The revised version of the SUSHI Tokenomics Redesign proposal will introduce a new token model that is expected to provide stability and sustained value for stakeholders.
Over the weekend, Sushi DAO Head Chef, Jared Grey, began a “request for comment” discussion on the final draft of a proposal seeking to deploy new tokenomics for SushiSwap. The token redesign efforts trail the December expiration of Kanpai, SushiSwap’s fee-diversion protocol.
The Sushi team outlines six critical challenges that are currently affecting the protocol’s sustainability and user experience in the proposal – liquidity subsidization, unsustainable value extraction, financial stability, competitive LP incentives, staking mechanism, and the lack of alignment between xSUSHI stakers and liquidity providers. However, the proposed model identifies three core pillars to tackling these bottlenecks – sustainability enhancement, expanded token utility, and treasury diversification.
With regard to the protocol’s sustainability, the proposal recommends the issuance of “loyalty points” to liquidity providers (LPs) based on the duration and value they have locked in Sushi pools. Notably, LPs will become the primary incentivized party while value will be realigned to the most active users.
Liquidity providers are central to Sushi’s success […] Liquidity Providers (LPs) who commit to locking their stake for extended periods receive higher rewards.
Furthermore, LPs will receive an NFT representing their engagement level in a specific pool while their rewards and voting rights will be adjusted in line with the accrued loyalty points. Interestingly, LPs will be able to trade their NFTs on secondary markets, giving them the opportunity to monetize the value of their loyalty points. Meanwhile, a dynamic rewards mechanism that adjusts based on market conditions will be used to maintain sustainability.
The proposal also outlined a distribution system that will allow users direct incentives based on their voting power within the following categories – LP, Incentives, and Targeted. “Our boost distribution system design supports liquidity providers, incentivizes high-volume traders, and expands Sushi’s reach via partnerships and integrations,” the proposal noted.
In general, the proposal aims to promote decentralized ownership of the protocol, enhance liquidity, encourage sustainable growth, bolster the utility of the SUSHI token, and diversify the treasury for robust financial operations.