Proposal to develop a Keyper Incentive Mechanism and (delegated) Staking

Shutter DAO DAO Proposals
1

Status: Proposed

Author: jul1an, Keyper

Created: February 29, 2024

Simple Summary

This proposal aims to establish an incentive mechanism for Keypers within the Shutter Network. By operating nodes, Keypers play a crucial role in maintaining the protocol through the generation of essential encryption and decryption keys. To ensure the long-term success, decentralization, and security of the Shutter Network, it is proposed that Keypers be incentivized for their contributions.

In addition, I am proposing that SHU token holders should be able to delegate their tokens to Keypers and that technical infrastructure is provided to earn rewards for this. This proposal seeks approval for an RFP to develop a functional mechanism to be implemented by any development team.

If this proposal passes, Shutter DAO 0x36 will start an RFP process where contributors can apply to develop the mentioned incentive and staking mechanism. Shutter DAO 0x36 will disburse up to 150,000 SHU tokens to the selected contributor of the RFP to develop the incentive and staking mechanism.

The RFP and proposals should be only focused on the technical aspects of developing the necessary smart contracts, front-end and ensuring hosting of the front-end. It should be agnostic (and fully configurable by Shutter DAO 0x36) in regards to the economics, e.g. staking amounts or amount of ETH or SHU rewards over time. A separate proposal needs to be issued and discussed for the economic concept of the incentive and staking mechanism.

Goals

  • Encourage Keyper Participation: Provide an incentive for keypers to participate in the network by staking SHU tokens and fulfilling their role.

  • Enable Community Support: Allow SHU token holders to support specific keypers by delegating their SHU tokens, enhancing the network’s security and decentralization.

  • Reward Long-Term Commitment: Offer rewards to both keypers and SHU token holders who lock their tokens and support the network over time.

  • Counter Selling-Pressure: The upcoming unlock schedule on March 18th and the subsequent vesting period will create selling pressure on SHU. A staking mechanism can reduce this selling pressure.

Background on contribution

The mechanism that is going to be developed should cover the following pillars:

  • Creating a reward system to distribute incentives, in the form of fees generated by the system (e.g. ETH) and/or Shutter Tokens (SHU), to Keypers for running and maintaining nodes.

  • Staking Mechanism for long-term commitment by allowing the $SHU token holders to support specific Keypers by delegating their SHU tokens, enhancing the network’s security and decentralization. Development of a rewards mechanism to lock tokens and support the network over time.

  • Ensuring the mechanism is compatible with the Shutter Network’s existing infrastructure for seamless integration by any development team.

Implementation

Upon approval of this proposal by the Shutter DAO 0x36, the next steps involve a collaborative and competitive process to select the most qualified contributor(s) to develop the Keyper Incentive Mechanism and Staking concept. The process is outlined as follows:

  • Open Call for Contributors: After this proposal passes, a Request for Proposal (RfP) will be issued to the community. Interested contributors, including developers and teams with the requisite expertise in blockchain development and smart contract programming, are invited to submit their proposals. Each proposal should detail the contributor’s approach to developing the mechanism(s), including timelines, scope of work, and any previous relevant experience. Review and selection of the most suitable proposal by the Shutter DAO 0x36 through voting via Snapshot.

  • Development and Submission: The selected contributor will develop the technical Keyper Incentive and Staking Mechanism, adhering to the agreed-upon timelines and milestones. Progress updates will be provided to the community as per the agreement/proposal.

  • Contributor Selection and Funding: The selected contributor will then receive the disbursement of 150,000 SHU tokens from the Shutter DAO treasury. 50,000 SHU tokens at the beginning of the contribution and 100,000 SHU after the submission and quality assurance of the functional concept. All tokens are subject to the same lockup period as the genesis allocation. Approval of the funds will be voted via Fractal by Shutter DAO 0x36.

  • Final Submission and Disbursement: Upon completion and submission of the work items, the contributor will present their work to the Shutter DAO for review. Upon satisfactory review and acceptance of the work, the full disbursement of funds will be made to the contributor. Approval of the funds will be voted via Fractal by Shutter DAO 0x36.

Example high-level technical requirements (for staking)

  1. Keyper and delegate staking front-end
  • Purpose: Allows Keypers and SHU holders to deposit and withdraw their staked SHU amounts and implements a simple dashboard to understand the general economics of the system
  • Needs a way for the DAO to operate/pay for hosting, i.e. on IPFS
  1. Keyper Staking Contract
  • Purpose: Allow Keypers to stake $SHU tokens as a commitment to their role.
  • Features:
    • Uniform staking requirement for all keypers.
    • 6-month lock-in period for staked tokens.
    • Can be funded by Shutter DAO with ETH or SHU for initial rewards.
    • Keypers should lock for X months, after which they can withdraw their principal and earn a share of the fees generated by the system in the native token (e.g. ETH) and/or rewards in SHU based on time locked.
    • Allows withdrawal of earned rewards over time and full withdrawal of staked amount after 6 months.
    • Integrated with DAO governance for validating new Keyper sets.
  1. Delegated Staking Contract
  • Purpose: Enable $SHU token holders to delegate their tokens to keypers.
  • Features:
    • Token holders can withdraw their principal and earn a share of the fees generated by the system in the native token (e.g. ETH) and/or rewards in SHU based on time locked.
    • Supports the community in choosing and backing Keypers, fostering a more engaged and participatory ecosystem.

Example Dashboard mockup (just for reference/context, the real one should be more elaborate):

1600Ă—1355 161 KB

Delegated and Keyper staking might require many transactions and should be accessible also to smaller holders. This could mean an L2 or Gnosis Chain deployment could be advisable.

Voting Platform

  • Snapshot

Vote

  • Vote “YES” to authorize an RFP for the development and funding of the Keyper incentive and staking mechanism

  • Vote “NO” if you do not support the development and funding of this mechanism

8 Likes
2

I support this proposal. Shutter DAO 0x36 has the possibility and chance to create a very incentivizing staking system for SHU which would definitely positively impact the token price, taking into consideration that rewards might be in the gas token of particular chain (ETH or xDAI). By this users would not only be incentivized by the type of yield but wouldn’t dumb SHU afterwards.

4 Likes
3

I support it too. I already saw an earlier draft and liked it. I think it’s a good starting point and then we can always optimize parameters as we iterate through different periods of staking.

3 Likes
4

Support this proposal

5 Likes
5

Yes, this is very important, and I fully support this proposal.

4 Likes
6

Very well organized and well written proposal. Thank you very much @jul1an. :pray:

Looking forward to voting “Yes” on snapshot to push this forward.

2 Likes
7

Hi, great proposal and important initiative!

A few questions I would be seeking to clarify regarding this proposal:

  • would this solely concern delegation and reward distribution to keypers and stakers? I.e. there is no consideration e.g. for slashing or (dis)incentivization for keyper uptime?
  • shouldn’t the locking time be a governance parameter? Or where do the 6-months come from? Would delegators have to decide how long to lock-up beforehand?

Overall, I think with the assigned budget, a simple first staking version could be funded, though a more sophisticated design might require more work.

3 Likes
8

Very important proposal. A lot of obvious things have been said already, I’ll add two important questions/comments here:

  • This is extremely important because it gives the token a clear utility, a function in the protocol. Legally speaking, that makes it a lot less of a security and much more investable. So just for this, I’m a big fan of the proposal.

  • If this is the key function of the token, making this is one of the most important things we can do. In that case, I think brainbot gmbh should probably be the team that designs it. We should select them through an open process but I’d be inclined to trust them the most in choosing how this works within the protocol.

4 Likes
9

Great feedback, thank you! I think that instead of brainbot, this could also be a good opportunity for other competent developers to step in.

And fully agree with the notion that it should be an as open and fair RFP process as possible. Could actually be a nice way to develop and test that process for the DAO.

3 Likes
10

@FelixLts Thanks for your feedback. Regarding your questions/thoughts:

  1. Agree, my initial thoughts were the same. However, I think it is important to get started with the basics and keep developing the mechanism over time. Due to the additional complexity of a slashing or (dis)incentivization mechanism (from a functional and technical perspective), I suggest adding it at a later stage through a separate proposal.
  2. The 6 months are an example and the final locking needs to be decided upon. From my point of view, the lock-up period should be fixed and not individual.

Regarding timeline: I suggest voting on this proposal by Tuesday/Wednesday.

3 Likes
11

After thinking some more on this, I’d recommend setting the compensation on this in stables as opposed to SHU.

The treasury currently holds a little over 7 million in stables after the successful LBP. The current equivalent to the SHU amount proposed would be about 50k USDC.

Compensating in USDC solves a couple of problems:

  • Clarity for the respondent in how they’ll be rewarded for the work.
  • Eliminates the need to discuss a token lockup period (which again adds an unfair level of uncertainty for someone applying to do the work)
  • Clarity for the DAO in exactly how the work is being compensated, with no concerns about token fluctuation before the proposal passes.
  • Alleviates some of the community concerns that too much SHU is being given out too quickly.

A SHU component *could be included in the RFP compensation, in addition to the primary stable payment, but only as a means to create long term alignment.

Personally, I think is incredibly important work, and if the consensus was to offer even more than the 50k USDC value, I’d support it. I think this could easily be compensated at 75k USDC, with a small SHU allocation being an optional addition.

4 Likes
12

Definitly vote “YES” for the proposal. Keypers is extremly important for the network.

2 Likes
13

Thank you, @5pence, for your input on the compensation. I support the idea of using stablecoins, which provides a certain predictability for the contributor. On the other hand, I feel that it might make sense to use both USDC and SHU (with a lock-up period) to foster long-term alignment between the contributor and the DAO.

Based on the scope of the proposal, I personally think that the effort required to build the mechanism is manageable without investing months of work.

Therefore, I would like to discuss the following:

The selected contributor will then receive a disbursement of 50,000 SHU tokens and 25,000 USDC from the Shutter DAO treasury: 50,000 SHU tokens at the beginning of the contribution period and 25,000 USDC after the submission and quality assurance of the functional concept. All tokens are subject to the same lock-up period as the genesis allocation.

2 Likes
14

I also support this proposal

1 Like
15

Kleros Labs is on board with this Keyper incentive mechanism and delegated staking.

We think it is a good way to push boundaries and provide utility for the SHU token and long term aligned participants. This proposal seems like a perfect way to build an even stronger Keyper community that contributes to the security of the Shutter network. We also agree that the payment with 50k USDC and 25k vested SHU is reasonable for the work.

Also, how many Keypers are we aiming to bring with this staking program?

Is there a place where we can see some numbers and metrics regarding Keyper activity? Something like an analytics page could be useful!

Thanks for this well written proposal @jul1an !

3 Likes
16

@0xAlex Thank you for the feedback. Just to avoid any misunderstanding, I was proposing 50k SHU and 25k USDC, and not the other way around.

Regarding the questions you raised: I’m not sure what a reasonable KPI would be, but I think it makes sense to discuss it.

I believe there were plans to establish a monitoring procedure for Keypers. Currently, if you operate a Keyper, you can check which other IPs/nodes are online.

3 Likes
17

Yes, we totally support the idea.

3 Likes
18

Yes indeed sorry for the typo ! And yes I guess at some point some basic analytics could make sense even if it isn’t the top priority right now.

3 Likes