Proposal to Enhance Long-Term Staking Incentives for ParaSwap
Introduction
ParaSwap, currently offers two staking options that impact voting power and revenue:
- sePSP1: 1x multiplier for voting power and revenues.
- sePSP2: 2.5x multiplier for voting power and revenues, with an 80% PSP and 20% ETH pool.
These staking options reward users for participating in the protocol. However, the current system lacks strong incentives for long-term staking. This proposal introduces a new mechanism to incentivize long-term holding of sePSP, while ensuring the system remains fair and beneficial to loyal participants.
Please note that all figures provided in this proposal are examples only. These parameters can be flexibly adjusted by the protocol to fit the system’s needs. The formulas governing these values are straightforward and can be found at the end of this proposal.
Please feel free to give your opinion after reading this. Feedbacks are heavily appreciated.
Proposed Changes
1. Locking Period and Paraboost
Users can choose to lock their sePSP tokens for a period of up to X epochs (where X is the maximum, and configurable by the protocol). The longer the lock, the higher the paraboost applied to both revenues and voting power, rewarding long-term stakers.
I believe the paraboost should also apply to voting power, as long-term stakers have a vested interest in the protocol’s success and are more likely to contribute to its improvement over time.
-
No Lock, No Boost: Users who do not lock their tokens will not receive any paraboost.
-
Sliding Lock System: To enhance user experience, a slider in the interface will allow participants to select their preferred number of epochs, ranging from a minimum to a maximum. As users adjust the slider, they will be able to see the corresponding paraboost value grow dynamically in real time. This ensures that users can easily understand the impact of their chosen lock-in period on both their revenues and voting power.
While the exact number of epochs can be adjusted, as an example, locking for the full X epochs could yield a significant boost of up to 167%. Users are free to lock for shorter durations, but the paraboost will be correspondingly lower.
At the end of the user-selected locking period, the paraboost returns to 0%. Users will need to relock their tokens to maintain any paraboost benefits, which encourages continuous long-term staking commitment.
In the following sections, I will take a pre-determined maximum number of epochs for the boost of 26 epochs which corresponds to two years, and a locked up period of 13 epochs for the staker. Therefore the staker would get a 63% paraboost for a year while still being able to withdraw its stake with a slashing penalty.
With this system, here would be the ParaBoost compared to the number of epochs where the stake would be lock.
| Locked Number (Epochs) | Paraboost during the duration of the lock |
|---|---|
| 1 | 4% |
| 2 | 8% |
| 3 | 12% |
| 4 | 16% |
| 5 | 21% |
| 6 | 25% |
| 7 | 30% |
| 8 | 35% |
| 9 | 40% |
| 10 | 46% |
| 11 | 51% |
| 12 | 57% |
| 13 | 63% |
| 14 | 70% |
| 15 | 76% |
| 16 | 83% |
| 17 | 90% |
| 18 | 97% |
| 19 | 105% |
| 20 | 113% |
| 21 | 121% |
| 22 | 129% |
| 23 | 138% |
| 24 | 147% |
| 25 | 157% |
| 26 | 167% |
2. Withdrawal Flexibility with Penalty (Slashing)
While users can withdraw their tokens before the lock-up period ends, they will face a slashing penalty based on the remaining epochs. The slashing begins at 60% and reduces epoch after epoch in a non linear manner.
This system not only incentivizes users to lock their tokens for a higher number of epochs, resulting in a greater ParaBoost, but also discourages early withdrawals. With each passing epoch, the slashing penalty decreases, making it more advantageous to wait for the next epoch rather than unstaking too early and losing more of their stake.
Here is a table so you can better understand this system (it changes according to the duration of the lock, but the slashing always begins at ~60%) :
| Epochs passed before complete unstaking process | Stake Slashed | Decrease in the Slashing compared to last epoch |
|---|---|---|
| 1 | 59% | - |
| 2 | 56% | -3.16% |
| 3 | 52% | -3.40% |
| 4 | 49% | -3.67% |
| 5 | 45% | -3.95% |
| 6 | 40% | -4.25% |
| 7 | 36% | -4.58% |
| 8 | 31% | -4.93% |
| 9 | 26% | -5.31% |
| 10 | 20% | -5.72% |
| 11 | 14% | -6.16% |
| 12 | 7% | -6.63% |
| 13 | 0% | -7.14% |
3. Slashing Redistribution
When a staker withdraws before their locked period ends, a portion of their tokens is slashed as a penalty. These slashed tokens are not burned; instead, they are redistributed proportionally to the remaining stakers in the protocol.
This system is designed to reward long-term holders, who believe in the protocol and maintain their positions, while penalizing those who exit early. In essence, this redistribution reflects the natural order: stakers who stay committed are compensated for their patience, while short-term holders sacrifice a portion of their tokens. This mechanism ensures that long-term stakers continuously benefit from the impatience of others, increasing their revenues over time and thus their holdings.
4. Lock-in Starting in the Next Epoch
To prevent opportunistic behavior, the lock-in period will only begin in the next epoch. This ensures that no one can stake immediately after observing slashing events and benefit unfairly. During the current epoch, users can still withdraw without penalties, but they will also not earn any rewards. This keeps the system fair and prevents gaming of on-chain events.
Comparison with ZeroLend and Curve
The proposed system introduces significant improvements over protocols like Curve and ZeroLend:
- ZeroLend: Locks $ZERO for up to 4 years, and diminushes the revenue and voting power of each $veZERO accordingly and linearly to the period locked.
- Curve: Works similarly to ZeroLend, here is their working mechanism :
veCRV is an acronym for vote-escrowed CRV. Users can lock their CRV for a minimum of 1 week, maximum of 4 years, in return the user is given veCRV, veCRV amount decays linearly over the chosen lock time. veCRV is not transferrable. The longer you lock the more veCRV you receive, see the locking formula section for a detailed explanation but the simple explanation is:
- 1 CRV locked for 4 years = 1 veCRV
- 1 CRV locked for 3 years = 0.75 veCRV
- 1 CRV locked for 2 years = 0.5 veCRV
- 1 CRV locked for 1 year = 0.25 veCRV
- …
Our proposal, in contrast, offers a much more dynamic and rewarding model. With our system, locking tokens longer results in exponentially higher rewards (for both voting power and revenues), and users have the flexibility to withdraw early, albeit with penalties.
Appendix: Formulas and Explanation
1. Paraboost Formula
The paraboost formula rewards long-term stakers exponentially.
Paraboost = (1 + 1/X)^Y
Where X is the maximum number of epochs and Y is the number of epochs locked. This formula ensures that as the number of epochs increases, the boost grows exponentially, providing strong incentives for long-term staking.
2. Slashing Penalty Formula
The slashing penalty is designed to penalize early withdrawals while protecting the long-term stakers.
Stake Slashed = 1/(Z^k)
Where Z is the maximum multiplier, and k is the number of remaining epochs. As the stake duration progresses, the percentage of the stake slashed decreases, encouraging users to remain staked longer.
Conclusion
By implementing this proposal, ParaSwap will foster long-term staking, create stronger incentives for loyal participants, and establish a fairer system for both revenues and governance. This approach not only enhances user experience but also positions ParaSwap as a leading platform with innovative and user-centric tokenomics.