Apologies for formatting (did this on mobile)
Abstract
This proposal is an informal draft GIP that aims to add additional support for delegators by allowing for transfer of delegation in the form of Liquid Delegation Tokens (LDT).
Background
The Graph (GRT) currently forces a 28 day thawing period on locked delegated tokens before they are transferrable out of an address. This locking mechanism allows for an efficient un-gamable delegation where delegators cannot constantly track which indexers are likely to pay out next, and move their delegation there. If this thawing period was lifted the delegation mechanism would be negatively affected.
Motivation
LDT’s offer a mechanism similar to liquid staking tokens offered by many decentralized protocols. It allows GRT to have a deeper role in the thriving yield DEFI markets (Indexer-delegation ETF’s, Yield farming, etc.), it allows delegation to be transferred from address to address (move funds immediately upon possible seed phrase exposure), and it continues to enforce the 28 day thawing period currently implemented.
Introducing LDT’s presents an opportunity to widen the use of GRT in DEFI while maintaining delegation integrity. Additionally, it allows for new economies to be build around GRT delegation.
High Level Description
This proposal requires the following additional logic:
1 Introducing LDT's that correlate to individual indexer delegation - ideally in the form of a ERC-20 LD-token
2 Introducing fee architecture for transferred/minted LDT's
LDT LP
Upon delegation to an indexer delegators will have to option to mint a LDT. These LDT’s will follow current industry standards (ERC-20 compatability) [1]. With this approach LDT’s sent from separate addresses can be pooled into a single address without having to keep logic from the initial delegation. This offers the possibility of pooled delegation ETF’s by combining multiple LDT’s into a single address - further developing GRT’s presence in DEFI. These ETF’s can be offered by The Graph - Allowing users to present their ETF’s to the market and collecting a fee set by them. Similar to indexer fee’s. Additionally, this gives indexers who work closely together an opportunity to bundle their efforts together and allocate delegation as they see fit.
LDT Minting Fee
Upon minting the delegator will incur a fee on their current rewards from the indexer. Fee’s will have a max upper boundary and will be set by the indexer. This allows for negative fee’s where indexers can incentivize liquidity for their delegation. See equation example in Pseudocode section.
Detailed Specification
Psuedocode
Delegating. Alice deposits tokens to mint curation shares.
1 Alice has M GRT tokens and wants to delegate to X indexer
2 Alice delegates M tokens and mints N LDT's
3 Alice’s wallet locks M GRT in the delegation contract and receives N LDT’s which are transferrable
4 Alice’s new balance is represented by a fee function they encountered upon minting the LDT:
a M GRT + M GRT rewards - (M GRT rewards) (mint fee) = N LDT
Transfer. Alice has previously minted LDT trasnfered to a new address.
1 Alice has N LDT and wishes to transfer to a new address P because she fears her seed phrase may be compromised.
2 Alice pays ethereum gas fees for the token transfer to address P
3 Alice's address P now has N LDT balance
Undelegating. Alice burns previously minted shares to receive GRT and begin unlocking delegation.
1 Alice wants to undelegate
2 Alice burns N LDT’s and receives M GRT + M GRT rewards - (M GRT rewards) (mint fee) = S GRT total balance
3 Alice’s S GRT go through the 28 day thawing period
4 After 28 days Alice can remove S GRT
Upgrade Path
This change should be implemented for across the entire protocol.
Backwards Compatibility
This proposal will be a major update to delegating and core code changes will be introduced.
Dependencies
This proposal relies on modifications to current delegation framework.
Risks and Security Considerations
Fund Centralization
A possible risk is centralization of funds if certain ETF’s gravitate the majority of market shares. Similar to gravitation of LIDO’s stETH, though this does not pose security risks to the protocol.
Validation
The changes introduced here should go through a smart contract audit and receive community feedback, with special focus on Delegators, Subgraph Developers and Indexers.
Rationale and Alternatives
Transfer Fee
Transfer Fee’s can be introduced and actively changed to meet current market conditions & incentives. If GRT wants to influence higher LDT holdings they can lower fee’s or vise versa.
Copyright Waiver
Copyright and related rights waived via CC0.
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