MIP-013: Fee Buyback Mechanism

[fatmac]

Overview

MIP-013 proposes to use 20% of protocol fee revenue from Q1 2025 to buyback SYRUP tokens on market and then distribute these as rewards to stakers of SYRUP. A detailed summary of the proposal is provided below, including the background, rationale, mechanics of implementation and the voting process.

Detailed Proposal

Maple is now generating approximately $5m in ARR from the fees on the loan book outstanding. Looking ahead this year there is a strong growth trajectory, with new products launching and a favorable market environment. Since the launch of SYRUP, it has been the intention to place decisions around the use of fees in the hands of the community.

This proposal is to start with a moderate allocation of 20% of protocol fee revenue earned in Q1 2025, and apply this to repurchase SYRUP tokens. This would be used to purchase SYRUP tokens on-market through DEXs/OTC desks at the end of each month. The purchased SYRUP tokens will then be streamed via smart contract to holders of staked SYRUP (stSYRUP). It is not proposed to do more than 20% because Maple remains a startup with operating expenses in growth mode.

StSYRUP holders currently receive inflationary rewards from the Maple DAO Treasury which come from the 5% annual inflation in SYRUP supply. It is proposed that 20% of the inflation over Q1 2025 be distributed to SYRUP stakers. Based on the current balance of staked SYRUP, the pro-forma rewards rate for stSYRUP would be ~5.0% APY. The remaining 80% of inflation shall remain in the DAO Treasury where it can be used for the DRIPs program and other strategic initiatives.

Rationale

The introduction of a buyback mechanism using protocol revenue offers several key advantages:

• Reward Long-Term Stakers: By distributing repurchased tokens to SYRUP stakers, the DAO rewards those committed to the long-term health and growth of the Maple ecosystem.
• Stronger Alignment: Aligning the incentives of SYRUP stakers with protocol performance through rewards ties their interests to the protocol’s success.
• Increase Staking Incentive: The additional staking rewards will increase staking ratio and overall participation in the governance and decentralization of Maple.
• Utilization of Growing Revenue: Maple’s ARR is approximately $5m, with a strong growth trajectory, new product launches due this quarter, and a favorable market environment for digital assets.

Implementation

Should MIP-013 pass, the following steps will be enacted:

• Revenue Allocation: 20% of the protocol revenue over Q1 2025 will be allocated for token buybacks.
• Monthly Purchases: The buyback will be performed at the end of each month based on the revenue earned during the month.
• Inflationary Rewards: There is currently 5% annual inflation of total SYRUP supply, 20% of this shall be added to the rewards for SYRUP stakers (pro-forma calculation shown below).
• Distribution to SYRUP Stakers: All tokens bought back through this mechanism will be distributed proportionally to SYRUP stakers, based on their staking amount at the time of each distribution.

Rewards Modelling

• Based on the current amount of SYRUP staked (384m SYRUP), at a price of $0.135 per SYRUP, the additional yield from the buyback would be +1.8%.
• This is modeled alongside an estimate of 20% of the SYRUP inflation for Q1 2025 being applied as staking rewards. Based on the current amount of SYRUP staked, the yield from inflation would be 3.1% APY.
• Therefore the total rewards rate for Q1 2025 from the Buyback (1.8%) and SYRUP inflation (3.1%) is estimated at ~5.0%.

Voting

MIP-013 can be voted upon by stSYRUP holders only, with the vote scheduled to go live on the 20th of January 2025.

By implementing this buyback mechanism, Maple Finance aims to leverage its growing protocol revenue to directly benefit those most active in its governance, fostering a more robust and engaged community.

[bellonoff]

Agree with the buyback to stakers approach, that buys SYRUP selling pressure from drips incentives and distributes it to long term SYRUP holders (stakers).

On the starting buyback percentage, a (conservative) ~$5M ARR for 2025 would still be below ~$6M Maple Labs expenses, resulting in the need to sell ~$1M worth of SYRUP from the inflation allocation to protocol treasury. If 20% of ARR is distributed to stakers, the amount to sell goes up to ~$2M worth of SYRUP.

So looks like distributing before breakeven is going to result in increased SYRUP selling pressure, unless:

1. ARR for 2025 ends up being above Maple Labs expenses (at least) by the buyback percentage, so ~$7.5M for ~$6M expenses.
2. Any shortfall between ARR and expenses is covered by Maple Labs fiat funding or paid in SYRUP to team member that are likely to hold.

Attach some rough numbers below.

[Goob]

I agree with bellanoff, I think a better use of funds would be to ensure long term profitability of the organization. Further, this additional spending would be better utilized on additional growth strategies and partnerships to increase overall revenue. While I’m not familiar with the exact finances, I believe a SyrupUSDC or SyrupUSDT reserve would also be a good idea down the road. This would act as a further backing of the loans, would provide the team with additional avenues for expansion and bring longer term strategic capital to Syrup.

[bellonoff]

To be clear, I am in favor of the buyback-and-distribute mechanism proposed. It remunerates staked SYRUP holders (providing real economic utility to token holders) while generating buying pressure that can offset the selling by SYRUP protocol lenders receiving rewards.

What I am discussing is whether 20% makes sense as a starting point. I think it does in the two scenarios discussed in my previous post (which are likely).

In any case, it is better to move ahead with the mechanism and fine-tune the percentage further down the road if needed. Therefore, I have voted for this proposal.