Summary:
With the upcoming launch of the NOTE staking module, the Notional community needs to determine how much of its revenue it will use to reward NOTE stakers. We propose leaving the transaction fees earned by Notional to accrue to its stablecoin reserve, and using 100% of the COMP incentives earned to execute NOTE reinvestments.
Staked NOTE Recap:
In late December of last year, the Notional community passed a snapshot vote to authorize the creation of a module which would allow NOTE holders to stake their NOTE and earn rewards for doing so.
- NOTE holders will stake their NOTE in the form of 80/20 NOTE/WETH Balancer LP tokens and receive sNOTE in return.
- sNOTE holders will earn trading fees from the Balancer pool, 30,000 NOTE per week in liquidity incentives from Notional’s ongoing NOTE liquidity program, and periodic reinvestment of the Notional protocol’s revenue.
- In return, sNOTE holders provide insurance to the Notional protocol - if a hack or insolvency event occurs, up to 50% of sNOTE will be seized to help Notional recover its losses.
This proposal aims to strengthen the protocol’s value proposition to users while drawing an explicit link between the success of the protocol and the success of the NOTE token. The insurance provided by sNOTE holders lowers the risk to users of the platform and increases the attractiveness of Notional’s fixed interest rates. At the same time, NOTE buybacks with protocol revenue ensure that NOTE holders will participate in Notional’s ongoing success.
Notional’s Revenues:
The protocol currently earns revenues in two ways - transaction fees and COMP incentives.
- Transaction Fees: every time a user lends or borrows, the protocol earns a transaction fee. Notional has generated $346,000 in transaction fees since launching three months ago.
- COMP Incentives: Notional’s integration with Compound means that the protocol earns COMP incentives from its TVL. Notional has earned 4,847 COMP ($590,000) since launching three months ago.
Notional’s Expenses:
Notional currently runs without any explicit costs. Both the Notional Finance Foundation and Notional Finance Incorporated are self-funded. However, Notional bears the risk of potential borrower insolvency due to failures in the liquidation protocol.
For this reason, we believe it would be prudent for Notional to accrue some stablecoin reserves to meet any potential stablecoin-denominated future liabilities.
Open Questions:
- How much stablecoin cash should Notional target to hold in its reserves?
- How frequently should Notional Treasury conduct ongoing buybacks?
- Should Notional Treasury target a particular NOTE price with its buybacks, or should buybacks occur regularly and indiscriminately of price?