PIP-12 : Activate a maintenance fee on Paladin delegation address


We propose to activate a 2% fee on paladin’s delegation address and bring modifications to the current reward distribution parameters.

Context :

The gauge voting delegation is a service offered by Paladin to voting escrow and vote locked token holders, it bring several advantages such as :

  • Set and Forget voting APR management
  • Cross marketplaces access
  • Reward consolidation and distribution in a single stable ($USDC)
  • Performance reports

However, those benefits come with a consistent set of costs :

  • Claiming fees
  • Swap fees
  • Transfer fees

As well as continuous market intelligence needs that naturally implies operational costs for Paladin.

In order to sustain a healthy competitive environment for Paladin and to strengthen its position as a market maker of the Governance wars, it is necessary that the project offset the cost of its services.

On the other hand, It is crucial that Paladin process and management stick to the ethos of DeFi markets ; as it was asked several times by community members, this proposal along with the upcoming launch of Quest V2, is part of the transition toward fully on-chain and automated Paladin services.

Thus, after almost one year of free access to Paladin delegation, that helped to onboard a solid delegators base and strengthen the project’s network effect, we are advising the following changes in the reward distribution parameters,

Rational :

By mutualizing the costs and stakes of participants to the governance wars, the gauge voting delegation feature has shown a great efficiency compared to individual retail holders management,

Because ethereum gas prices spiked and Paladin delegated power scaled impressively over the past five rounds, the average cost for delegation reached an all time high of 543.81$ / round and totaled 2719.05$.

Track costs at : Ethereum Transactions Information | Etherscan

The average amount of rewards captured by Paladin delegation is 35k$ /round, thus those operational costs can be interpreted as over 1.5% extra APR that is being paid by Paladin treasury, without taking in account other internal resources allocated to this service.

In order to sustain the activity and keep offering the most convenient delegation solution for holders, activating a 2% fee should offset costs for Paladin and allow the delegation management to stay focused on direct performance.

Important Note :

As part of Paladin’s efforts toward transparency and immutability mentioned earlier in this proposal, as well as with the objective of reducing barriers to entry for retail market participants and further increasing capital efficiency on every governance market accessible through Warden Quest, an Auto-compounder is currently being built to replace the current delegation system.

Thanks to this new system, the maintenance fee will become dynamic to cover only gas costs which we expect will bring more voters to the platform as the fee ratio for users will mechanically reduce as the delegation scales.

Means :

In the meantime before the auto-compounder release, allow Paladin Treasury to apply a 2% maintenance fee on gauge delegation claimed rewards

Technical needs :

None, fee will be taken manually before rewards are sent to the distributor, everything will be recorded on-chain.

Vote Options:

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0 voters

Making the whole vote incentive stack autonomous is a must if we want to keep scaling Quest.
There are two solutions:

  • Either stoping to disitrbute in one token;
  • Or enabling a dynamic fee;

The former is acceptable only once we have a good auto-compounder built on top of Quest. Which is why the latter seems like the pragmatic choice currently

Agree on the automation need, but can you elaborate on the dynamic fee ?

Something I’d really like to see on Quest, and which might become possible by taking fees would be to have several delegations addresses. The main one would be USDC or ETH, but another one could be PAL for exemple, meaning that those who want to accumulate could even if they vote for other gauges as the rewards would be sold for PAL.

Later on, could also be interesting to create one for the AAVE token if the Safety Module upgrade is implemented.

The dynamic fee means we only substract to the total amount collected the gas costs for swapping. Which means the bigger the delegation address, the smaller the costs (currently estimated at 0.75% for vlAURA).

Having multiple choice of reward token would be counter-productive as it would raise significantly the maintenance costs. It’s important to highlight that anyone could build it and we would glagly let them manage it.

If no other comments arise, we’ll push the vote tomorrow

Proposal is now live: Snapshot

Small additional info, if the fee was activated this round, it would have cost ~0.78% to users to get it all in USDC, which is 5-10x udner industry standards!

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Quorum PIP-12: 780 967 votes