Summary
This DIP proposes increasing the share of applicable protocol fees allocated to weekly $DRV buybacks from 35% to 50%.
The existing buyback mechanism, cadence and execution process would remain unchanged. The proposal only changes the proportion of protocol fees allocated to buybacks.
Motivation
Derive’s V3 upgrade expands the range of markets and products from which protocol fees can be generated.
At present, 35% of applicable protocol fees are allocated to weekly $DRV buybacks, with the remaining protocol revenue used for other purposes including market-maker rebates and the onchain insurance fund.
This proposal would increase the buyback allocation to 50%, strengthening the link between protocol activity and $DRV demand while retaining 50% of applicable fees for the insurance fund.
The change would also provide a larger base for the protocol’s planned transition away from staking emissions and toward buyback-funded staking rewards.
Background: Current Buyback Mechanism
| Item | Current setting |
|---|---|
| Share of applicable protocol fees allocated to buybacks | 35% |
| Remaining allocation | 65% to the onchain insurance fund |
| Revenue sources | Protocol fees, Matching fees, liquidation fees and interest spreads. |
| Weekly staking emissions | 100,000 DRV |
| Weekly protocol incentives | 50,000 DRV for trading incentive programmes |
| Buyback cadence | Weekly |
The DAO has previously increased the proportion of protocol economics directed toward $DRV buybacks and reduced staking emissions. This proposal would continue that progression by increasing the ongoing buyback allocation from 35% to 50%.
Specification
- Increase the buyback allocation: Raise the share of applicable protocol fees allocated to $DRV buybacks from 35% to 50%.
- Mechanics unchanged: Buybacks would continue using the existing cadence, execution process, and eligible fee sources.
- Reporting: Weekly buyback amounts would continue to be published so the DAO can track the impact of the change.
Rationale
Stronger alignment between protocol activity and $DRV
Increasing the allocation to 50% means a greater proportion of fees generated by the protocol is used to purchase $DRV in the open market.
As V3 expands the range of products and markets available through Derive, any resulting increase in protocol fees would therefore translate more directly into buyback activity.
Supports the transition away from emissions
Derive has already reduced staking emissions significantly.
A larger buyback allocation provides a stronger economic base for the planned transition toward funding staking rewards from protocol-generated buybacks rather than continued token emissions.
Builds on the existing model
This proposal does not introduce a new mechanism. It adjusts an existing parameter from 35% to 50%, leaving the underlying buyback process unchanged.
Considerations & Trade-offs
Increasing the buyback allocation from 35% to 50% would reduce the proportion of protocol revenue available for other uses, including market-maker rebates and contributions to the onchain insurance fund.
The DAO should therefore consider the trade-off between:
- increasing the amount of protocol-generated demand for $DRV; and
- retaining sufficient revenue for other protocol uses.
Risks & Counterarguments
Reduced flexibility for other protocol uses
Allocating a greater percentage of protocol fees to buybacks means less revenue remains available for market-maker rebates, insurance-fund contributions and other protocol requirements.
Revenue may fluctuate
A higher percentage allocation does not guarantee a higher absolute level of buybacks. Buyback amounts will continue to depend on protocol activity and fee generation.
Buybacks are only one component of token economics
Buybacks create recurring market demand for $DRV but should be considered alongside staking emissions, protocol incentives, token unlocks and the broader supply schedule.
Implementation & Voting
Following forum discussion, the proposal would proceed through the DAO’s existing governance process.
If approved:
- the buyback allocation would increase from 35% to 50%; and
- all other aspects of the existing buyback mechanism would remain unchanged.
Proposed effective date: Upon implementation following passage of the proposal.