Updates to the Blend (BLND) basket

Luke Knepper proposes new changes to the Blend (BLND) basket.

Proposal’s North Star Goals

This proposal has two desired outcomes:

  1. Make BLND an even more appealing product to investors and the crypto community at large
  2. Make BLND benefit the STKR community, such that holders of STKR are motivated to grow BLND to be as big as it can be

Proposal Summary

These actions are proposed:

  1. Update the BLND basket to include Polkadot
  2. Rename “Whitelist Exchange” to “Verified Exchange”
  3. Cease monthly buybacks in favor of the Verified Exchange
  4. Add an additional $500,000 USDC to the Verified Exchange
  5. Accrue a 2% fee on assets under management, which shall be added to the Staker Treasury
  6. Allocate 250k STKR as farming rewards to a BLND/ETH Uniswap pool and 250k STKR as farming rewards to a BLND/XTZ Quipuswap pool over 120 days

Action 1: Update the BLND basket to include Polkadot

The Blend (BLND) basket shall be updated to reflect the following changes:

  1. Add Polkadot to the basket as a new token. The BLND basket will then contain Polkadot, Tezos, Cosmos, and Algorand. Polkadot was selected by a recent poll in the Staker Discord channel. Even though the poll was informal, the support for Polkadot was overwhelming. There are exciting developments in Polkadot’s ecosystem, like the upcoming parachain auctions.

  2. The basket will cap Polkadot’s share in the basket to 30% using Messari’s Y2050 market cap metric. It will also require capping Cosmos’ share to 30%.

  3. Polkadot will be custodied with Coinbase Custody and be delegated to a total of 16 validators operated by Hypersphere, Polychain, Staked, and Stateless.

  4. BLND shall be rebalanced to reflect this new distribution:

  5. 30% Polkadot, 30% Cosmos, 20% Algorand, 20% Tezos

  6. For reference, the distribution on May 5 2021 was:
    35% Cosmos, 35% Tezos, 30% Algorand

Going forward, the STKR community will need to develop a repeatable, long-term process for rebalancing BLND and adding new tokens to the basket. In the meantime, given the community’s clear and strong demand, Polkadot can be safely added to the basket as a short-term stop gap.

Action 2: Rename “Whitelist Exchange” to “Verified Exchange”

The culture at large is moving away from the terms “whitelist” and “blacklist” to racially

neutral and inclusive terms, like “allow list,” “block list,” “include list,” and “exclude list.” This change is happening across the board, from security firms to popular open source Apache projects to large tech companies. As one leader put it:

“While many people will rightly claim they never consciously associated such terms with racism, the reality is that words matter, and these words perpetuate the notion of ‘white’ as ‘good’ and ‘black’ as ‘bad,’” Michelle McLean, vice president of product marketing at security firm StackRox, told Dice.

Let’s follow their lead and move away from the term “whitelist.”

This rename will help BLND be inclusive to all, while providing increased clarity to new users.

Action 3: Cease monthly buybacks in favor of the Verified Exchange

BLND’s goal is to have the monthly rewards be used to raise BLND’s NAV over time. Today, Staker sells the tokens earned from staking rewards, converts the funds to USDC, and uses the funds to buy back BLND tokens. This has three drawbacks:

  1. Fees are assessed when selling the tokens for USDC
  2. Operational burden is added to the Staker team
  3. The buyback process is sometimes confusing to BLND users and potential investors

Rather, the Staker team should let the rewarded tokens accumulate in their wallet. This will raise BLND’s NAV in the same fashion as the monthly buybacks, without the 3 drawbacks above.

However, this will remove a source of BLND liquidity, so we must add more liquidity to BLND.

Action 4: Add an additional $500,000 USDC to the Verified Exchange

Without liquidity, BLND is without much value. Investors must be able to get in and out of BLND when they choose, just like they could had they bought the underlying tokens. This proposal’s author believes that the lack of liquidity is greatly hampering market demand for BLND and hurting BLND’s market cap.

As an immediate next step, $500,000 USD worth of BLND’s underlying assets shall be sold for USDC, and 500,000 USDC (less any fees assessed during the sale) shall be added to the Verified Exchange. This will add liquidity to BLND without impacting its NAV.

This timing accords well with the BLND basket rebalancing, and its recommended that the two are accomplished in the same stroke. The Staker team shall give the community 24 hours notice over Discord in advance of adding these new USDC to the exchange.

Going forward, the Staker community will need to find a scalable, long-term way to add liquidity to BLND. This one-time addition is intended as a short-term stop-gap while the community develops its long-term plans.

Action 5: Accrue a 2% annual fee on assets under management, which shall be added to the Staker Treasury

Today, BLND and STKR are largely decoupled: the size of one does not benefit or impact the other. That’s an issue: because BLND is a product managed by STKR, then the holders of STKR deserve to be rewarded should BLND grow and succeed.

An annual fee on assets under management is a common practice in ETFs and baskets of tokens. Because the STKR community manages BLND, they are the party who deserves this fee.

2% is a reasonable fee for the value that BLND provides to investors:

  • Ability to earn staking rewards without the complex process of holding PoS tokens in a wallet and delegating to multiple trustworthy miners / validators / bakers.
  • Ability to diversify exposure while only holding one token.
  • Ability to reap long-term capital gains tax treatment on the long-term appreciation of BLND, instead of the short-term capital gains tax treatment that would be required if the investor received the staking rewards distributed by miners / validators / bakers.

This fee shall be assessed once per quarter. 0.5% of each asset under management shall be sold, and the proceeds in USDC shall be added to the STKR treasury.

Action 6: Allocate 250k STKR as farming rewards to a BLND/ETH Uniswap pool and 250k STKR as farming rewards to a BLND/XTZ Quipuswap pool

In an effort to further increase liquidity, Staker shall motivate BLND holders to participate in these two swap pools. The BLND/ETH Uniswap pool has been an instrumental way for BLND holders to gain liquidity, and for non-BLND holders to gain access to BLND. Farming is a popular tool used to motivate holders to participate in swap pools, and the STKR community has been eager for more farms.

250,000 STKR shall be allocated over a 120-day period. At a price of $0.20USD per STKR, this equates to more than $400USD distributed to each pool every day.

In closing, how this benefits both the Blend and Staker Community:

BLND holders benefit from:

  • Increased diversification, with exposure to Polkadot. This lowers risk and provides long-term appreciation benefits.
  • Increased liquidity
  • Increased clarity on how to gain liquidity
  • Fewer fees assessed when converting token rewards to USDC
  • Ability to earn STKR by farming their BLND

The STKR community benefits from:

  • A direct benefit based on the market cap of BLND

  • Less operational burden on the STKR team, meaning the pace of implementing proposals could be faster

This accomplishes our two North Star goals of improving BLND and tying BLND and STKR together.

Timing

The updates above should be implemented as soon as the option becomes available and without specific priority. The numbering is not intended to indicate a priority or order. Each change should be announced in the Discord channel 24 hours before it takes effect.

Compensation

If this proposal successfully passes, Luke Knepper shall receive $500 in STKR for creating this proposal.

1 Like

Amazing proposal. Great job @lukeknep

BlockVenture’s Thoughts

This is Tyler from BlockVenture. In summary, our team has discussed Stateless.Money’s proposal and we’re in favor of the direction. StakerDAO’s success will be partially determined by how well we grow and incentivize the community. We felt this was a central piece to the proposal, and we’re excited to see what other parties think.

We particularly support the proposed addition of Polkadot to the BLND basket. Polkadot is now a top 10 crypto by marketcap and many community members have been excited by Staker’s PINT product (Polkadot Index Network Token). By adding DOTS, this would give investors in BLND a broader exposure to the Polkadot ecosystem at the network token level.

We also support your proposal to change the way that Staker operationally burns and buys tokens, to a more efficient staking accumulation. The 2% AUM fee seems fair. We also like your idea for spinning up incentivized liquidity pools to get more people into the community.

Questions:

  • Sometimes farmers can be short term motivated for their participation in pools. We’ve recently seen other DeFi projects incorporate token vests on farmed rewards, anywhere from 6 months to 1 year. We’d love to see if others in the community have similar ideas, but this would likely weed out any short term motivated farmers who may sell their STKR tokens while the project is still growing and building a liquidity base.

  • Typically with BLND, it’s our understanding that investors who purchase BLND on the verified exchange have their assets invested into the PoS assets by the Staker team. In this situation on the liquidity pool, BLND will be purchased using ETH, the price of BLND will go up, but not the underlying NAV of BLND, potentially creating an arbitrage opportunity. It’s unclear if this is good or bad, but is there a way that Staker will be able to use this ETH to grow the NAV of BLND? Or is it more to incentivize long term STKR community building?

  • Does STKR still take a 20% fee on accumulated rewards from the PoS basket? If so, is this also standardardized on a quarterly basis, similar to the 0.5% AUM per quarter your team has proposed? We figure that it may be easiest for the Staker operational team to standardize this, but not exactly sure how that process works.

Thank you for putting this together!

2 Likes

Thank you Tyler! I like where your head is at.

  • I support the idea of vested farm rewards. How exactly does that work in practice? After the farm ends, do the farmers have to keep their funds in the pool until the rewards vest? I’d be up for changing the proposal to include this.

  • If you purchase BLND on the Verified Exchange, ideally that trade itself should not impact the NAV. My understanding is that the exchange is backed by a pool of BLND and USDC. The BLND are not included in the NAV, but the USDC are. (BLND’s NAV is really the PoS tokens + some USDC) So if you purchase, there are more BLND in the NAV, but there are also more USDC, so the operation itself does not affect the NAV. If you sell, the USDC are removed from the NAV, and so are the BLND. My understanding might be wrong, we should have someone from STKR confirm.

  • My understanding is that STKR has not been collecting the 20% fee on rewards. This idea was replaced by the 2% AUM annual fee. It should be either-or, I don’t see a reason to have the 20% fee + the 2% fee at the same time. We should have STKR clarify if the proposal should have language to exclude the 20% fee.

Thanks for the response Luke! Makes sense regarding your last two points. Here’s my thoughts on how the vested farming rewards could potentially work.

  • Vested Farm Rewards - Essentially the liquidity pool would calculate a weighted average at the end of rewards program. As an example, if we had 250K STKR for farming rewards to a BLND/ETH Uniswap pool, the formula for calculating the earned STKR would be: (liquidity added by user x number of blocks held) / (total liquidity added * number of blocks held). These rewards could then be distributed over an agreed time period, say 6 months for this example, after the conclusion of the rewards program. If the rewards program ended August 1st, they’d then be able to withdraw their vested token rewards at any point in time, and they’d be fully vested 6 months later (February 1st).

Let me know if this makes sense!

I agree that you only need the 2% fee and not both.

Great proposal. I trust it will pass.