Simple Summary
Outline the functionality of DRV - the token for Derive, a composable ecosystem of derivatives.
This DIP is also the first formal mention of the new brand, with the following migrations in terminology:
- Lyra → Derive
- LEAP → DIP (Derive Improvement Proposal)
- LDX → DRV
- stkLyra → stDRV
Abstract
This proposal outlines the tokenomics strategy for the Derive network, focusing on the migration and claiming process, staking mechanisms, governance and liquidity/trading incentives.
The strategy aims to promote long-term engagement for tokenholders, governance participants and protocol users alike.
This DIP aims to outline the foundational flow and functionality of the DRV token and its staking mechanism. Future DIPs may build upon this foundation with additional proposals, such as acting as a consumptive resource in the network, novel staking reward structures, or improving the trading experience by paying for protocol fees in DRV.
Motivation
The Migrate $LYRA to $LDX LRFC called for ‘a follow-up proposal to explain how staking will function in the network and to explore other uses for $LDX, such as decentralizing the operation of the Lyra Chain, acting as a consumable resource in the network, or improving the trading experience through rebates.’
Reiterating the details of that proposal:
- The maximum total supply of DRV tokens will be 1,000,000,000 (the same as LYRA)
- Each LYRA/stkLYRA holder will have a 1:1 claim on DRV tokens as determined by their balance at the snapshot
- No new tokens will be minted
Specification
- DRV will be launched on Ethereum mainnet, and a majority bridged to the Derive L2 for claiming.
- DRV will be stakeable into stDRV (only on Derive L2), and only stDRV will be able to participate in governance
- Voting powers for stakers can be delegated to others
DRV will be scheduled to launch in Q4 (targeting by end of Oct), this differs to the Migration proposal linked above due to technical constraints and auditing considerations.
DRV Staking
To participate in governance, DRV must be staked into stDRV, which:
- Is non-transferrable
- Carries a 28-day unlock period
- Can be unlocked instantly with a 20% haircut
This mechanic mitigates potential governance attack vectors (e.g. using flash loans) while encouraging active participation in the decentralized governance and decision making of Derive.
In return for staking DRV, stDRV holders are eligible for rewards*,* at a rate determined by CCs.
Governance
A new governance system and process for the protocol and treasury will be implemented following the migration to DRV and to the Derive Chain.
All onchain processes will occur on Derive Chain (i.e. proposing, delegating, voting).
- All-in-one home to view both onchain proposals and offchain tempchecks with a proposal creation wizard that is both powerful and easy to use.
- First-class support for delegates, via profiles, delegate statements, and various filters and sorts to help token holders discover new delegates.
- Easy to use voting interface that allows vote with reason to encourage ecosystem discussions.
In addition to regular delegation, the system will support re-delegation and partial delegation. This will improve the experience for large and institutional token holders, and enable a seamless transition for delegates who are looking to transition their role or portion of their responsibilities. Costs for proposing, voting and delegating will be minimal due to the lower costs of Derive Chain.
Emissions
The DAO treasury will allocate at most 1,150,000 DRV to the CC multisig each week for staking rewards. Rewards will be distributed weekly to stakers who have delegated their voting power (including to themselves). 6 months after the TGE, this emission will drop to 600,000 $DRV every week and will eventually be replaced entirely with buybacks.
25% of protocol revenue will be used for token buy-backs for the DAO treasury.
Protocol usage incentives
Additionally, a maximum weekly amount of 2,500,000 DRV will be allocated to various points programs for protocol usage (trading/liquidity/etc.). How they are distributed is at the discretion of the CCs. Excess funds are returned to the DAO Treasury.
Migration and Claiming
Users being grandfathered in from the $LYRA migration, as well as users participating in the ongoing points programs, will have the option to elect to pre-stake all their DRV for stDRV in the 4 weeks before token launch. By pre-committing, stakers will receive a one time bonus of a 5% boost to their balance.
This includes points for trading, deposits, referrals, and holding locked $LYRA before the snapshot.
Rationale
This change in governance structure is crucial to ensure Derive has a robust, transparent, and efficient governance model. The described mechanism aims to achieve both governance efficacy and participation. This requires a system that is incentivized for the long term and simple enough to understand and interact with.
By limiting governance functionality to staked DRV, we ensure that the protocol and treasury are unaffected by potential governance or flash loan attacks that require a short time horizon to succeed.
Rewarding stakers encourages governance participation, and by undertaking DRV buybacks we chart a course for a sustainable staking mechanism that scales at the Derive protocol and network grows.
Allowing stakers to delegate their voting power promotes broader participation while maintaining governance integrity. This mechanism enables motivated participants to actively contribute to the protocol’s success in a focused manner, while still preserving the checks and balances within the governance system.