statement

With the rollout of Stargate v2, the AIPM and Hydra’s demonstration of superior capital efficiency, the need to aggressively accumulate Protocol-Owned Liquidity (POL) at current levels has diminished. The Stargate DAO proposes adjusting the distribution of protocol earnings, increasing the share allocated to veSTG stakeholders to 50% of total earnings while retaining an equal 50% as POL.

The existing Vote-Escrowed Stargate Token (veSTG) mechanism cannot be upgraded. By increasing the distribution of protocol earnings, we aim to incentivize token holders to stake STG and participate in ecosystem governance. This shift aligns incentives with a dual mandate: fostering the protocol’s long-term growth while delivering reasonable returns to Stargate DAO stakeholders.

Allocating 50% of transfer fees and investment income to veSTG holders enhances the value proposition of the STG token for all holders. Simultaneously, retaining 50% as POL ensures sustainable operations and supports the Stargate Foundation, which relies on treasury STG sales to fund ongoing activities.

Proposed Solution

The updated fee structure for Stargate is as follows:

veSTG Holders: 50% of the previous calendar month’s transfer fees and investment income, distributed by the 10th of the current month. POL: 50% of earnings retained as Protocol-Owned Liquidity.

Clause on Revenue Streams, Investment Returns, and Liquidation Process

All revenue streams, including realised returns from treasury investments, shall be accounted for transparently and distributed to STG stakers as outlined in this proposal.

For clarity, revenue for the StargateDAO is expected to derive from three primary streams:

Core Business Fees: Revenue generated from the protocol fees.

Treasury Yield: Returns generated from treasury investments.

Chain Incentives: Incentives received from chain teams to deploy Stargate pools or Hydra.

This proposal encompasses all investments made on behalf of the StargateDAO, including those with unrealised returns.

For investments expected to yield returns in non-USDC assets (e.g., ETH or other tokens), a defined liquidation and distribution process shall apply. Upon realisation of returns, non-USDC assets must be converted to USDC before the 1st of each month and before calculation of distributable fees, unless otherwise approved by a governance vote (e.g. strategic investments). The converted USDC shall then be distributed to STG stakers in accordance with the monthly fee distribution. This process ensures returns are realised and distributed promptly, thereby safeguarding value accrual for STG stakers.

Measuring Success

In June 2022 (see “Value Accrual for STG Stakers”), the initial target was 15 million STG tokens staked, with an average lockup duration of 2 years. Following SIP#18 (Staking Reward Distribution Plan), the actual amount staked has doubled to 37 million STG. However, the average staking duration has fallen to approximately 312 days—well below the 2-year goal.

Despite achieving significant growth over the last three years, the STG token price has underperformed (after accounting for market conditions and sales of tokens from treasury used to fund Stargate operations).

Four primary factors may explain this:

Investor Expectations: Stakers require higher returns to compensate for long-term risks, including duration risk, smart contract vulnerabilities, opportunity costs, rising competition, and technological obsolescence.

Farming Rewards: Liquidity providers to pools were until recently paid in STG placing a constant sell pressure on the token. Although incentives for liquidity providers have been turned off, STG is paid as incentives for other sources of liquidity such as Boyco pools.

Governance Misalignment: Large STG holders, including team members with vested allocations, have been excluded from governance participation and from earning a staking yield.

Margin Compression and Competition: not all competitors are acting in ways that are sustainable. Many are pushing models that are not financially viable, can’t scale or settle high value transactions economically.

This proposal addresses these issues by rebalancing incentives to better align stakeholder interests with the protocol’s financial performance. It aims to encourage staking STG to provide an attractive income stream as a reasonable market return for long-term investing in the Stargate ecosystem.

A separate proposal will follow, seeking DAO approval for employee staking and governance participation after the team allocation vesting period concluded in March 2025.

Key metrics at time of proposal

Earnings distributions may be adjusted in the future to address changes in the strategic priorities for Stargate, however for benchmarking success of this proposal over time, these are the current high level financial measures for Stargate and crypto markets overall.

Stargate Price: $0.19 STG locked: 37,788,000 veSTG: 10,785,000 Global average lock time: 312 days Treasury value $134,300,000 Ratio of Total Treasury Value (USD) / Fully Diluted Valuation: 0.692 Q4 2024 fees: $652,000 Q1 2025 fees: $785,000

Cryptocurrency market Total crypto market cap: $2.75T Total stablecoin supply: $231.2B Stablecoin addresses: 30.8M Stablecoin transaction volume (30D): $3136B Stablecoin transactions (30D): 651.5M

Execution, Timeline, and Costs

If approved, implementation will begin on June 1, 2025, with the first distribution under the new 50/50 structure occurring on July 10, 2025, reflecting June’s earnings. Financial accounting and implementation costs will be covered by the approved budget for the Stargate Foundation.

Summary

Market signals indicate a need to evolve the utility and functionality of the STG token. This proposal balances earnings distribution to encourage staking and reinforces long-term commitment to the protocol. While POL growth remains important, the interests of veSTG stakeholders are equally critical to Stargate’s financial success. By aligning these priorities, the DAO can strengthen the ecosystem and enhance value accrual for all.