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Title: New protocol Initiative for Starlay Finance
Date: Mar 8th 2024
Proposed by: Starlay Chan Initiative (SCI)
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Executive summary
- Instead of rebranding the current Starlay, we plan to allocate a budget from Starlay’s Treasury to develop an entirely new protocol under a separate structure.
- The current Starlay will be left as is for the time being. Minimal governance and community voting for the current Starlay will continue.
- While we plan to create a new protocol derived from Starlay, the new protocol will not require governance until new token is issued due to our priority for growth. Gradually we implement governance step by step as written in the bottom “Gradual steps for governance-less” ****for the new protocol
- The rebranding will introduce new tokens and will be distributed to LAY, veLAY, muLAY holders and the following list of Acala users(Amount and user accounts for DOT and LDOT - Google Sheets). Details will be provided before the token launch.
- We seek approval for a growth plan and funding from the Starlay treasury for essential expenses like audits, initial liquidity, marketing, development, and operational fees.
Introduction
Rather than enhancing functions on top of the current Starlay, we propose the development of an entirely new protocol with a separate governance structure, funded by Starlay’s treasury. This new venture, guided by @seiyachida alongside the Starlay Chan Initiative (SCI) members and new collaborators, offers a strategic pivot aimed at amplifying our presence in the market without merely expanding the existing framework of Starlay Finance. The intent is not to discontinue or pause Starlay’s current operations, which will persist with essential minimum governance and community voting. In branching out from Starlay to develop a new protocol, Governance of the new protocol will be conducted by the new token holders. The new protocol will introduce new tokens and will be distributed to LAY, veLAY, muLAY holders and the following list of Acala users (Amount and user accounts for DOT and LDOT - Google Sheets).
We are also considering implementing a phased migration feature to facilitate a smooth transition of assets from Starlay to the new protocol, underlining our commitment to broadening our strategic horizons and fostering a culture of innovation and efficient decision-making.
Growth strategy: LSTs and leveraged staking strategy
The new protocol will focus on LSTs and leveraged staking strategies. If you are not familiar with LST and leveraged staking I recommend to read the following article: LSTs and leveraged staking strategies | by Starlay Finance | Jan, 2024 | Medium
A new protocol prioritizes LST and leveraged staking. The bulk of the revenue, especially from leveraged staking on , will be distributed to ve New token holders. Wrapped new token, in turn, enhances its value by accumulating ve New token rewards. Therefore, engaging in leveraged staking with Wrapped new token emerges as the prime choice, allowing users to leverage all leveraged staking revenues from LST and secure the highest yields thus this contributes New token price.
Moreover, by simultaneously focusing on LST and lending on-chain, we can amplify the supply of LST without the initial constraints of DEX liquidity. Initially, we aim to employ similar to the DIA’s Fair Price Oracle mechanism for oracle services, with plans to gradually shift to a market cap-based evaluation.
Why LSTs and Lending?
In the vibrant Ethereum ecosystem, Liquid Staking Tokens (LSTs) have emerged as a revolutionary force, reshaping DeFi practices and enhancing capital efficiency. The post-merge era has witnessed a remarkable surge in the LST market, with its valuation soaring into the billions. LSTs have unlocked new liquidity avenues for Ethereum stakers, enabling them to participate in a wider range of DeFi activities while still accruing staking rewards. This development has been particularly transformative for liquidity providers (LPs), granting them unprecedented flexibility in deploying their staked assets across various DeFi protocols.
A notable trend since early 2022 is the significant uptick in wstETH supply, with over 3 million additional tokens being issued. This trend indicates a shifting preference among users towards wstETH over stETH, reflecting the growing appeal of LSTs.
Delving into the stETH supply distribution, and considering wstETH’s 74% replacement of stETH supply, it’s clear that Lido’s staking derivative has gained significant traction within Aave’s lending protocol. Notably, 14.4% of stETH and 25.3% of wstETH supplies are engaged in Aave.
Aave itself has seen a considerable influx of Lido’s staked ETH, marking a 53.6% increase. The stETH reserves are evenly split across Aave’s two versions. This trend is likely fueled by the more attractive yields offered by leveraged stETH positions compared to those available from stETH liquidity provision on DEXes
This paradigm shift also highlights the gradual replacement of ETH with wstETH in Aave, predominantly due to the superior yields leveraged wstETH positions provide over wstETH-ETH pairs on DEXes. Moving forward, this strategy will be central to our efforts to expand TVL, harnessing the transformative potential of LSTs to foster a more efficient and dynamic DeFi landscape.
Operational blueprint
Given that explanation, we will build 2 protocol: Leveraged staked focused lending protocol and LST protocol. Developing both protocol and introduce to chains, we foster our growth together with chain side. Here is how we depict our ecosystem.
- LST issuer protocol will generate Chain’s LST
- Through leveraged staking, New protocol will enhance the issuance of Chain’s LST
- Profits from LST leveraged staking will be apportioned to Wrapped new token holders, as determined by a reserve factor.
- Wrapped new token itself will engage in leveraged staking, aggregating all partial profits from New protocol fee, including those from leveraged staking endeavors.
Strategic expansion with chain’s support
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Propagate Chain’s LST and Lending (Leveraged Staking) across other chains in unison.
- This strategy enables LST issuance without DEX intermediary involvement, fostering TVL growth.
- Chain-side token support can offer grant, audit, and initial liquidity assistance which enhance New protocol’s growth
- New token holders are entitled to a share of all partial profits from New token’s fee especially from LST leveraged staking.
Other growth strategy
- To stimulate LST issuance by other dApps, 20% of profits will be shared:
- Allocating 10% for LST revenue, with a further 2% (20% of the 10%) of profits distributed to dApps to encourage issuance.
- Share potion of LST revenue to veNew token holder
- Additional token incentive to each pools
This strategy underlines our commitment to enhancing growth through the strategic use of LST and staking mechanisms. It envisions a broad, multi-chain expansion while promoting ecosystem-wide cooperation.
Milestone and requested budget
Milestones and Required Treasury Withdrawals
Milestone 1 (within 3-4 months):
- We require half of the treasury (excluding the base operational fees) when:
- Complete LST and lending prototype development and ready for audit
Milestone 2 (1 month following Milestone 1):
- We require the remaining half of the treasury (excluding the base fees) when:
- Launching the LST issuer protocol on mainnet.
- Launching the new lending protocol on mainnet.
- Ensuring a smooth transition from Starlay on the Astar EVM to the new protocol.
- Implementing leveraged staking with the new lending protocol and the issued LSTs.
※ The budget from the Starlay treasury is used for New protocol growth only such as audits, initial liquidity, marketing, development, and operational fees
Base Operational Budget Details
February:
- The monthly base operational cost spent at $13,000, covering:
- One C-class position at $3,000.
- Two developers (including one newly hired) at $6,000 total.
- One newly hired business developer at $2,000.
- Reimbursements (including CoinGecko API, oracle fees, and other operational costs) at $2,000.
March - August:
- The monthly base operational cost increases to $24,000, accounting for:
- One C-class position at $3,000.
- Four developers at $12,000 total.
- Two business developers at $4,000.
- One designer at $2,000.
- Reimbursements at $3,000.
Next Steps
- Initiate a detailed discussion within the community to gather feedback on the proposed options.
- Consider and develop any new options proposed during the discussion.
- Move to the signaling phase.
Appendix: Achieving a governance-less DeFi ecosystem as the ultimate goal
Minimizing governance in the blockchain and digital currency ecosystem is a pivotal theme, central to delivering trustable neutrality and optimizing stakeholder incentives. This approach ensures that protocols become more predictable, trustworthy, and accessible.
Contrasting with centralized platforms like Facebook or Twitter, minimizing governance reduces the risk of protocols being captured or exploited for self-interest by specific groups. On platforms like Facebook or Twitter, operational teams or policy makers can significantly influence content display or user behavior, potentially compromising platform neutrality and eroding user trust and incentive.
For instance, decisions by Facebook to limit access to third-party applications or by Twitter to ban certain accounts directly impact the developer and user ecosystem. These actions highlight how centralized governance structures can undermine platform neutrality and work against user interests.
In contrast, blockchain protocols with minimized governance reduce the risk of unilateral policy changes, offering a fairer and more predictable environment for all users. This leads to the creation of new applications, promotes innovation, and ultimately delivers value to more users, paving the way for a more equitable and open future in the world of blockchain and digital currencies. Minimizing governance is key to strengthening the ecosystem while maintaining neutrality and encouraging widespread adoption.
Gradual steps for governance-less
To transition towards a governance-less state, a protocol must adopt a gradual approach, implementing governance incrementally before eventually minimizing it. This process cannot occur overnight but must follow a structured pathway:
- Step 1: Initial Phase - No governance
- The focus is on protocol development with only core members actively involved. The primary goal during this phase is to achieve Product-Market Fit (PMF), laying the groundwork for future growth and expansion.
- Step 2: Inclusion Phase - Inviting service providers
- Service providers, such as Quants teams and security experts, are invited to contribute. This phase is about collaboration and idea exchange to develop a more secure and efficient protocol. The inclusion of external experts ensures the protocol benefits from a broader range of insights and expertise.
- Step 3: Implementation Phase - Onchain Governance
- Onchain voting mechanisms are introduced to facilitate decisions on key aspects such as financial management, parameter adjustments (e.g., LTV, LT, Reserve factor), expansion to new chains or tokens, and the structuring of incentive programs. This phase marks the beginning of community-driven governance, where token holders and stakeholders have a say in the protocol’s direction.
- Step 4: Minimize Governance
- The focus shifts towards automating governance processes wherever possible, such as through automatic parameter adjustments. The protocol aims to limit or phase out the introduction of new assets, moving towards a state of minimal governance. This phase is inspired by frameworks like Reflexer Finance’s Governance Minimization Guide, aiming for a balance where the protocol operates efficiently with minimal direct intervention: Reflexer Finance’s Governance Minimization Guide.
By minimizing governance, blockchain protocols not only become more neutral and trustworthy and but also promote a framework where the entire ecosystem can thrive, innovate, and expand. This strategic approach aligns with the foundational principles of blockchain technology, fostering an open, decentralized, and user-centric incentivized future.
