Discussion and draft design: $T2 token

Following from statelayers proposal I thought I would put forward an alternative design.

Design Goals

  • 50 / 50 distribution of $T2 token between Nucypher and Keep Network.
  • Large staker base for TBTC v2 launch.
  • Liquidity at launch to avoid price distortion at launch from low liquidity.
  • Ongoing DAO funding for partnerships / liquidity incentives / coverage pool.
  • Reward active capital.
  • Avoid creating large tax liabilities for token holders.
  • Carry over existing vesting schedules
  • Allow for the acquisition of other networks in the future.

I believe that the early adopters and active capital in the network should be rewarded for the risks taken in participating in NuCypher and Keep Network as these are the participants who will ensure the long term success of TBTC v2. My view is that this includes stakers and liquidity providers.

User Types

  • Stakers
  • Liquidity providers
  • passive token holders
  • passive token holders on exchanges

Some discussions with exchanges would be required to determine how to distribute tokens to passive holders on exchanges.

Initial Supply: 2,000,000,000 T2 Tokens.

  • 75% to existing token holders.
  • 12.5% stakedrop for first 6 months of TBTC v2.
  • 7.5% to stakers based on time staked in the existing networks x amount staked.
  • 2.5% to LPs based on time staked in existing pools x amount staked.
  • 2% to the DAO treasury for partnerships / liquidity rewards / seeding a new pool.
  • 0.5% to stakers who have been slashed or liquidated.

Existing token holders terms from their respective networks would carry over into the new network.

The 12.5% allocated for the stakedrop would be front loaded to insure the network starts with a high participation level. Something like

month 1 - 4%
month 2 - 3.5%
month 3 - 2%
month 4 - 1.5%
month 5 - 0.75%
month 6 - 0.75%

The initial supply of T2 tokens would be claimed by existing NU and KEEP token holders through a smart contract with a $0.0001 fee per token paid in ETH so that there is a nominal cost basic for the acquisition of the new tokens.

The ETH from this would be used by the DAO to seed a Uniswap T2 - ETH pool to set the T2 price to the 30 day weighted average price of the circulating KEEP and NU.

Inflation Rate: 2% annually

  • 0.5% to the DAO treasury to fund partnerships
  • 0.5% liquidity incentives
  • 1% coverage pool

The purpose of having a very small amount of inflation is to have an ongoing source to fund the coverage pool and growth of the ecosystem over time. As the utility increases so should the token price and hence the overall pool of funds to growth the network.

Future Mergers:

It would be good to keep the flexibility to be able to merge other networks into the new network. Being able to mint new T2 tokens should require at-least a 2/3 super majority vote from stakers with some minimum threshold on participation.

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I found this proposal much more coherent and well structured than the first one.
But there are some points to be discussed in my opinion:

  1. How to distribute 50/50 tokens between NuCypher and Keep network (I understand that 50/50 refers to the 75% of the distributed tokens) but what would be the weigth ratio of the new token to the existing ones? taking into account the different distribution / value weights between KEEP and NU tokens, would a function be done that takes this elasticity into account? or an arbitrary value based on a specific time for each of the tokens?

  2. Taking into account that 75% will be distributed to existing token holders, there will naturally be some dilution due to the rest that is yet to be distributed. Previously, the initial investors and the team had a specific and already established participatory percentage in relation to the total proportion (100%), this was parameterized in the contract schedule, shouldn’t they have a proportional relation to the totality instead of 75%? Or in this case 1/2 for each project team and investors, but in relation to the total and not a portion?
    How do we resolve this distortion caused by dilution compared to what was already established before?

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Thanks for the questions.

@maclane had made the comment in the original merger proposal that I think is relevant when thinking about how to account for the different emission schedules for the two networks.

The NuCypher DAO and Keep Governance could choose to escrow the future emissions that have not yet been allocated beyond the launch date to simplify the calculations.

The 50 / 50 distribution between the networks would apply to existing holders and past activities which would include

  • 75% to existing token holders.
  • 7.5% to stakers based on time staked in the existing networks x amount staked.
  • 2.5% to LPs based on time staked in existing pools x amount staked.
  • 0.5% to stakers who have been slashed or liquidated.

The following would be for future activities in the new network

  • 12.5% stakedrop for first 6 months of TBTC v2.
  • 2% to the DAO treasury for partnerships / liquidity rewards / seeding a new pool.

The logic behind the 7.5% + 2.5% + 0.5% distributions to stakers, LPs and those who have suffered economic loss is to reward the active capital that has taken an economic risk in making the networks a success. Their ongoing support and early adoption to TBTC v2 is necessary for the networks success.

Both NU and KEEP are work tokens.

Holders who have already staked would receive tokens from the 7.5% allocation and when they stake in the new network they would receive tokens from the 12.5% stakedrop allocation.

For holders using the KEEP and NU tokens as intended there would only be a 5% dilution in the initial distribution and then 2% ongoing.

I think it’s reasonable to reward the LPs who have taken on the risk of impermanent loss, they are important community members. The 0.5% to make whole any stakers who have suffered an economic loss from the sharp edges in early network designs is a nice gesture in my view, perhaps the required percentage is lower. Initialising the DAO with a treasury means that the coverage pool incentives are in place and don’t need to come from the signer fees.

I think a small ongoing inflation is important so that the network can fund the ongoing incentives.

For passive capital there is still the opportunity to take part in the new network in which case they would be diluted by 12.5%. If token holders remain passive capital then they would be diluted by 25%. I believe this helps to realign the interests of passive token holders to being active stakers in the network and success of TBTC v2.

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Would existing stakers in NU and KEEP also qualify for the stakedrop? Or is it targeted towards recruiting new stakers only?

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Anyone who stakes TBTC v2 would qualify to receive tokens from the 12.5% stakedrop allocation. This is to encourage token holders to be quick to get setup in the new network.

Existing stakers in NU and KEEP would qualify for the 7.5% allocation based on the amount and time they have already spent staked. This is to help with getting the new tokens into the hands of active network participants and to create an incentive to remain staked in the existing networks.

Thanks for your detailed and well-structured proposal! I’m quite new to this so apologies if this is basic.

Isn’t active capital already rewarded with APY and the like? Does active capital need to be rewarded here as well? Seems to hold bias against simple KEEP/Nu holders. I understand the motivation is to mobilize holders to be more active, but at the point of purchasing KEEP or Nu, the decision of simple holding or staking is that of the holder. The introduction of these bonuses seems to unfairly punish simple holders, who may have elected not to stake due to risk aversion.

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Thanks for the feedback.

My thinking was that churning of Keeps to avoid liquidation from the ethbtc volatility was unexpectedly expensive, time consuming and stressful.

I believe the heartbeat costs for running a NuCypher node have been similarly expensive with the run up in the price of ETH.

This seemed like an opportunity to compensate for those costs and encourage stakers be early in adopting TBTC v2 + providing capital into the coverage pool. Whether this is the best mechanism to achieve that goal is up for debate.

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That sounds interesting. Do I understand correctly that you want to distribute tokens among the current Keep and Nu holders (even passive holders that don’t run nodes) or not?

Yes tokens would be distributed to all current Keep and Nu holders.

I love this proposal. Hope this scheme come true. It’s look’s transparent for the community. :clap:

3 Likes

I have two questions about the allocation:
1、75% to existing token holders.
Whether it includes all token holders which maybe in wallet、exchange、staking pool、uniswap KEEP-ETH pool?

2、7.5% to stakers based on time staked in the existing networks x amount staked.
Whether it includes KEEP-only pool? If yes, does it mean staker not only share the 7.5% tokens, also share the above 75% tokens?

Something that’s not clear to me: both T1 and T3 proposals establish NU and KEEP to be stakeable assets in KEaNU, gradually winding down in favour of $T.

What’s the position of this proposal? It seems that it simply assumes only $T staking.

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I don’t have a strong view on the implementation details, think that staking the existing tokens to accrue stake weight in the new network with a gradual wind down as outlined in the other proposals makes sense.

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Just copying the answers from the discord over to capture the details here as well

  1. the 75% would be for all token holders regardless of where the tokens are held.
  2. the 7.5% would be an additional allocation for operators who have taken on the risks of running a node in the network, this would also partially offset the losses from the 30% stakedrop reduction that was voted on prior to the KEANU proposal (Proposal: Reduce stakedrop rewards to increase allocation for tBTC v2 - #21 by nahuus123), the 2.5% was intended as a reward for holders that have taken on the risk of impermanent loss through staking on uniswap.
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My sense is that most everyone staking NU since launch has done very well, despite high gas costs. I’m not sure extra allocation to historical stakers is justified on the NuCypher side.

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Stakers who have been contributing since launch and still continuing to stake maybe considered for an extra drop as an incentive for their commitment

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