Before submitting a formal proposal, we’d like to start a public discussion on several points we believe could meaningfully improve the Velora protocol.
These ideas are key to understanding the reasoning behind this discussion and will help shape future proposals.
Many of them were already discussed informally with some members of the DAO, who showed interest.
Timing and Token Rebranding
This discussion and any subsequent proposal make the most sense once the new token has been launched.
Impact of PIP-60 on Staking Rewards
Soon, As defined by PIP-60, staking rewards will be paid 100% on the chain where a user’s main staking position resides.
Current Payment in ETH Only
Staking rewards are currently paid entirely in ETH, as the protocol’s fees are collected in ETH.
This approach may weaken Velora’s treasury, as it creates no buying pressure for the PSP token.
Additionally, when this ETH—considered a hard currency—is distributed, it is not retained in the treasury.
User Behavior and the Staking 2.0 Pool
The Staking 2.0 Pool is composed of 80% PSP and 20% wETH.
It currently offers a 2.5x reward boost.
We currently lack precise data on how many users claim their monthly ETH rewards and immediately convert them back into the staking pool (i.e., by swapping for PSP, creating LP tokens, and re-depositing them).
It would be great if someone could look into this before moving forward with a formal proposal. If no one else does, we’re happy to take the initiative and do some further research.
Some may find the user experience cumbersome:
Claim the reward in ETH
Sell ETH to buy PSP
Wrap ETH into wETH
Create the LP (80% PSP, 20% wETH)
Deposit the LP tokens back into the staking contract
Others simply move the ETH reward to a different protocol or use it elsewhere.
Rising Rewards with Intents and Delta V2
With the implementation of Intents in the Delta V2 contract and Velora’s growing volume, each Epoch has been generating progressively higher rewards for stakers (though not in the most recent ones, unfortunately).
These tweets illustrate how rewards have been increasing:
This clearly shows how compounding can significantly boost long-term returns.
Meanwhile, users continue supporting the protocol via higher PSP holdings and liquidity provision.
For the ETH Mainnet holders use case, this feature could even help end-users save on gas fees.
Of course, this smart contract would need thorough auditing.
In the best-case scenario, after private audits, external audits, and reviews by the Laita Labs team, this feature could be integrated directly into Velora’s UI—maximizing adoption and truly benefiting end users.
To drive proper adoption, this is a must.
If a “manager” contract is created, the user can assign a specific amount to it and a different amount to the standard contract. This allows them to define what percentage goes to auto-compounding and what percentage to regular staking.
Logic behind the manager contract: Is it possible to adjust the staking payout distribution for the Auto-Compounding mechanism?
Related to this topic, there are two options:
Option 1:
Have the user transfer ETH, and let the manager contract handle everything needed to create the LP token.
This setup is useful because the manager could follow the same logic when it claims rewards each month, converts them, and reinvests them into the staking contract.
It would also create buyer pressure on the PSP token, while improving the user experience.
The only concern is that, at certain points in the epoch, this concentrated buying pressure could potentially be front-run.
From a development point of view, this option makes more sense.
Option 2:
Instead of paying rewards entirely in ETH, and considering the current reward pool composition is 80% PSP and 20% wETH, it makes sense to experiment with distributing rewards as 80% PSP and 20% ETH.
This might make sense only for the AutoCompound case.
If we go with this option, the staking rewards received by the manager could be sent to the DAO treasury, which would then provide the necessary 80/20 proportion directly for auto-compounding.
This approach would allow the DAO treasury to retain more ETH than it does currently.
While it wouldn’t generate monthly buy pressure for PSP, it would help maintain a healthier treasury by holding a stronger asset (ETH) and could improve future DeFi opportunities.
Distributing PSP this way is one of the most efficient ways to optimize treasury use because:
End users can’t sell immediately, as they’re subject to the epoch withdrawal delay.
The PSP is directly used to provide liquidity to the pool, helping reduce the exchange rate spread.
This option requires more coordination between parties, which could complicate development. And while it’s appealing, the actual impact may not be significant enough if it introduces more potential points of failure.
Is offering an extra boost to encourage use of the manager contract worth it?
Just as the Pooled Boost was introduced to align with the community and encourage its use (as it helps retain ETH and carefully release PSP), it makes sense to apply an additional boost to further incentivize the use of this Manager Contract.
An idea could be:
For every 2 epochs that a user does not withdraw ANY of their liquidity from AutoFarm (they can add more liquidity during that time), the pool boost will increase by 0.05 points. This can accumulate up to a maximum boost of 0.5 points.
As a result, instead of the current 2.5x boost for the Staking Pool, users could reach a 3x boost if they keep AutoFarm enabled for at least 20 epochs—roughly equivalent to 1.5 years.
Note: This option requires more coordination between parties, which could complicate development. And while it’s appealing, the actual impact may not be significant enough if it introduces more potential points of failure.
Conclusion
Strengthens the Treasury by preserving ETH or creating buying pressure for PSP.
Improves Stakers’ Yield through automated monthly compounding, increasing effective APY with minimal effort.
Incentivizes Long-Term Participation via a loyalty-based boost system, allowing users to reach up to a 3x reward multiplier.
Simplifies the User Experience by automating the complex process of claiming, swapping, and re-staking rewards.
We welcome any feedback, suggestions, or concerns on these ideas.
Having worked with sensitive staking rewards data, WakeUp Labs feels confident moving forward with more complex protocol-level improvements. The goal is to deliver a final proposal that aligns with the best interests of the Velora DAO, aiming to optimize protocol health, improve user experience and ultimately be integrated into Velora’s UI.
P.S. If there’s a new token or a different staking mechanism, the manager contract that enables auto-compounding should be modular enough so that its logic doesn’t interfere with the new features. That said, it’s important to keep in mind that we still don’t know, since the technical research hasn’t been done yet, whether the tokens held by the manager contract will be usable in governance.
I don’t understand why we would be interested in reinventing the wheel, auto-compounding services/protocols exist since almost day 1 of DeFi such as Beefy FInance/Harvest Finance/etc…
What’s the point of spending money, time & bandwidth developping something that already exist?
Yes, there are some interesting auto-compounding platforms that work well with crypto.
Did you ever find any compatible with $PSP? We looked but couldn’t find anything.
We’re not trying to reinvent the wheel. We’re just trying to understand what’s available, explore other possibilities, and see if it could positively impact Velora DAO.
Regarding the impact, @jengajojo_daoplomats, although we haven’t done a detailed analysis, there’s currently around $8.5M USD TVL in sePSP2, according to the dashboard.
If 10% were allocated to an auto-compounding contract, that would be roughly $850,000 at a 21% APR.
$850,000 * 21% / 12 = about $14,875 per month for stakers using auto-compounding.
If we paid 80% of that in $PSP instead of $ETH, it would mean the Velora treasury would effectively “earn” about $11,900 worth of $ETH each month while “spending” $PSP in a healthy and controlled way.
Alternatively, if we bought directly on-chain, it would create comparable buying pressure and might lead to an increase in the $PSP price.
Of course, $850,000 is a significant amount of liquidity, so it’s important to see how much users would actually be willing to move. Without integrating it into Velora’s UI, it might be hard to reach a significant amount of liquidity in the manager contract.
Generally, I am in favor of auto-compounding, and I do see the need for such an option by default—especially since most stakers are retail users with relatively small rewards. Auto-compounding could help grow these rewards over the long term.
However, I believe some major changes to Paraswap’s tokenomics are necessary during the full transition to Velora. Based on the current implementation—and to improve both the tokenomics and $PSP liquidity—the entire staking module should be categorized and discussed under the two key areas that @Avantgarde, the VGC members, and I are working on. I believe we to align more our complementary efforts here.
Anyway, if I want to be specific about what you proposed here: The staking rewards should be distributed in our native token instead of ETH—to increase the utility of $PSP and avoid leaking value outside of our ecosystem, as I’ve mentioned before.
First of all, we’re very much in support of @WakeUpLabs and the work you’re doing for the DAO - so thank you for starting this conversation.
We fully support the idea of auto-compounding. Generally speaking, we should make the Velora experience as seamless as possible for users, and this clearly moves the needle in that direction. If no such solution exists that is compatible with Velora (we are not aware of such), then it makes sense for us to build it.
We are also in favour of altering the token denomination for the staking rewards, as we recognise the need for the DAO to start accumulating some funds and build a more sustainable treasury that can support the proposal in the long run.
@WakeUpLabs in your view is this simply a matter of changing this from ETH to PSP, or to what extent could we play around with different ratios where X and Y % of rewards are paid out in ETH and PSP respectively? Put differently, how much technical complexity would the latter add to this?
We would be interested to hear other delegates’ opinion on what the new rewards distribution might look like.
In their UI, users can choose the most relevant option for them, which helps us provide the best experience for both regular and advanced users.
Regarding the option 2, I have a question:
Currently, who collects the fees generated on the 80/20 pool? I believe it is the DAO, as everything is done by our interface. If that is the case, what would be the impact on the fees collected if, instead of using ETH to swap for PSP in the pool, PSP were provided directly from the treasury? This should be taken into account when calculating the actual cost of this option.
I’m in favor of supporting auto-compounding as a feature, but perhaps make it optional?
Manually claim, swap, and re stake is not a problem for most but it helps:
Those worried about tax implications. Auto-Compounding make it easy for tax.
Incentivize staking for people with smaller bags: It can be expensive a flow that’s especially unfriendly to newcomers. This can lead to missed rewards or, worse, selling off earned ETH rather than reinvesting it.
Auto-compounding solves this by automating reinvestment, which can also show higher staking yield . Optics matter.
Platforms like Beefy or Harvest have offered auto compounding solutions since early DeFi.
We could discuss exploring partnerships with these protocols. If Velora users can stake via Beefy/Harvest with a reduced fee structure, we avoid dev overhead, go to market faster, and tap into their existing user base, a win for PSP exposure and adoption.
It’s like a marketing partnership where we share our existing users with each other while we hopefully get preferential fee from them.
On second thought I’d echo @jameskbh@Ignas here to have the compounding integrated into the UI as an option that can be toggled into auto, rather than having auto as default. Makes sense.
Assuming we can build this internally at a reasonable cost we should do so (imo), as Beefy/Harvest will require external routing and very likely come at a fee cost, right?
It’s not going to be a one-time development fees and done, the service provider that manage the process/manager contract/etc… will along the way also take its % fee from the epoch volume, just like Beefy/Harvest, right?
In our opinion, if this mechanism is developed internally, the DAO should cover the development costs and, at most, a marginal cost for basic maintenance, not a percentage of the volume managed by the mechanism.
From the numbers shared by several members, wallets under ~$5k are losing a non‑trivial slice of their staking APR to manually “claim + restake” gas. Other ecosystems that rolled out wrappers reported a 7‑15 bp weekly boost once gas is netted out, and the bulk of the deposits that followed came from exactly that smaller more longtail cohort. We’re convinced there is material, measurable value for the small and mid‑size holders who make up most of the community by numbers.
The main friction is the fee model. A perpetual performance fee feels mis‑aligned; a one‑off build‑and‑audit grant funded by the DAO, paired with a tiny block‑level caller incentive, strikes us as the better option. A minimal wrapper contract could custody users’ stake via an ERC‑4626 vault, expose an open compound() function, and let anyone trigger compounding once accrued rewards cross a DAO‑set threshold. A micro‑incentive of, say, 0.05 % of each reward batch should comfortably cover gas without noticeably eating into yield, while keeping the system permissionless.
Overall, a full external audit is needed, including a seven‑day upgrade timelock, and an emergency pause under the DAO multisig. More than 80 % of new deposits into autocompounders come from wallets that historically under‑utilised “claim” functions. Capturing that segment here would broaden our holder base, deepen liquidity, and free smaller users from what is effectively a regressive gas tax.
We think the next step could be a quick signal vote or poll.
Do you have any data to share with us on what % of stakers are recurrently manually claiming > selling ETH rewards > buy PSP > stake it into sePSP2?
How are we sure an important part of our userbase will opt-in for this feature and that we are not going to spend Core Team’s precious time/bandwith and DAO’s treasury for 5 to 10 people?
Great to see your interest in this proposal. We’re aware of the important work you and the VGC team are doing and whenever you think our insights could be helpful, we’d be happy to contribute.
On the specific point about distributing staking rewards in $PSP rather than $ETH.
However, shifting fully to $PSP rewards might be too abrupt in the current phase. Without strong utility, there’s a real risk those rewards could be immediately sold, potentially creating sell pressure instead of long-term alignment.
From our perspective, it’s essential that holders benefit directly from profits in a way that encourages long-term participation.
As we said before, we understand the benefits of changing the payout.
However, the implementation doesn’t seem so simple, and the impact for stakers and holders is uncertain.
Our idea was that only the $PSP required by the manager contract would come from another source. This would reduce complexity while still making it feasible.
However, changing the payout for all stakers entirely isn’t so simple.
Each program, “Rewards” and “Gas Refund”, has its own smart contract where users claim their rewards, and each contract is designed to handle just one token.
(We can validate this later on with @Laita)
If we wanted a hybrid payout with different ratios it would require building a new contract that can handle multiple assets in a single payout. Technically, the math behind the ratios is straightforward. The complexity comes from deploying and integrating with a new contract, as the current setup only allows for one asset per contract.
If a hybrid isn’t feasible in the short term, a workaround would be two separate claims: one for PSP and one for ETH. (Using “copies”/“forks” of the current contracts).
While this wouldn’t be as seamless for users, it could serve as a simpler way to test the idea. Additionally, the Manager could claim the rewards without much extra work. (Still, this implies a bigger change in the rewards dynamic).
Thank you @WakeUpLabs for bringing this discussion to all Velorians to brainstorm, was planning at some point to brief everyone on a few topics VGC have been at but this is a perfect opportunity to chime in this effort, so for past couple weeks, the VGC with a little lead from myself and @Avantgarde have been diving into both Tally’s staking modules and Aragon’s ve-model, and as @WakeUpLabs brought to whiteboard I think and am convinced that an onchain auto-compound solution is next step for us and what Velora needs to optimise and align long-term interests.
So with Tally, we’ve already confirmed that their infrastructure could seamlessly pull ETH fees into a auto-compounding unified staking contract, no radical rewrites of our core logic required, and this action could be triggered via Chainlink or Gelato plus the possibility of a stVLR LST which would be nice!
At the same time we explored a solution which might prove resilient for long term Aragon’s VotingEscrow which offers a clean path to introduce veVLR: by time-locking BPT for up to two years, users would earn tiered protocol-fee shares (100 % for two years, 50 % for one year, 25 % for shorter locks) while also giving us the power to carry on-chain governance weight for adjusting future parameters. Both options envisioned spin around the BTP token and have available auto compounding feature at fingertips we just need to choose which is best, agree on it and implement !
Over the coming week we’ll reconvene with Aragon to finalise a potential high-level architecture that combines these ideas as well as again touch base with Tally for their blueprint and a potential integration plan/requirements, afterwards VGC plans to loop in WakeUp and Mimic to unify efforts and ultimately present a comprehensive proposal for the community’s approval.
I’m excited by the potential to have in our ecosystem a truly differentiated, self-accruing staking experience that both drives TVL and positions Velora among leaders in value accrual and revenue sharing.
On last note, I can’t wait to see our efforts come alive on the forum for everyone to dabble into… in the meantime look forward to see some impressions. LGrow!
Hi WakeUP, thank you for opening these discussions!
I wanted to share some of my thoughts regarding this proposal. The following are my personal thoughts and not Laita’s official position, but thought I would chip in after seeing some of the discourse so far.
In the past, the PSP staking system was designed for maximal amount of choices and ways to boost the system. This included having multiple types of boosts (trading stables, trading non-stables, referring, etc.), as well as having single-sided and boosted options for staking. This amount of choices was proposed pre-emptively as a way of maximising choice to stakers, but as we saw in PIP-53, most of these boosts were barely used, and users found the system to be too complicated with the multiple staking choices and networks. Personally, had we released PSP 2.0 with sePSP2 only the current onchain liquidity would have been much higher than it currently is.
If an auto-compounding system would be added, I would avoid overcomplicating it and re-introduce optional staking systems. Introducing a single token with automatic compounding comes with many advantages, including as mentioned by others beforehand:
Tax implications in some jurisdictions
A wrapped value accruing token (like wstETH) could open the road in the future for self-repaying loans.
A simplified staking experience where users save on gas and time and the value gets re-invested into the liquidity of the system automatically.
A unified token will also allow for easier integrations in the future with, for example, pendle/spectra , multichain bridging (if needed) and more.
For points 2 , 3 and 4 especially, the DAO will be losing a this opportunity for simplification and CDP introduction if we make auto-compounding optional, as suddenly there will be multiple tokens and yield distribution sources diluting the possibilities of the wrapped token.
Finally, on a more practical perspective, having multiple options could also complicate the staking upgrade partnership options @citizen42 has discussed about with future patterns. Regarding pricing, I personally believe this would be better discussed once a proper spec is published on how the project would go along, but I’ll leave this section on the hands of the more capable VGC members!
Our main concern with changing the staking flow is that the current setup also helps deepen PSP liquidity in the Balancer pool, which we believe brings value. If the flow changes, we might need another way to preserve that benefit.
We started this discussion to gauge interest, and the positive response from delegates has been encouraging. We all agree on keeping things simple, and a lightweight “manager” contract that auto-compounds rewards without touching the core staking contracts still seems like the cleanest path forward.
We had slowed down the discussion while the VLR migration wraps up and until we hear a consolidated view from the VGC on the future of the staking mechanism.
That said, we’ll continue addressing any outstanding questions to make sure nothing is left unanswered in the meantime.
Once the points above are resolved, this thread can either form the basis for a full proposal or help set the stage for a smoother signal vote.
. Optics matter.