Stake DAO|Part Ⅱ:Liquid Lockers Explanation

How Liquid Lockers works

Types of tokens handled

From this point forward, tokens with similar names will appear, so I will briefly summarize the terminology.

  • SDT / Stake DAO Governance Token.
  • veSDT / This is a token you receive when you lock your SDT into Liquid Lockers.
  • CRV / Curve Finance Governance Token.
  • sdCRV / This is a token you receive when you lock your CRV into Liquid Lockers.
  • sdCRV-guage / This is the gauge volume in the Curve protocol that is obtained when staking sdCRV.
  • veToken (vote-escrowed Token) / Refers to all non-transferable tokens used for governance voting. (e.g. veSDT, veCRV, veFXS)
  • sdToken (stake-dao Token) / A token you get when you lock an external protocol governance token (CRV, FXS, etc.) with Liquid Lockers. This is a proprietary token used within the platform. (e.g. sdCRV, sdFXS)

Solving the veToken model trilemma

The existing Tokenomics of the veToken model had a trilemma of voting power, yield, and liquidity.

A trilemma is a situation in which all three elements cannot be established simultaneously.

In the case of income-seeking, the benefits of high yields as well as easy withdrawal of deposited assets were enjoyed, but voting power was lost. On the other hand, if voting power was sought, the long-term lock resulted in a loss of liquidity in the assets and a decrease in yield. There was a tradeoff to be made, sacrificing either voting power, yield, or liquidity.

The innovation of Liquid Lockers is that it solved this problem.

When you lock a CRV with Liquid Lockers and stake the sdCRV you receive in exchange, you gain boosted yield as well as voting power in the Curve protocol. The voting power and yield is then further boosted by the veSDT that is received by locking the SDT. This is the same for non-CRV governance tokens.

The only veToken used on the platform is veSDT, but the presence of sdToken effectively handles multiple veTokens simultaneously. Stake DAO’s Liquid Lockers is the first such design.

And only SDTs are subject to the long-term lock. sdCRVs can be exchanged for the original CRV at any time, so there is no loss of liquidity. Thus, voting rights, yield, and liquidity are all utilized in this mechanism.

Source: Stake DAO GitBook – “Liquid Lockers”

Notably, the ownership of veSDT has a simultaneous boosting effect on voting rights and yields for all protocols supported on the Liquid Lockers platform (Curve, Balancer, etc.). This means that SDT is a central part of Liquid Lockers and a source of voting rights and revenue.

Models for converting a governance token to veToken include veFXS, which is a conversion of Frax Finance’s governance token FXS. However, holding veFXS does not increase your voting power in the other protocols. And, no matter which pool you vote in, you will always have one vote per veFXS.

Thus, Liquid Lockers can make good use of voting rights, yield, and liquidity, all of which can be profitably utilized.

Relationship between Stake DAO Token and veSDT

The most important token in Liquid Lockers is the “SDT” (Stake DAO Token).

Users receive “veSDT” in exchange for a lock on the Stake DAO’s Governance Token SDT. Holding this veSDT provides the following incentives

  1. Boost all the voting rights you get from each governance token
  2. Boost yields for all protocols supported by Liquid Lockers
  3. Earn the right to vote on Liquid Lockers’ governance ballot
  4. Earn +10% APY from all lockers and strategies
  5. Earn 5% of fees paid by users to Stake DAO

SDT lock periods range from one week to four years, with the incentive increasing with the amount of tokens locked and the longer the period. All revenues earned across the platform, including staking rewards for each governance token, yields on liquidity offerings and revenues earned from bribes, are affected by this SDT lock duration and quantity.

Like yields, voting rights also vary depending on the duration and amount of SDT locked. Both voting rights and yields can be boosted up to 2.5 times. The amount of veSDT held will gradually decrease until the lock period ends and SDT is withdrawn.

+10% APY and commission rewards are paid in Stablecoin LP tokens (sdFRAX3CRV-f).

Source: Stake DAO GitBook – “What is veSDT token?”

As already reported, Stake DAO is a yield aggregator. They hold veTokens for each protocol in order to offer high yields to our users in various protocols.

Therefore, even if the user does not hold veToken such as veCRV or veBAL, staking assets with Liquid Lockers allows the user to invest assets at a higher rate than would normally be possible by depositing assets with Curve or Balancer.

Stake DAO’s veToken holdings and the percentage of holdings in each protocol are as follows.
*Adapted from defiwars.xyz (as of September 19, 2022)

  • veSDT / 482,788.29354 (4.73%)
  • veCRV / 19,954,592.77115 (3.81%)
  • veFXS / 410,366.23168 (0.41%)
  • veBAL / 32,426.62070 (0.35%)

A full list of contracts for each token can be found on their respective Advanced pages.

Relationship between governance tokens and sdToken

When you lock the governance token for each protocol, you will receive an sdToken corresponding to the token. In addition, by staking that token, you can enjoy the following benefits of the protocol.

  1. Earn the right to vote
  2. Earn boosted APR
  3. Earn the right to sell unused voting rights
  4. Earn 8% of commissions as locker & strategy rewards

For example, if the CRV is locked, the user receives sdCRV. Furthermore, if they stake the sdCRV, they receive the sdCRV-gauge. The user thus gains voting rights and yield in the Curve protocol. Staking a Curve LP token in this situation allows the user to operate with a boosted yield.

Voting rights obtained by users from the sdCRV-gauge can be used to vote, or unused voting rights can be delegated to the Stake DAO (Delegate voting power) and earn a “bribe” reward in exchange. Reward distribution will be distributed automatically every other week, depending on the date the user delegated their voting rights.

Liquid Lockers integrates external bribery systems such as Votium, Paladin, bribe.crv.finance, Hidden Hand, and Pitch, so you can vote for the bribe-distributing pollster and receive a bribe in return.

Locker & Strategy rewards are paid in “3CRV” and “SDT” and in the governance tokens of each protocol.

The following figure summarizes the above relationship between SDTs and various types of governance tokens.

Source: Stake DAO GitBook – “How do Liquid Lockers work ?”

Fees and compensation structure

Fees paid to the platform will be distributed as follows.

  • Stake DAO (Operating funds for each protocol) / 84%
  • Liquid Lockers (sdToken staker) / 8%
  • veSDT Holder / 5%
  • DAO Treasury (To cover the cost of DAO) / 2%
  • Harvester / Up to 1%
Source: Stake DAO GitBook – “Rewards and fees structure”

Supplementary material

Finally, I would like to introduce two threads related to Liquid Lockers by Angle Protocol.

The “Liquid Lockers” they are talking about here are veToken models in the broadest sense, not limited to Stake DAO products. The explanations and discussions by the parties involved provide a glimpse into the future of DeFi.

This is the end of the middle section.

I think you find that the problems that appeared in the first part have been resolved.

Perhaps you were confused by Stake DAO’s Liquid Lockers’ diverse reward structure.

The basic flow is to lock SDT and receive veSDT, exchange and stake the governance token of any protocol to sdToken, and then stake the LP token of that protocol, and so on.

The next part will explain how to use Liquid Lockers.