[RFC] Transfer Vault Rewards from staking to Merkl and enable tokenisation of Vault Shares

General Discussion Request for Comment [RFCs]
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Title:

[RFC] Transfer Vault Rewards from staking to Merkl and enable tokenisation of Vault Shares

1. Summary:

In order to help grow the TVL, I believe we should enable the tokenisation of the Lazy Vault Shares so that they can be used as collateral in supported Borrow/Lend markets and then when profitable, users can yield loop them.

In order to be able to tokenise the vaults, and keep vault rewards for users, we will need to move the current vault rewards away from the fleet staking manager and use something that allows rewards when vault shares are depositing into other protocols, such a Merkl.

2. Context & Motivation:

Following on from @samehueasyou RFC - the only way out is up (here) - this proposal would allow for faster TVL growth by following the path of many others protocols by making the vault shares usable within other borrow and lend protocols with the ability to yield loop them to maximise potential returns.

What’s more, this was originally thought about in the design, and all existing vaults can have tokenisation enabled through a governance vote, so there is no secondary vaults that need deploying and users will not need to move over. They may have to sign a transcation to unstake and mint their vault share tokens though.

For context, I think it was the right approach at the start, with the protocol being new, that the shares were not tokenised so that it could be a softer launch to ensure everything worked as expected. But now with the TVL over $100M and growing, along with user numbers, we can make the Lazy Summer Protocol even more attractive to DeFi Natives, and this also allows us to open the door to a new Vault product type called Lazy Loops (subject to this being passed).

As mentioned in the summary, in order for the SUMR rewards to be earned by users depositing into 3rd party protocols, we will need to move away from the current vault staking rewards and move to a new system. One such as Merkl, which is used by many top projects, and will give us the same flexibility and functionality with rewards as now. As this is an RFC, this isn’t a final decision - and it should be open to other proposals.

In preparation should this RFC and subsequent vote pass, Summer.fi is actively looking into suitable protocols and risk curators to support the Vault Share tokens where liquidity would already be available.

3. Proposal:

  • Move away from current Fleet Staking Rewards Manager
    – This will involve a vote to set the current rewards to 0 on each Vault.
  • Enable another type of rewards distribution mechnism (such as Merkl)
    – If no objections, Summer.fi, as the Labs Co and acting under direction of the foundation, will work with Merkl (or another if directed to by the community) to setup the new rewards program. Governance will have the option to change the reward amounts at this stage.
    – A vote to transfer relevant tokens from Summer Treasury to Merkl contracts.
  • Enable the tokenisation existing Vaults
    – This will again be a governance vote, and can happen at the same time or after the transfer of rewards.

4. Open Questions:

  • Does the Summer community agree with moving to MERKL for the rewards distribution or would like to propose another solution?
  • Should all Vaults be tokenised from the start?
  • Assuming the community wants to move forward, should the current SUMR reward levels remain or be reset again to another level?

5. Next Steps:

  • Gather community feedback
  • Promote to SIP (either one or two depending on the discussion and if Rewards and Tokenisation should be split)
  • Push to vote

–

Thank you all for the consideration for this RFC.

Tagging @Recognized_Delegates for their input

6 Likes
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Really like the evolution, strong support for the general direction here.

MERKL makes a lot of sense. Proven, flexible, and lets rewards follow vault tokens wherever they go which makes here a lot of sense. Do not have much experience with other distribution methods, but happy to learn and experiment with more if anyone suggests some.

Strong yes on tokenizing ALL vaults. Would also suggest focusing promotion and liquidity efforts on vaults with the highest TVL to start. This could bring the best signal-to-noise for integrations.

On SUMR rewards here I am unsure, either maintain current levels or increase slightly to drive more TVL while vault composability gets unlocked. Would love to hear thoughts of others here as well.

–jensei

1 Like
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Love this proposal, I’m 100% behind it.

Tokenizing the vault shares is a game-changer. Letting people use them as collateral elsewhere is exactly what we need to grow TVL.

Switching to Merkl is the perfect way to do it. It makes rewards work everywhere and simplifies the user experience by ditching the old unstaking system (the role based on behalf of user).

My thoughts on the questions:

  • Merkl? Yes, it’s proven and works. Let’s go with it.
  • Which vaults? I’d start with highest tvl on mainnet.
  • Reward levels? I’d keep it as is for now, and observe the distributions taking into account possible leveraged positions. With Merkle we have a lot more flexibility when it comes to the rewards.

This is a huge step forward.

From the negineering point of view we’ll need to make some adjustements in the SDK to make sure we have a smooth transistion - we also need to either have a transition period, for people to be able to unstake - or take care that Merkle takes into account the currently staked shares.

6 Likes
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I have no objection with Merkl as I used it before. Some other places to explore if interested:

https://x.com/Sablier
https://x.com/Superfluid_HQ

1 Like
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What is the downside if all vaults are tokenised? or if only the top 10 in TVL are? Any risk issues?

3 Likes
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Thanks for this proposal. Hereby voicing support for it too.

What I’d recommend for launch is seeking 1 maybe 2 key places for looping strategies, and rallying the community around those. Perhaps there is more appetite for long tail stablecoins as debt token in the strategies, e.g. GHO, USD0 or paypalUSD.

Potentially can team up with a stablecoin issuer to collaborate on rewards.

I’d also hereby suggest earmarking a nice piece of the community SUMR allocation for rewarding lenders and possibly borrowers too in some of the looping strategies.

2 Likes
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Absolutely love that we are making clear and steadfast progress on this critical item on the path to 1B TVL *tm.

Unequivocally yes.

I think this question is deceptively difficult and actually requires some thought. In my view there are three key variables that we need to consider.

  1. Demand.

I don’t have the data in front of me, but by briefly looking at contango, euler and morpho - it seems that the overwhelming majority of demand comes from Mainnet, for both yield bearing Stables and ETH.

  1. Yield

Obviously the native yield is huge component, which makes me somewhat lean towards higher risk strategies.

  1. Cost of capital relative to collateral

I am actually not sure how the borrow rate is reached for some these type of like-pair asset markets, but if the markets that are tokenized impact the borrow rate substantially that should be taken into consideration.

Given these variables I am in favour of the following vaults to be tokenized:

  1. USDC Lower Risk Mainnet

  2. ETH Higher Risk Mainnet

  3. USDC Higher Risk Mainnet

imo should slightly increase the reward distribution weight toward the tokenized vaults.

1 Like
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I don’t think any risk. Just that we may not want to try and push secondary borrow/lend markets for all.. and maybe just concentrate on a couple of markets first.

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Agreed. I have started to reach out to a couple of protocols/curators to see if there is appetite to take on the new vault tokens as collateral into existing markets where there will already be liquidity.

Agree here too - esp if we can only make isolated markets at the start, rewards and incentives will be critical to get liquidity going, and in some ways, a bit counter to the Lazy Vaults - but what is needed.

1 Like
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With regards to which Vaults, I see some strong alignment here - particulaly around focusing on Ethereum mainnet first, and as well on the highest TVL vaults.

I this makes a lot of sense.

2 Likes
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Supported. Merkl is a great team. I think Superfluid might have an alternative offering. They seem to be delegates here too. Maybe they want to chime in.