AELIP-46: Protocol fee distribution
The proposed AELIP aims to establish a mechanism for distributing all the unlocked fees that have been collected by Aelin Protocol since its launch. As part of this proposal, some of the tokenomics rules established in AELIP-14 will be amended.
Displayed in the table below are all of the fees collected by the protocol since last year that are available for distribution:
In line with AELIP-14 and AELIP-31, this AELIP proposes the following distribution: 50% of all the fees listed above will be claimable in a merkle tree contract by historical stakers, including AELIN stakers and LP stakers (prior to transition to Velodrome). AELIN stakers will be able to claim two-thirds of the deal fees, while LP stakers will receive one-third of the deal fees. Distribution to both groups will be based on amount staked and time in the contract. 50% will be distributed to AELIN stakers over a period of 90 days, through a multi-rewards staking contract.
It's crucial to mention that AELIP-14 stipulates that 30% of the protocol fees should be reserved for the treasury. However, this AELIP suggests making an exception to celebrate this first round of distribution. This exception only pertains to this particular distribution round, and the protocol will resume collecting its share of the fees for the next round.
AELIP-14 also originally specified that deal fees should be traded for AELIN tokens at the current market price and subsequently given to stakers. However, this section of AELIP will be revised, enabling deal tokens to be distributed directly without being sold. Please see the Rationale section for additional information.
Once the distribution takes place, staking AELIN in the old contracts (Pool 1 and 2) will not qualify for any additional reward programs.
This AELIP aims to address two crucial challenges. The first challenge was to establish a fair way to reward the early AELIN stakers who had demonstrated their faith in the project since its launch last year. Aelin recognized the importance of acknowledging the contributions of these early supporters and proposed the fair distribution of half of the fees to achieve this goal.
The second challenge concerned the buy-back mechanism established in AELIP 14, which had the potential to adversely affect protocols with low liquidity by selling their tokens for AELIN. The protocol recognized the need to modify this mechanism to ensure that it did not harm smaller projects. Moreover, the buy-back mechanism, if not adjusted appropriately, could potentially lead to an appreciation in AELIN's price, followed by a decrease in the willingness of stakers to take profits.
The deal token distribution will happen in two different steps:
- A script will be developed to calculate the distribution share of each wallet belonging to the historical stakers based on the duration of their staking period and the amount they have staked. The results will be incorporated into a merkle tree, allowing every user to claim their portion of the deal tokens.
- The remaining 50% of the deal tokens will be streamed over a period of 90 days in a multi-rewards staking contract.
The main difference between AELIP-14 and AELIP-31 is that the deal tokens will not be exchanged for AELIN tokens, before they are given to stakers. Although this approach may seem beneficial because it could increase the demand of AELIN through the buyback mechanism, there are some downsides to consider. For instance, low liquidity protocols could be adversely impacted if Aelin Protocol sells their tokens at the current market price, making other projects hesitant to raise funds through Aelin for fear of the protocol "dumping" their tokens. Furthermore, after engaging with the community, it appears that some people who previously invested in Aelin's pools would rather keep the extra deal tokens, as it allows them to accumulate more and diversify their portfolio. As a result, this AELIP aims to amend the part of AELIP-14 that requires the protocol fees to be sold before being distributed to the community.
It's crucial to remember that this AELIP only addresses this distribution round, and another AELIP will soon be introduced to update Aelin's tokenomics officially.
The protocol plans to deploy two new smart contracts. The first one will contain the merkle data that will enable historical stakers to claim their portion of the protocol fees. The second one will be a multi-rewards staking contract, which will permit users to stake their AELIN and earn protocol fees for a period of three months. This custom version of the Curve's multi-rewards staking contract (link here), which functions similarly to the Synthetix Staking rewards contract, will enable users to claim multiple tokens instead of just one. Both of these contracts will be integrated into Aelin's dApp, in the staking section.
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