From 97f08ed678d3191b8257e5ce76d2288129f4dde9 Mon Sep 17 00:00:00 2001 From: Liam Monninger Date: Mon, 28 Oct 2024 11:42:50 +0100 Subject: [PATCH 1/6] feat: ab-ffs-decoupled-demurrage. --- MIP/mip-n/README.md | 48 +++++++++++++++++++++++++++++++++++++++++++++ 1 file changed, 48 insertions(+) create mode 100644 MIP/mip-n/README.md diff --git a/MIP/mip-n/README.md b/MIP/mip-n/README.md new file mode 100644 index 00000000..f1533187 --- /dev/null +++ b/MIP/mip-n/README.md @@ -0,0 +1,48 @@ +# MIP-15: AB-FFS Decoupled Demurrage +- **Description**: Introduces the Movement Gloss (MG) document type and establishes a process for introducing new glossary terms. Introduces the [Glossary](../GLOSSARY.md), which contains an overview of all terms defined through MGs. +- **Authors**: [Liam Monninger](mailto:liam@movementlabs.xyz) +- **Reviewer**: Andreas Penzkofer +- **Desiderata**: [MD-15](../MD/md-15/README.md) + +## Abstract + +This MIP introduces the Movement Gloss (MG) document type and establishes a process for introducing new glossary terms. The MG document type will be used to define terms unique to Movement Labs and to provide specific definitions for terms that are used in a unique way, underspecified in the literature, or have a specific meaning in the context of Movement Labs. + +## Motivation + +In order to communicate with more specificity in all contexts, Movement Labs should introduce a glossary. This glossary should define terms both unique to Movement Labs and general terms that are used in a unique way, underspecified in the literature, or have a specific meaning in the context of Movement Labs. + +## Specification + +The key words "MUST", "MUST NOT", "REQUIRED", "SHALL", "SHALL NOT", "SHOULD", "SHOULD NOT", "RECOMMENDED", "NOT RECOMMENDED", "MAY", and "OPTIONAL" in this document are to be interpreted as described in RFC 2119 and RFC 8174. + +### Glossary + +The [Glossary](../GLOSSARY.md) is an alphabetically ordered list of terms defined through MGs. Any term introduced through an MG MUST be declared in the Glossary. + +The Glossary table contains the following columns: +- The Term +- A short definition +- The number of the MG that introduces the term + +### MG Document Type +A template for the MG is provided at [mg-template](../../md-template.md). An example MG is provided at [mg-0](../../MG/mg-0/README.md). These templates cover the requested elements listed in [MD-15.D1](../MD/md-15/README.md). + +### MG Process +1. A new glossary term MUST be defined in an MG document matching the provided templates. +2. An MG document MUST not be accepted unless justified in an MIP. + +For example, herein, we justify the introduction of [MG-0](../../MG/mg-0/README.md). MG-0 defines the term "gloss" which is used in the context of Movement Labs to denote the definition of a term as would feature as an entry in a glossary. It is important to include in the glossary both clarify as the acronym "MG" and to provide an example gloss. + +## Reference Implementation +See the MG document type template at [mg-template](../../md-template.md) and the example MG at [mg-0](../../MG/mg-0/README.md). + + +## Verification + + + +## Errata + + +## Appendix From bd4776ded5a2f4942957291d4b7044ab4b99d4fa Mon Sep 17 00:00:00 2001 From: Liam Monninger Date: Mon, 28 Oct 2024 16:30:53 +0100 Subject: [PATCH 2/6] feat: ab-ffs-decoupled-demurrage. --- MG/mg-n/README.md | 23 +++++++ MIP/mip-n/README.md | 161 +++++++++++++++++++++++++++++++++++++------ MIP/mip-n/curves.tex | 47 +++++++++++++ 3 files changed, 210 insertions(+), 21 deletions(-) create mode 100644 MG/mg-n/README.md create mode 100644 MIP/mip-n/curves.tex diff --git a/MG/mg-n/README.md b/MG/mg-n/README.md new file mode 100644 index 00000000..e37676fc --- /dev/null +++ b/MG/mg-n/README.md @@ -0,0 +1,23 @@ +# MG-n: demurrage token +- **Authors**: [Liam Monninger](liam@movementlabs.xyz) + +A token that is subject to a demurrage fee, which is a fee charged for holding the token. The fee is typically charged as a percentage of the token's value and is intended to encourage spending or investment rather than hoarding. + +Practically, any token which by design has a negative interest rate--a value tending towards zero over time--can be considered a demurrage token. + +### Related Work + +1. + +### Example Usages + +1. He updated the **gloss** to include a more detailed explanation. + +### Errata + \ No newline at end of file diff --git a/MIP/mip-n/README.md b/MIP/mip-n/README.md index f1533187..7afc429c 100644 --- a/MIP/mip-n/README.md +++ b/MIP/mip-n/README.md @@ -1,41 +1,160 @@ # MIP-15: AB-FFS Decoupled Demurrage -- **Description**: Introduces the Movement Gloss (MG) document type and establishes a process for introducing new glossary terms. Introduces the [Glossary](../GLOSSARY.md), which contains an overview of all terms defined through MGs. +- **Description**: - **Authors**: [Liam Monninger](mailto:liam@movementlabs.xyz) - **Reviewer**: Andreas Penzkofer - **Desiderata**: [MD-15](../MD/md-15/README.md) ## Abstract +We propose AB-FFS Decoupled Demurrage as a variant of [AB-FFS Decoupled](https://github.com/movementlabsxyz/MIP/pull/40) which issues a demurrage token as an LP Token reward. This approach allows the FFS reward mechanism to manipulate the supply of its rewards s.t. a new token generation event is not strictly required. We review demurrage strategies in general, highlighting several approaches which are particularly applicable in the AB-FFS context. -This MIP introduces the Movement Gloss (MG) document type and establishes a process for introducing new glossary terms. The MG document type will be used to define terms unique to Movement Labs and to provide specific definitions for terms that are used in a unique way, underspecified in the literature, or have a specific meaning in the context of Movement Labs. +We also introduce [MG-n](../../MG/mg-n/README.md) which defines the term "demurrage token." ## Motivation -In order to communicate with more specificity in all contexts, Movement Labs should introduce a glossary. This glossary should define terms both unique to Movement Labs and general terms that are used in a unique way, underspecified in the literature, or have a specific meaning in the context of Movement Labs. +AB-FFS Decoupled Demurrage is an extension to the response to [MD-38](https://github.com/movementlabsxyz/MIP/pull/38). It provides usage of the Atomic Bridge and Fast Finality Settlement with a fixed token supply. This extension allows for greater flexibility in the reward mechanism. + ## Specification The key words "MUST", "MUST NOT", "REQUIRED", "SHALL", "SHALL NOT", "SHOULD", "SHOULD NOT", "RECOMMENDED", "NOT RECOMMENDED", "MAY", and "OPTIONAL" in this document are to be interpreted as described in RFC 2119 and RFC 8174. -### Glossary - -The [Glossary](../GLOSSARY.md) is an alphabetically ordered list of terms defined through MGs. Any term introduced through an MG MUST be declared in the Glossary. - -The Glossary table contains the following columns: -- The Term -- A short definition -- The number of the MG that introduces the term - -### MG Document Type -A template for the MG is provided at [mg-template](../../md-template.md). An example MG is provided at [mg-0](../../MG/mg-0/README.md). These templates cover the requested elements listed in [MD-15.D1](../MD/md-15/README.md). - -### MG Process -1. A new glossary term MUST be defined in an MG document matching the provided templates. -2. An MG document MUST not be accepted unless justified in an MIP. - -For example, herein, we justify the introduction of [MG-0](../../MG/mg-0/README.md). MG-0 defines the term "gloss" which is used in the context of Movement Labs to denote the definition of a term as would feature as an entry in a glossary. It is important to include in the glossary both clarify as the acronym "MG" and to provide an example gloss. +AB-FFS Decoupled Demurrage identifies two primary controls over the LP token with respect to the L1 staking token: + +1. The supply of the LP token. +2. Vouchers issued for purchasing the L1 staking token with the LP token. + +Other controls are considered market mechanisms and are not considered in this MIP. + +### Supply of the LP Token +Simply put, FFS may be increase the supply of the LP token by minting for the purpose of rewarding LPs. This approach allows flexibility in the reward mechanism. But, assuming other market conditions hold, this means LP tokens holders are subject to dilution and the value of the LP token is subject to inflation. This ultimately assigns a negative interest rate to the LP token w.r.t. to the L1 staking token which has a fixed supply. + +To formalize this relationship, consider the following. + +Let: +- $ S_{LP}(t) $ denote the total supply of LP tokens at time $ t $, +- $ R_{LP}(t) $ denote the reward rate in LP tokens, +- $ P_{L1} $ denote the price or value of the L1 staking token (fixed) in terms of the LP token, and +- $ P_{LP}(t) $ denote the price of the LP token in terms of $ P_{L1} $. + +1. **Supply Inflation Rate**: + $ + \Delta S_{LP}(t) = S_{LP}(t) \cdot R_{LP}(t) + $ + where $ R_{LP}(t) $ represents the proportional increase in LP tokens over time. + +2. **Effective Dilution**: + - As new tokens are minted, each LP token’s value in terms of the L1 token $P_{L1}$ decreases: + $ + P_{LP}(t+1) = \frac{P_{LP}(t)}{1 + R_{LP}(t)} + $ + - Since $R_{LP}(t) > 0$, we have: +```math +1 + R_{LP}(t) > 1 \implies \frac{P_{LP}(t)}{1 + R_{LP}(t)} < P_{LP}(t) \implies P_{LP}(t+1) < P_{LP}(t) +``` + +3. **Negative Interest Rate**: + - The "negative interest rate" on LP holdings with respect to L1 can be approximated as + $\text{Interest Rate} \approx -R_{LP}(t)$ + where the LP token depreciates due to the supply increase. + +### Vouchers +The governing body can issue vouchers to purchase the L1 staking token with the LP token. Voucher MUST contain a known value of the L1 staking token which can be purchased with the LP token. + +This is a form of demurrage, as the LP token is subject to a negative interest rate w.r.t. the L1 staking token. The voucher system, however, allows the governing body to influence the rate at which the LP token depreciates. This is critical to the success of the demurrage token as a reward which appropriately incentivizes FFS staking. + +### Demurrage Strategies +There are several categories of general demurrage strategies which may be applied to the LP token. These include: + +1. **Supply Only**: + - The governing body may choose to only increase the supply of the LP token. This is the simplest form of demurrage and is equivalent to a negative interest rate on LP holdings. + - This approach does not require the issuance of vouchers. The market will determine the rate at which the LP token depreciates. + - Because the supply will increase with rewards and rewards will increase with honest FFS participation, this approach essentially applies diminishing returns to FFS staking directly in proportion to honest participation. That is, FFS cannot adjust rewards rates without have an immediate negative impact on the value of the LP token. +2. **Voucher Curves**: + - The governing body supplies vouchers with a defined curve for purchasing the L1 staking token with the LP token. + - This approach allows the governing body to transparently adjust the rate at which the LP token depreciates. + - An asymptotic curve may be used to ensure that the LP token retains some value even as the supply increases indefinitely. + - Ultimately, the voucher curve must be defined in terms of the available supply of the L1 staking token granted to the voucher otherwise an overdraft could occur. + - The area under the voucher curve represents the total value of the L1 staking token that can be purchased with the LP token. The voucher curve need not be non-decreasing nor non-increasing, but must respect this constraint. + - The voucher curve can consider other input parameters so long as the area under the curve is bounded by the available supply of the L1 staking token. + - Because the voucher-curve can be increasing, FFS can adjust its rewards rates without an immediate negative impact on the value of the LP token. This allows FFS to adjust rewards rates in response to market conditions or participation without immediately devaluing the LP token. +3. **Governed Voucher**: + - A voting mechanism can be used to set the voucher curve. This allows the governing body to adjust the rate at which the LP token depreciates in response to market conditions or participation. + - The curve selected by the voting mechanism must respect the constraint that the area under the curve is bounded by the available supply of the L1 staking token. + - The electorate generally should not be the participants in the FFS system, as this would incentivize participants to vote for vouchers which benefit themselves in the short-term at the expense of the long-term value of the LP token. +4. **Participation Voucher**: + - The voucher defines its curve in terms of some inverse of the participation rate of FFS. + - Participation can be measured in terms of variables such as stake and throughput. + - Generally, tying voucher curves to participation results in conditions which may incentivize inducing unfavorable participation rates to reap greater benefits of the voucher. + - If rewards are freely tradeable and not marked with an epoch, LP token holders may wait to redeem their rewards until participation is low, preventing actual low-participation committee members from benefitting from this incentive. For this reason, in most cases, FFS itself should handle low-participation incentives rather than the LP token, i.e., by issuing greater rewards during periods of low participation. +5. **LP Token Futures Voucher**: + - Let $\alpha$ represent the future multiplier for the LP token in the voucher. The governing token issues vouchers redeemable for $\alpha \cdot \text{LP}$ at a future time $t_f$. + - Users can either claim the L1 staking token immediately or wait to claim the LP token later, with the future multiplier. + - When L1 price appreciation outpaces $\alpha$, it incentivizes LP token holding, as users anticipate a higher future payoff. Because LP token then has a greater market value, FFS can reward LP token holders with a smaller number of LP tokens. FFS need only look-up the volume of futures held to determine the appropriate reward rate. + - This dynamic strengthens the correlation between LP and L1 values, stabilizing LP token depreciation and aligning incentives around L1’s future value. Importantly, it also allows the reward rate to capture market effects that counteract the negative interest rate on LP holdings. + + +### Standard Demurrage Strategy +We propose a standard demurrage strategy for AB-FFS Decoupled Demurrage consisting of three key components: + +1. **Step-down to Asymptotic (SDA) Voucher Curve**: + - The governing body issues vouchers with a step-down curve. This curve is defined by a series of steps, each with a fixed value of the L1 staking token that can be purchased with the LP token. + - After a fixed number of steps, the voucher curve becomes asymptotic. This ensures that the LP token retains some value even as the supply increases indefinitely. + - This removes complexities associated with governance and participation-based vouchers, as the voucher curve is fixed and transparent. + - The periods of fixed rate introduce stability in the LP token value, while the asymptotic curve ensures that the LP token retains some value even as the supply increases indefinitely. +2. **Inverse Future Multiplier**: + - A futures contract is issued for the LP token wherein the multiplier is the inverse of the SDA voucher curve. + - In addition to the market-alignment benefits of a general futures voucher, the inversion with the SDA voucher curve ensures allows for: + 1. The early portion of demurrage period to incentivize rapid divestment from the LP token into the L1 staking token. + 2. The later portion of the demurrage period to relying on market effects to slow LP token depreciation. +3. **FFS Reward Minting**: + - FFS mints LP tokens to reward LPs. + - FFS uses the futures contract to determine the appropriate reward rate for LPs, minting fewer LP tokens when the volume of futures held is high. + +```math +\begin{tikzpicture} + \begin{axis}[ + width=12cm, + height=8cm, + xlabel={Redeemed LP Token}, + ylabel={L1 Staking Token Value}, + title={Step-Down to Asymptotic (SDA) Voucher Curve with Tail Approaching 0}, + xmin=0, xmax=10, + ymin=0, ymax=1.2, + grid=both, + legend pos=north east, + every axis plot/.append style={ultra thick} + ] + + \addplot [ + domain=0:2, + samples=100, + blue + ] {1.0}; + + \addplot [ + domain=2:5, + samples=100, + blue + ] {0.7}; + + \addplot [ + domain=5:8, + samples=100, + blue + ] {0.5}; + + \addplot [ + domain=8:10, + samples=100, + blue + ] {0.5 / (x - 7.5)}; + + \legend{SDA Voucher Curve} + \end{axis} +\end{tikzpicture} +``` ## Reference Implementation -See the MG document type template at [mg-template](../../md-template.md) and the example MG at [mg-0](../../MG/mg-0/README.md). ## Verification diff --git a/MIP/mip-n/curves.tex b/MIP/mip-n/curves.tex new file mode 100644 index 00000000..a65981ec --- /dev/null +++ b/MIP/mip-n/curves.tex @@ -0,0 +1,47 @@ +\documentclass{article} +\usepackage{pgfplots} +\begin{document} + +\begin{tikzpicture} + \begin{axis}[ + width=12cm, + height=8cm, + xlabel={Redeemed LP Token (Billions)}, + ylabel={L1 Staking Token Value}, + title={Step-Down to Asymptotic (SDA) Voucher Curve with Tail Approaching 0}, + xmin=0, xmax=10, + ymin=0, ymax=1.2, + grid=both, + legend pos=north east, + every axis plot/.append style={ultra thick} + ] + + \addplot [ + domain=0:2, + samples=100, + blue + ] {1.0}; + + \addplot [ + domain=2:5, + samples=100, + blue + ] {0.7}; + + \addplot [ + domain=5:8, + samples=100, + blue + ] {0.5}; + + \addplot [ + domain=8:10, + samples=100, + blue + ] {0.5 / (x - 7.5)}; + + \legend{SDA Voucher Curve} + \end{axis} +\end{tikzpicture} + +\end{document} From 5d0e7e413643655014800419af13f4169adc6dae Mon Sep 17 00:00:00 2001 From: Liam Monninger <79056955+l-monninger@users.noreply.github.com> Date: Wed, 30 Oct 2024 23:09:34 +0100 Subject: [PATCH 3/6] fix: latex --- MIP/mip-n/README.md | 19 ++++++------------- 1 file changed, 6 insertions(+), 13 deletions(-) diff --git a/MIP/mip-n/README.md b/MIP/mip-n/README.md index 7afc429c..68f15681 100644 --- a/MIP/mip-n/README.md +++ b/MIP/mip-n/README.md @@ -31,22 +31,15 @@ Simply put, FFS may be increase the supply of the LP token by minting for the pu To formalize this relationship, consider the following. Let: -- $ S_{LP}(t) $ denote the total supply of LP tokens at time $ t $, -- $ R_{LP}(t) $ denote the reward rate in LP tokens, -- $ P_{L1} $ denote the price or value of the L1 staking token (fixed) in terms of the LP token, and -- $ P_{LP}(t) $ denote the price of the LP token in terms of $ P_{L1} $. +- $S_{LP}(t)$ denote the total supply of LP tokens at time $ t $, +- $R_{LP}(t)$ denote the reward rate in LP tokens, +- $P_{L1}$ denote the price or value of the L1 staking token (fixed) in terms of the LP token, and +- $P_{LP}(t)$ denote the price of the LP token in terms of $ P_{L1} $. -1. **Supply Inflation Rate**: - $ - \Delta S_{LP}(t) = S_{LP}(t) \cdot R_{LP}(t) - $ - where $ R_{LP}(t) $ represents the proportional increase in LP tokens over time. +1. **Supply Inflation Rate**: $\Delta S_{LP}(t) = S_{LP}(t) \cdot R_{LP}(t)$ where $R_{LP}(t)$ represents the proportional increase in LP tokens over time. 2. **Effective Dilution**: - - As new tokens are minted, each LP token’s value in terms of the L1 token $P_{L1}$ decreases: - $ - P_{LP}(t+1) = \frac{P_{LP}(t)}{1 + R_{LP}(t)} - $ + - As new tokens are minted, each LP token’s value in terms of the L1 token $P_{L1}$ decreases: $P_{LP}(t+1) = \frac{P_{LP}(t)}{1 + R_{LP}(t)}$ - Since $R_{LP}(t) > 0$, we have: ```math 1 + R_{LP}(t) > 1 \implies \frac{P_{LP}(t)}{1 + R_{LP}(t)} < P_{LP}(t) \implies P_{LP}(t+1) < P_{LP}(t) From a9474288a82ec5e48899d8c4edb6b1b15979ac2d Mon Sep 17 00:00:00 2001 From: apenzk Date: Fri, 22 Nov 2024 16:48:05 +0100 Subject: [PATCH 4/6] rename to native bridge --- MG/{mg-n => mg-42}/README.md | 2 +- MIP/{mip-n => mip-42}/README.md | 10 +++++----- MIP/{mip-n => mip-42}/curves.tex | 0 3 files changed, 6 insertions(+), 6 deletions(-) rename MG/{mg-n => mg-42}/README.md (96%) rename MIP/{mip-n => mip-42}/README.md (96%) rename MIP/{mip-n => mip-42}/curves.tex (100%) diff --git a/MG/mg-n/README.md b/MG/mg-42/README.md similarity index 96% rename from MG/mg-n/README.md rename to MG/mg-42/README.md index e37676fc..ba9f78a9 100644 --- a/MG/mg-n/README.md +++ b/MG/mg-42/README.md @@ -1,4 +1,4 @@ -# MG-n: demurrage token +# MG-42: demurrage token - **Authors**: [Liam Monninger](liam@movementlabs.xyz) A token that is subject to a demurrage fee, which is a fee charged for holding the token. The fee is typically charged as a percentage of the token's value and is intended to encourage spending or investment rather than hoarding. diff --git a/MIP/mip-n/README.md b/MIP/mip-42/README.md similarity index 96% rename from MIP/mip-n/README.md rename to MIP/mip-42/README.md index 68f15681..d37443d9 100644 --- a/MIP/mip-n/README.md +++ b/MIP/mip-42/README.md @@ -1,24 +1,24 @@ -# MIP-15: AB-FFS Decoupled Demurrage +# MIP-15: NB-FFS Decoupled Demurrage - **Description**: - **Authors**: [Liam Monninger](mailto:liam@movementlabs.xyz) - **Reviewer**: Andreas Penzkofer - **Desiderata**: [MD-15](../MD/md-15/README.md) ## Abstract -We propose AB-FFS Decoupled Demurrage as a variant of [AB-FFS Decoupled](https://github.com/movementlabsxyz/MIP/pull/40) which issues a demurrage token as an LP Token reward. This approach allows the FFS reward mechanism to manipulate the supply of its rewards s.t. a new token generation event is not strictly required. We review demurrage strategies in general, highlighting several approaches which are particularly applicable in the AB-FFS context. +We propose NB-FFS Decoupled Demurrage as a variant of [NB-FFS Decoupled](https://github.com/movementlabsxyz/MIP/pull/40) which issues a demurrage token as an LP Token reward. This approach allows the FFS reward mechanism to manipulate the supply of its rewards s.t. a new token generation event is not strictly required. We review demurrage strategies in general, highlighting several approaches which are particularly applicable in the NB-FFS context. We also introduce [MG-n](../../MG/mg-n/README.md) which defines the term "demurrage token." ## Motivation -AB-FFS Decoupled Demurrage is an extension to the response to [MD-38](https://github.com/movementlabsxyz/MIP/pull/38). It provides usage of the Atomic Bridge and Fast Finality Settlement with a fixed token supply. This extension allows for greater flexibility in the reward mechanism. +NB-FFS Decoupled Demurrage is an extension to the response to [MD-38](https://github.com/movementlabsxyz/MIP/pull/38). It provides usage of the Native Bridge and Fast Finality Settlement with a fixed token supply. This extension allows for greater flexibility in the reward mechanism. ## Specification The key words "MUST", "MUST NOT", "REQUIRED", "SHALL", "SHALL NOT", "SHOULD", "SHOULD NOT", "RECOMMENDED", "NOT RECOMMENDED", "MAY", and "OPTIONAL" in this document are to be interpreted as described in RFC 2119 and RFC 8174. -AB-FFS Decoupled Demurrage identifies two primary controls over the LP token with respect to the L1 staking token: +NB-FFS Decoupled Demurrage identifies two primary controls over the LP token with respect to the L1 staking token: 1. The supply of the LP token. 2. Vouchers issued for purchasing the L1 staking token with the LP token. @@ -87,7 +87,7 @@ There are several categories of general demurrage strategies which may be applie ### Standard Demurrage Strategy -We propose a standard demurrage strategy for AB-FFS Decoupled Demurrage consisting of three key components: +We propose a standard demurrage strategy for NB-FFS Decoupled Demurrage consisting of three key components: 1. **Step-down to Asymptotic (SDA) Voucher Curve**: - The governing body issues vouchers with a step-down curve. This curve is defined by a series of steps, each with a fixed value of the L1 staking token that can be purchased with the LP token. diff --git a/MIP/mip-n/curves.tex b/MIP/mip-42/curves.tex similarity index 100% rename from MIP/mip-n/curves.tex rename to MIP/mip-42/curves.tex From 39dc8eda1880782b44e422f2cb8f576018020675 Mon Sep 17 00:00:00 2001 From: apenzk Date: Wed, 12 Feb 2025 18:21:47 +0100 Subject: [PATCH 5/6] edits --- MIP/mip-42/README.md | 28 ++++++++++++++-------------- 1 file changed, 14 insertions(+), 14 deletions(-) diff --git a/MIP/mip-42/README.md b/MIP/mip-42/README.md index d37443d9..2eb9627e 100644 --- a/MIP/mip-42/README.md +++ b/MIP/mip-42/README.md @@ -1,11 +1,12 @@ # MIP-15: NB-FFS Decoupled Demurrage -- **Description**: + +- **Description**: Proposes a variant of [NB-FFS Decoupled](https://github.com/movementlabsxyz/MIP/pull/40) which issues a demurrage token as an LP Token reward. - **Authors**: [Liam Monninger](mailto:liam@movementlabs.xyz) -- **Reviewer**: Andreas Penzkofer - **Desiderata**: [MD-15](../MD/md-15/README.md) ## Abstract -We propose NB-FFS Decoupled Demurrage as a variant of [NB-FFS Decoupled](https://github.com/movementlabsxyz/MIP/pull/40) which issues a demurrage token as an LP Token reward. This approach allows the FFS reward mechanism to manipulate the supply of its rewards s.t. a new token generation event is not strictly required. We review demurrage strategies in general, highlighting several approaches which are particularly applicable in the NB-FFS context. + +We propose Native Bridge - Fast Finality Settlement (NB-FFS) Decoupled Demurrage as a variant of [NB-FFS Decoupled](https://github.com/movementlabsxyz/MIP/pull/40) which issues a demurrage token as an LP Token reward. This approach allows the FFS reward mechanism to manipulate the supply of its rewards s.t. a new token generation event is not strictly required. We review demurrage strategies in general, highlighting several approaches which are particularly applicable in the NB-FFS context. We also introduce [MG-n](../../MG/mg-n/README.md) which defines the term "demurrage token." @@ -13,10 +14,9 @@ We also introduce [MG-n](../../MG/mg-n/README.md) which defines the term "demurr NB-FFS Decoupled Demurrage is an extension to the response to [MD-38](https://github.com/movementlabsxyz/MIP/pull/38). It provides usage of the Native Bridge and Fast Finality Settlement with a fixed token supply. This extension allows for greater flexibility in the reward mechanism. - ## Specification -The key words "MUST", "MUST NOT", "REQUIRED", "SHALL", "SHALL NOT", "SHOULD", "SHOULD NOT", "RECOMMENDED", "NOT RECOMMENDED", "MAY", and "OPTIONAL" in this document are to be interpreted as described in RFC 2119 and RFC 8174. +*The key words "MUST", "MUST NOT", "REQUIRED", "SHALL", "SHALL NOT", "SHOULD", "SHOULD NOT", "RECOMMENDED", "NOT RECOMMENDED", "MAY", and "OPTIONAL" in this document are to be interpreted as described in RFC 2119 and RFC 8174.* NB-FFS Decoupled Demurrage identifies two primary controls over the LP token with respect to the L1 staking token: @@ -26,11 +26,13 @@ NB-FFS Decoupled Demurrage identifies two primary controls over the LP token wit Other controls are considered market mechanisms and are not considered in this MIP. ### Supply of the LP Token + Simply put, FFS may be increase the supply of the LP token by minting for the purpose of rewarding LPs. This approach allows flexibility in the reward mechanism. But, assuming other market conditions hold, this means LP tokens holders are subject to dilution and the value of the LP token is subject to inflation. This ultimately assigns a negative interest rate to the LP token w.r.t. to the L1 staking token which has a fixed supply. To formalize this relationship, consider the following. Let: + - $S_{LP}(t)$ denote the total supply of LP tokens at time $ t $, - $R_{LP}(t)$ denote the reward rate in LP tokens, - $P_{L1}$ denote the price or value of the L1 staking token (fixed) in terms of the LP token, and @@ -51,11 +53,13 @@ Let: where the LP token depreciates due to the supply increase. ### Vouchers + The governing body can issue vouchers to purchase the L1 staking token with the LP token. Voucher MUST contain a known value of the L1 staking token which can be purchased with the LP token. This is a form of demurrage, as the LP token is subject to a negative interest rate w.r.t. the L1 staking token. The voucher system, however, allows the governing body to influence the rate at which the LP token depreciates. This is critical to the success of the demurrage token as a reward which appropriately incentivizes FFS staking. ### Demurrage Strategies + There are several categories of general demurrage strategies which may be applied to the LP token. These include: 1. **Supply Only**: @@ -78,18 +82,18 @@ There are several categories of general demurrage strategies which may be applie - The voucher defines its curve in terms of some inverse of the participation rate of FFS. - Participation can be measured in terms of variables such as stake and throughput. - Generally, tying voucher curves to participation results in conditions which may incentivize inducing unfavorable participation rates to reap greater benefits of the voucher. - - If rewards are freely tradeable and not marked with an epoch, LP token holders may wait to redeem their rewards until participation is low, preventing actual low-participation committee members from benefitting from this incentive. For this reason, in most cases, FFS itself should handle low-participation incentives rather than the LP token, i.e., by issuing greater rewards during periods of low participation. + - If rewards are freely tradable and not marked with an epoch, LP token holders may wait to redeem their rewards until participation is low, preventing actual low-participation committee members from benefitting from this incentive. For this reason, in most cases, FFS itself should handle low-participation incentives rather than the LP token, i.e., by issuing greater rewards during periods of low participation. 5. **LP Token Futures Voucher**: - Let $\alpha$ represent the future multiplier for the LP token in the voucher. The governing token issues vouchers redeemable for $\alpha \cdot \text{LP}$ at a future time $t_f$. - Users can either claim the L1 staking token immediately or wait to claim the LP token later, with the future multiplier. - When L1 price appreciation outpaces $\alpha$, it incentivizes LP token holding, as users anticipate a higher future payoff. Because LP token then has a greater market value, FFS can reward LP token holders with a smaller number of LP tokens. FFS need only look-up the volume of futures held to determine the appropriate reward rate. - This dynamic strengthens the correlation between LP and L1 values, stabilizing LP token depreciation and aligning incentives around L1’s future value. Importantly, it also allows the reward rate to capture market effects that counteract the negative interest rate on LP holdings. - ### Standard Demurrage Strategy + We propose a standard demurrage strategy for NB-FFS Decoupled Demurrage consisting of three key components: -1. **Step-down to Asymptotic (SDA) Voucher Curve**: +1. **Step-down to Asymptotic (SDA) Voucher Curve**: - The governing body issues vouchers with a step-down curve. This curve is defined by a series of steps, each with a fixed value of the L1 staking token that can be purchased with the LP token. - After a fixed number of steps, the voucher curve becomes asymptotic. This ensures that the LP token retains some value even as the supply increases indefinitely. - This removes complexities associated with governance and participation-based vouchers, as the voucher curve is fixed and transparent. @@ -149,12 +153,8 @@ We propose a standard demurrage strategy for NB-FFS Decoupled Demurrage consisti ## Reference Implementation - ## Verification - - -## Errata - - ## Appendix + +## Changelog From 2f8366c2a61fb78621f559d58bb9a52740af835d Mon Sep 17 00:00:00 2001 From: apenzk Date: Wed, 12 Feb 2025 18:22:28 +0100 Subject: [PATCH 6/6] edits --- MIP/mip-42/README.md | 2 +- 1 file changed, 1 insertion(+), 1 deletion(-) diff --git a/MIP/mip-42/README.md b/MIP/mip-42/README.md index 2eb9627e..0795ab61 100644 --- a/MIP/mip-42/README.md +++ b/MIP/mip-42/README.md @@ -2,7 +2,7 @@ - **Description**: Proposes a variant of [NB-FFS Decoupled](https://github.com/movementlabsxyz/MIP/pull/40) which issues a demurrage token as an LP Token reward. - **Authors**: [Liam Monninger](mailto:liam@movementlabs.xyz) -- **Desiderata**: [MD-15](../MD/md-15/README.md) +- **Desiderata**: [MD-15](../../MD/md-15/README.md) ## Abstract