TIP-4 - xESD Grant Proposal

Authors

@mjc716

Summary

xESD will be an ERC20 wrapper for the ESD DAO bonding process. Returns from DAO inflation will accrue to the value of the xESD token. xESD will be fully fungible and transferable and will serve as a layer of abstraction for a staking process that may be confusing or intimidating to some investors.

Value Proposition

  • Immediate liquidity: xESD will be freely traded on DEXes, offering a single transaction on- or off-ramp for ESD investors. xToken intends to heavily incentivize secondary liquidity of xAssets upon introduction of the XTK token (likely in Q1) and will dedicate a significant rewards allocation to xESD incentives.
  • Better Collateral: We’re all agreed on the potential for ESD as stable, permissionless, truly decentralized collateral. The one missing ingredient is yield generation. There’s really no reason for ESD depositors to forgo returns from DAO inflation. xToken is well into the process of building a simple lending protocol for xAssets, and xESD will of course be supported. Additionally, we would expect other lending protocols to support xESD as the project grows in size.
  • Tax Advantages: This value prop is domicile-specific, but for many investors, each DAO inflation distribution is a regular income taxable event. This represents hundreds of inefficient-rate taxable events for ESD stakers. In the case of xESD, rewards value accrues directly to the value of the token. Said another way, investors can elect when to invoke a taxable event (the sale of xESD) and, on a long enough time horizon, they may benefit from lower long-term rates. [[PLEASE do not take tax advice from our ESD grant proposal]]

Funding Request

In order to commission an audit, the following funds are required:
~15,000 ESD to 0x4c0C29539C463AF348f8Cba8c02D644a8d68C320

These funds will be paid once the contract is complete and we have an exact quote from the auditor. The final amount may be slightly different but we can cap it at 17,500.

Voting

For: Yes, support xESD
No: No, super-fluid collateralized derivatives of algorithmic stablecoins are uninteresting to me
Poll: Link

Further Questions

Feel free to DM me (mjc716) or tag me in public channels in the Discord. Thanks!

5 Likes

This looks great. I’m a major fan of the xTokens y’all have done so far.

One thing that needs clarification is if this xToken will be able to navigate the voting quorum concerns.

PS for a valid vote the proposal needs or be submitted by a multisig signatory or an account with 100k ESD.

Yes, governance is a key element that I should have covered. Would like the community’s feedback on this, but we’d likely approach governance similarly to how we’re doing xAAVE, where there would be two instances of xESD: xESDa and xESDb, each with their own governance bent, although they will often vote in tandem because much of governance is uncontroversial. We would actually hope that xESD increases participation in governance as a delegated option for investors.

tldr, xESD should make it easier to achieve quorum, not harder.

I think improving the liquidity and creating a market for ESDS would be quite interesting.

I think the tax advantage is not really accurate though since right now ESDS is already tax advantageous as it serves as a vehicle to take advantage of ESD inflation rewards but the ESD bonders aren’t taxed on those rewards until they unbond and convert back to ESD.

Curious anyone else’s thoughts because this seems like an idea we should fund

1 Like

Hi! this sounds super interesting.

Is the funding just to pay for an audit?

Does anyone have links to good reading where I can read more about how xTokens work and the benefits of it?

Could the author talk a little bit more about their experience or qualifications in this regard so we can understand that they are the right person to give this task to?
thanks!

Thanks @jdh!

Yes, funding is just for audit. We didn’t ask for an exact number in the proposal because we’re ultimately just going to request the amount quoted by the auditors.

Check out our introductory blog post from July on xToken https://medium.com/xtoken/introducing-xtoken-2fd50d0f943b

On being the right fit for this task, I’ve personally built several similar wrapper staking contracts for xToken and our team (4 of us) will be contributing to smart contract and front end code for this project as well. We’re also only requesting the funds on completion of the project so I hope that puts your mind at ease!

My understanding is that the xToken team would decide how to vote all ESD held in the xESD contract on any proposal? If you do the xESDa and xESDb options, there may be slight difference, but there’s no way for xESD holders to directly influence a vote, correct? If this is the case, it makes me extremely uncomfortable due to the resulting centralization.

copy-pasted from Discord:

Certainly understand that perspective - totally valid. A couple notes:

  • We’re working on a Snapshot-like signaling mechanism for voting. Holders should have a vehicle to express their preferred voting outcomes. It wouldn’t be binding (if it was, a few active holders could control a much larger voting bloc), but it would act as a check against xToken and ensure that we abide by the spirit of the mandate

  • xESD is opt in . It would be just one option in the larger ESD ecosystem. If we were to act in a way that was detrimental to the community/project/ecosystem, I imagine there would be significant capital outflow. We’ve also already built roots in the KNC, SNX and AAVE communities (current xAssets) and are building in several others with products to be released soon. We have small but growing reputational capital on the line and wouldn’t risk it with any funky business

  • We’re releasing our token in Q1 and building our governance module shortly after that. Token holders will not be voting directly on each ESD proposal (that would be too onerous) but they will be controlling the permissions on who does. That’s a very significant step towards decentralization

  • As ESD grows and token ownership continues to distribute, it’s only going to get harder to get quorum. xESD is a guaranteed bloc of votes for/against every proposal. You really could look at any project in the space for evidence of declining rates of participation, especially when on-chain transactions are required. Small holders are not going to spend $5 on gas. xESD’s mandated governance is democratizing in that sense. Large holders with diversified portfolios are not refreshing emptyset.finance every day checking in on governance. xESD offloads that mental overhead

  • Lastly, I’m a little bit sad that the godfather of superfluid collateral isn’t buying in to the vision! Unless, ESD builds xESD directly into the protocol (don’t think this makes sense), there’s no way to provide superfluid collateral while allowing holders to maintain their direct voting rights. Any type of DAO model would privilege active holders in a way that disenfranchises the less active bloc and gives active holders outsized power (this has weird downstream consequences). Sorry for the novel guys. Wanted to get it all out there

1 Like

Why is privileging active holders over passive holders better? Isn’t that the point that if you care enough to be active that your vote will count and those that aren’t active won’t have their votes count?

The key difference imo is that, in the case of a pooled staking model like this, the active holders within xESD suddenly have larger voting power than they personally represent because the xESD contract has to vote in unison with all votes going to one side. So, the problem isn’t that active holders have a voice and passive holders abstain, it’s that active holders now have control over passive holders’ vote because of a sort of unintentional meta-governance