MIP-009: Upgrade MPL Token Design

[CharlotteDodds]

Title: Upgrade MPL Token Design

Authors and contributors. Maple Core Contributors

Overview: MIP009 proposes to upgrade the MPL token to MPLv2 in order to resource growth initiatives and add new MPL utility. This MIP contains the motivation, details on the technical transition and an evaluation of the benefits.

Motivation

Well-designed tokens can be a transformational tool for protocol growth when incentives are aligned and protocol development is enabled. Since Maple’s inception in 2021, MPL has been the protocol’s native token. Two years ago it was difficult to envision early success, the ‘credit-crunch’ of last year, the inflexibility of a fixed supply token and downsides of incentive programs.

As the industry evolves and matures, it’s natural that token designs should do so too. Building upon lessons learned along the way and reflecting on the new landscape and opportunity set, Core Contributors propose MIP009, for approval by the Maple DAO.

The motivation for a token upgrade is manifold, but in simple terms is to recapitalize the Maple Treasury to fuel commercial growth initiatives and establish new token utility creating sustainable, long-term growth for the Maple protocol.

Commercial growth initiatives:

• New markets: Our roadmap extends to regions like APAC, LATAM and Europe, where opportunities for institutional adoption are very clear. Each market requires a different mixture of licensing, legal frameworks and rails like wallets and custody technology. As we move into these new markets we will address these specific needs to acquire new institutional customers and drive market penetration.
• New sectors: With new sectors come new customers attracted by a particular offering. Sectors of significance include trade finance, energy finance, and accounts receivable factoring. By navigating into new sectors, Maple can become a diverse and vibrant capital marketplace.
• New partnerships: Maple is already working on mutually beneficial partnerships with L2s, Custodians, DEXs and other Web3 Service providers and intend to bring these to market within the next year. Connecting to customers where they already are removes key UX frictions and helps tap into existing, established user bases to bring new Lenders to the Maple Marketplace, which in turn will drive growth of the lending pools and the protocol as a whole.

New MPL utility:

• Ecosystem Grants: With the aim to attract top-tier credit talent to the protocol, this initiative might see an Ecosystem Grant program provide seed funding to a new Delegate business, or see an initial capital allocation deposited into a pool to help a Delegate and their novel strategy to move from 0-1.
• Pool Delegate alignment: Credit professionals choose Maple to start and scale lending businesses. So that both Delegates and Maple can grow together one idea is to require that Delegates allocate a portion of their fees to buying and staking MPL and to actively participate in Maple DAO Governance.
• Borrower fee rebates: Attracting new Borrowers and keeping them on the platform is an important piece of establishing a credit network and Maple as a leader in lending. This initiative might see borrowers that hold and stake MPL become eligible for rebates which reduce the cost of capital. This creates a flywheel, making Maple a more attractive capital provider, thus resulting in more loans, more payments, and more fees for the Protocol.
• Reduce Lender risk: By Introducing a limited guarantee system for MPL holders lending stablecoins to Pools, varying based on each Pool’s risk profile, this might provide Lenders some limited protection in case of defaults. In this instance, guarantees would be adjusted for risk and the level of MPL held, prompting Lenders to seek MPL during volatility.
• Interoperability and transferability within DeFi: Core Contributors are investigating ways to incorporate LP tokens into other ecosystems in a compliant and scalable manner. By enhancing the liquidity and utility of MPL LP tokens, Maple aims to establish stronger connections with DeFi products and services, creating greater benefits for Lenders. One idea is to establish a vibrant secondary market for Pool deposit tokens. In this envisioned secondary market, Lenders requiring immediate liquidity might be able to swap their Pool tokens. Conversely, Lenders with longer-term horizons could purchase these Pool tokens at a discount.

Detailed proposal

MIP009 proposes the issuance of new MPL tokens over 3 years, realized as a 1 time issuance of 10% additional tokens and a 3 year emission of 5% per annum to the Maple Treasury. This would immediately recapitalize the Maple Treasury and will facilitate the growth initiatives outlined.

Table 1: Table 1 shows the opening and closing tokens from 2023-2025

Diagram 1: Diagram shows the migration at a smart contract level

Technical transition

If the community supports this proposal through votes with MPL and xMPL, the upgrade will take place in the following months and the transition steps would be:

1. Maple Core Contributors develop MPLv2 contracts
2. MPLv2 contracts audited by multiple leading audit firms
3. Migration takes place
   1. The new MPLv2 contract would mint 10 million MPLv2 to the migration contract, and 1 million MPLv2 to the Maple Treasury.
   2. xMPL migration scheduled to complete within 10 days.
4. Annualized recapitalisation would commence post scheduled migration

The transition would take place with the aim to have the lightest lift for token holders. In short, xMPL holders would not need to do anything and MPL holders would simply have to come to the Maple webapp at app.maple.finance and follow the prompts to convert legacy MPL for MPLv2. Below is a breakdown of the scenarios for MPL and xMPL holders.

MPL holder

There’s one migration contract which has 10 million MPLv2 minted to it. A MPL holder would interact with that contract to convert MPL to MPLv2 at a ratio of 1 to 1.

To do so, MPL holders would come to the Maple webapp at app.maple.finance and follow the prompts to convert legacy MPL for MPLv2.

Diagram 2: Diagram 2 shows how the migration from MPL to MPLv2 would work at a smart contract level

Images show mock-ups of the webapp where MPL holders would follow prompts to convert to MPLv2.

xMPL holder

An xMPL holder would not need to do anything.
Maple has the ability to migrate through a schedule function in the xMPL contract.
In the instance that MIP009 is approved and the code audited, Maple would schedule the migration.
After 10 days, all of the tokens in the xMPL contract would get sent to the migration contract and convert 1-1 to MPL v2.
When any xMPL holder goes to withdraw from the xMPL contract they will receive MPLv2.

Diagram 3: Diagram 3 shows how the migration from xMPL to MPLv2 would work at a smart contract level

Evaluation

To prepare this proposal Core Contributors workshopped ideas with long-time advisors and valued customers over many months. The benefits and risks of the token upgrade were evaluated at length and recommendations and guidance has been incorporated into the proposal. The proposal is now available for evaluation by the Maple Community, who should provide feedback during the 7 day consultation phase commencing at 9am ET on 23rd August 2023 and closing at 9AM ET on 30th August 2023.

Important areas evaluated by the group include smart contract risk, MPL holder experience, ideas around utility, and the outcomes shared below:

• The need to upgrade the token to provide the Maple Protocol with more resources to adapt to changing competitive and macro environment is clear.
• The commercial growth initiatives are focused and make sense for a protocol of Maple’s size and potential. Because the initiatives are SMART, the community will be able to allocate budget towards the initiatives and evaluate success overtime.
• The known mint and emission figures provide certainty to existing token holders and future token holders too.
• Adaptations to token designs are not uncommon and there are examples of significant growth being created for protocols as a result.
• Ideas around utility are well informed and value additive rather than distributive and, in the event they are approved by the community through Maple’s governance process, should create more value for the protocol and token holders overtime.
• Maple would mitigate smart contract risk by working with multiple leading auditing firms to audit the MPLv2 contracts.
• Maple would work with exchanges to ensure a smooth transition and no disparities for tokenholders between legacy MPL and MPLv2.
• The ease of the transition for MPL holders should also be viewed positively as the migration is straightforward for MPL holders and could not be more simple for xMPL holders.

Funding request

There is no funding request for MIP009. Whilst Maple would engage multiple leading smart contract auditors to audit the MPLv2 contract code - these costs would fall within Maple’s operating expenses.

Additional resource needs.

All code development would be managed by Maple Core Contributors. In addition to working with smart contract auditors, Maple would work with exchanges to ensure a smooth transition and no disparities for token holders between legacy MPL and MPLv2.

[Tepliy]

I think there is no need to create new tokens. I could agree if it will be used for insurance fund.

[Medo]

The growth avenues are really interesting and exciting, I’m liking the growth mindset and trajectory, everything from this side is all very positive. Token utility as a high-level sounds good and introduces a lot more usecases for MPL, however, I would have liked for these use cases to be expanded on much more than a single bullet point each, especially when MPL supply expansion is a main enabler for some of this utility.

Finally, I really see value in the team providing big picture context as part of this proposal in terms of baseline operation vs proposal for growth e.g. current treasury fund is ‘x’ and with a burn rate of ‘y’ we have a run rate of ‘z’ years. This treasury is purely to sustain current operations and due to limited runway (I’m assuming under 2 years) we cannot risk tapping into treasury funds to support these growth initiatives, hence why supply expansion is being proposed. Also the option of ‘do nothing/continue as is’ should be assessed, what if we don’t expand the supply to support these growth initiatives? what’s the likelihood of protocol growth if we were to continue operating as-is? 10%? 20%? 50%? and how much more of a shot is the supply expansion giving us at the success of hitting these growth initiatives.

[mistapie]

I am in favor of the proposal to issue new tokens and institute ongoing emissions (for this three year period and potentially beyond pending further vote).

Protocols should be able to use their currency as fuel for growth, whether that’s for strategic partners (as detailed in the tokenomics utility changes above) or for recruiting and retaining talent, just like any equity-capitalized business.

As for the magnitude, 5% dilution per year is a reasonable pace for a high-growth protocol and not far off from mid-cap tech companies.

[Ketamin]

I had been looking forward to today very much, but it was a big disappointment for me. I really want the protocol to continue and be successful. but I find it very, very wrong that the financing of this is being done by increasing the supply of tokens. this is nothing more than a betrayal of the token holders who have supported you for a long time. you have to find other ways to get financing. even if the token release is divided into years, the image of this project will be extremely damaging from its pain. also, if you are moving to solana network, I will ask you to understand about token migration with gate io. there are a lot of people who do not live in America and do not use coinbase.

[Tepliy]

Max supply is a key factor to investors, thats fundamental, that gives potential to growth.
Removing this option is bad idea.

[Icarium]

Proposing additional borrower utility mechanism that introduces repetitive token value accrual concept with combined variable burn mechanism as outlined below.

Here’s a step-by-step breakdown of how this proposal would work:

Staking Requirement: For first-time borrowers who are crypto native (familiar with cryptocurrencies and blockchain technology), there would be a mandatory staking requirement. This requirement aims to create a stronger connection between the borrower and the ecosystem’s token, MPL.

Percentage of Loan: Borrowers would be required to purchase and stake a certain percentage of their total loan amount in MPL tokens. The proposal has a range of 1-3% of the loan value, which would be staked in MPL token denomination.

Token Purchase: Once the borrower is approved for a loan, they need to acquire MPL tokens equivalent to the stipulated percentage of their loan amount from the open market.

Staking Period: Borrowers would then lock up the purchased MPL tokens for the duration of their loan maturation cycle. This period is typically the time it takes for the loan to mature and be repaid by the borrower.

Token Release: After the borrower successfully repays their loan, the staked MPL tokens would be gradually released back to them. Proposal suggests a staggered release in 33% increments over a span of three weeks.

Token Return: The borrower would receive their staked MPL tokens according to the tier they belong to (1%, 2%, or 3%) over the allocated time frame. This creates an incentive for borrowers to repay their loans on time.

Friction for Non-Crypto Native Borrowers: this acknowledges that this staking requirement might not be suitable for borrowers who are new to the crypto space. For these borrowers, positive incentives like lower fees or other benefits could be offered instead of a mandatory staking requirement.

Deflationary Mechanism: this proposal also introduces the concept of a deflationary mechanism, where the entire portion of staked MPL tokens will be permanently burned in the event of a default. This mechanism aims to align the interests of borrowers with the protocol’s health and could mitigate concerns about token dilution. This also functions as a token sell pressure reduction variable introduced into the ecosystem where a net negative optics event becomes a net positive event for ecosystem health/growth propagation factors.

[navin346]

Team needs to explain the rationale behind the increase in total supply of tokens. Is it because of the issue of token liquidity when there is an increase in credit generation by protocol through loan disbursement or for funding team’s sustenance ? I didn’t find any specific reasoning other than the sentence " to recapitalize the Maple Treasury to fuel commercial growth initiatives and establish new token utility creating sustainable, long-term growth for the Maple protocol."

What could have helped is through creating a financial model on excel or google sheets clearly demonstrating the “token locks or staking” by lenders and borrowers. Also, the details of how a borrower gets benefitted(fees rebates) through holding and staking $MPL tokens etc can be plotted in the model easily.

Same goes for the commercial growth initiatives mentioned like in new markets & new sectors - which specific regions are targeted and how are the credit cycles and collections there (emerging markets come up with their own risks and instead of focusing on sme/msme retail loans are most attractive afaik - check the growth of banks like HDFC , icici in india on retail loans during the last decade). Overall , when the token utilisation is large and generates consistent revenue, I don’t see token inflation a huge concern but remain neutral till the team explains the rationale.

[Nocetradamus]

Support this this is well thought out.

[Fields]

i love it. this is very important and must be added to the original MIP

[Fields]

Agreed . Not in favor of making new token and specifically increasing supply is a downside. Not agreed. If I knew that they will increase the supply I would have never bought so heavily.did we not have enough loss already that they now need to increase the supply

[Hellman_VertCap]

Keep cost of capital attractive to borrowers all while incentivizing lenders will only contribute to growing TVL which is key. I think this is great proposal.

[DeFiConnoisseur]

A few thoughts.

My initial reaction to the proposal was negative. Firstly, dilution of longtime supporters felt unfair. Secondly, imminent dilution in the context of a $5M raise seemed counterintuitive as there is fresh capital to use to fund the protocol.

However, reflecting on the likely rationale I now fully support the MPL issuance, though I do think the team’s overall strategy should be outlined in more detail.

Maple is leading this sector and optimizing for growth means they need to move broadly and swiftly in order to capitalize on opportunities and establish market presence.

I presume the $5M raise provides the immediate capital to fund this growth, but that the team forecasts it will burn through this quickly.

The proposed inflation is likely suggested with this in mind with the initial 10% MPL issuance earmarked to further fund imminent growth, while recognizing that to sustain this growth there needs to be a multi year funding plan, hence the further 5% per annum issuance over 3 years.

While it would be great to have the capital to support rapid strategic growth without additional token issuance, this is the position we find ourselves in. Surviving is absolutely imperative, or it’s all for naught, and thriving is what we’re really looking for.

I believe the proposed plan provides the best chance to solidify Maple as key DeFi infrastructure and I fully support the MPL issuance element.

That being said, I do think the team should do a much more detailed outline of other elements of this proposal, specifically with respect to MPL utility, prior to a vote. Currently there are no clear frameworks/ logistical details which I think need to be clearly outlined.

For instance:

•If we’re proposing borrower fee rebates then what is the proposed structure for this? How much Maple needs to be held and staked for x, y, or z rebates?

•If we’re proposing that delegates must allocate a portion of fees to buy and stake, then we need to outline that yes this is the plan, what proportion of fees, is a tiered structure needed? Etc.

I believe a MIP needs details and trust the team will provide these detailed frameworks so we actually know what we’re voting on.

LFG Mapes!!

[DeFiConnoisseur]

I’d like to propose an additional measure that could help to mitigate concerns that many have re: the proposed issuance of further MPL.

The concept is to re-lock a portion of team/ advisor tokens into a new vesting contract over that same token issuance time frame to help mitigate the issuance concern.

Essentially this helps the team demonstrate a long term commitment and underlying confidence in growing the protocol into the future while simultaneously “removing those tokens” from circulation.

I believe initial team/ advisor distribution was 25% (2,500,000 MPL), so say we take a meaningful percentage of this like 50% (1,250,000 MPL) and re-vest over the proposed 3 year inflationary period.

I’d love to hear thoughts from others.

[sid.maple]

Thanks for your feedback Tepily. To clarify, the protocol has runway sufficient to take it into mid-2025. Beyond that, the cost of development and keeping the lights on will need to be supported by either protocol fees received, or further grants from the protocol treasury which either be tokens themselves or from selling the tokens.

[sid.maple]

Thanks @Medo for the positive feedback and the thoughtful questions. Appreciate the desire for transparent dialogue and clarity for tokenholders.

Token Utility Explanation: This discussion post is envisioned as a dynamic forum to delve deeper into these aspects. The MIP is seen as laying the groundwork, and Maple is eager to build upon it with community insights.

Treasury Status and Rationale for Expansion: Maple’s treasury currently holds $7.8m in stables. With a burn rate of approximately $400k per month (assuming no revenue), the protocol has a runway of about 19-20 months without accounting for protocol fees that could grow the treasury.

The decision to expand the treasury now is strategic for Maple. The aim is to ensure resources are in place for growth initiatives next year, be it for hiring talent or extending the runway. It’s about being proactive. Waiting until the protocol is down to a 6-month runway to initiate a vote, migrate to MPL V2, and raise funds would be counterproductive. An underfunded treasury, especially one with less than 12 months of runway, poses challenges in retaining core contributors and securing partnerships for the protocol.

Scenario Without Supply Expansion: If Maple doesn’t expand the supply, its dependency on revenue to cover operational expenses will increase. Without additional revenue streams, the protocol’s runway would deplete by around Q2 of 2025. This recapitalization provides the protocol with an enhanced balance sheet, enabling it to seed new pools and delegates as well as provide the additional token utility mechanisms.

In conclusion, Maple’s proposal is rooted in foresight. The protocol is committed to ensuring its growth and sustainability, and values the community’s engagement in this discussion.

[sid.maple]

@Ketamin

but I find it very, very wrong that the financing of this is being done by increasing the supply of tokens. this is nothing more than a betrayal of the token holders who have supported you for a long time.

Understand the concerns and acknowledge the preference to avoid dilution. As Maple is a protocol with the token as network ownership, it needs to pay for grants and development through the token. There is not a separate entity with equity. What is proposed is not for immediate sale it is to give the Maple DAO treasury additional resources which tokenholders can vote on how to use.

@Ketamin

I will ask you to understand about token migration with gate io. there are a lot of people who do not live in America and do not use coinbase.

Yes the technical requirements of gate.io migration are being worked through and there will be more info to come on any actions which gate.io account holders will need to do (if at all).

[sid.maple]

@Icarium

Proposing additional borrower utility mechanism that introduces repetitive token value accrual concept with combined variable burn mechanism as outlined below.

Thank you @Icarium for the well-sketched out and detailed proposal. Would encourage other members of the community to provide their thoughts.

The staking requirement for crypto-native borrowers and the deflationary mechanism in case of default are particularly noteworthy as they align borrowers’ interests with the protocol’s health. Noting the friction for non-crypto native borrowers needs careful consideration to ensure potential borrowers aren’t turned away.

[sid.maple]

Thank you @navin346 for the thought that went into your feedback and pertinent questions!

@navin346

Team needs to explain the rationale behind the increase in total supply of tokens. Is it because of the issue of token liquidity when there is an increase in credit generation by protocol through loan disbursement or for funding team’s sustenance ?

Rationale for Token Supply Increase:
Understand the preference for more specificity here. The decision to increase the supply of tokens is multifaceted. It includes Maple’s ambition to support enhanced credit generation by seeding new pools in the future. It’s critical for funding ongoing grants, development, and operational expenses.

@navin346

What could have helped is through creating a financial model on excel or google sheets clearly demonstrating the “token locks or staking” by lenders and borrowers. …Same goes for the commercial growth initiatives mentioned like in new markets & new sectors

Financial Modeling:
Acknowledge your point that having a detailed model at this point would provide more precision. However, a lot of work and assumptions go into such a model, and at this juncture in the discussion, delving into such detailed modeling might be premature. The primary objective of this MIP is to address the recapitalization of the treasury.

As discussions around token utility mechanisms evolve and as specific utilities progress to their own MIPs, it would be more apt to develop (smaller) detailed Excel models. These models can then provide granular insights and simulations into how each mechanism would function so that the workings can be validated.

[sid.maple]

@DeFiConnoisseur

That being said, I do think the team should do a much more detailed outline of other elements of this proposal, specifically with respect to MPL utility, prior to a vote. Currently there are no clear frameworks/ logistical details which I think need to be clearly outlined.

For instance:

•If we’re proposing borrower fee rebates then what is the proposed structure for this? How much Maple needs to be held and staked for x, y, or z rebates?

•If we’re proposing that delegates must allocate a portion of fees to buy and stake, then we need to outline that yes this is the plan, what proportion of fees, is a tiered structure needed? Etc.

I believe a MIP needs details and trust the team will provide these detailed frameworks so we actually know what we’re voting on.

Thank you for reviewing and taking the time to provide comments @DeFiConnoisseur Will consider what the next level of detail or planning that can be provided for the token utility mechanisms. Understand and acknowledge the desire among the community for more clarity on how this would work. It may be that the additional scope requires it to be broken into a separate MIP, to prevent this one getting unmanageably large, it should be possible to at least signpost what the major variables are with respect to rebates, portion of fees, tiers etc.