Discuss potential airdrop to darknodes because of inflation

General
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With the passing of RIP-000-018, and the likelihood we will round up the inflationary supply to 180,000,000 tokens, Ren 2.0 will now have a total supply of 1,180,000,000 Ren tokens. I would like to open discussions on how to handle the effect of this increased supply on darknodes.
Leaving the current bond size at 100K Ren, maximum total darknodes will increase from 10,000 to 11,800. We have to make a choice to leave this alone, or increase the bond size of a node to 118,000 Ren, thus maintaining the current max 10K node supply. If so, we then need to come up with a plan to compensate some group of nodes so they can continue supporting the network without purchasing 18K additional Ren.

Here are some options I have seen so far:

A) Leave the bond at 100,000 Ren and increase node maximum to 11,800 nodes. This is the simplest approach; no operators receive airdrop. They bear the burden of inflation equally with token holders. With Ren used as a gas token in the 2.0 network, there will be additional demand for it and the likelihood is this demand will reduce the total amount of nodes that can be registered anyway. Also the additional minted tokens will not all be released immediately, those that are may end up being vested for some time, and we even may end up burning some. 10,000 nodes may not have any technical importance, is it just a round number? The main hurdle of this approach is that since current darknodes will be voting on this, they will be voting to dilute not only their future rewards but also their own registered tokens, as an airdrop shields them from all effects of inflation.

B) Increase bond to 118,000 Ren. This leaves max node count at 10K nodes, keeping the basic tokenomics of nodes consistent. With an airdrop to qualified nodes, it rewards them with a shield to inflation, and keeps them from having to acquire more Ren tokens for something they have already achieved. It keeps the darknode as scarce and valuable as before, with nodes earning the same % of rewards according to % of total node capacity. The main problem I see with this is that it will cause some arguing over who receives the airdrop with likely some upset fRens, there will be safeguards needed to make sure the system isn’t gamed if an airdrop is granted for new registrations, and last if there is ever a burn we may have to change the bond again to keep the max supply at 10k nodes. Also like said above, with Ren being used as a gas token, demand for Ren token will increase and though this helps security of system with a high bond value, there will inevitably be less nodes. If we go this route, we need to figure out who will receive the 18K Ren airdrop, and under what conditions:

Who?

  1. Only registered nodes receive the airdrop at a certain snapshot
  2. Only nodes that were registered in a certain group of epochs receive the airdrop
  3. Any nodes registered within first X amount of days of launch of 2.0 receive airdrop
  4. Any of the above, with certain exceptions such as community members who only deregistered since network was closing down, but intended to re-register at beginning of 2.0, etc.

What conditions?

  1. All airdrops are final, no conditions
  2. Some or all nodes are locked for X amount of time who receive airdrop
  3. Airdrop is locked for X amount of time and nodes must stay registered entire time to receive
  4. Airdrop is only a loan, and any node that received it loses it upon deregistration.

(for 2, 3 & 4 hopefully any technical difficulties requiring a node to deregister and re-register immediately will not cause a loss of the airdrop)

C) Keep bond at 100,000 Ren but code into protocol a max 10K node supply. Just another idea.

Hope I haven’t overthought all this! Let’s get all opinions out there and decide on this ASAP, so everyone can plan accordingly, thank you.

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I think we should go with B. And airdrop the 118 amount to darknodes registered up to (paste date of initial notification of v1 shutting down)
If you registered a darknode after cut date then you get your 100k tokens.
I believe this is the most fair option, and the one that will drive the best behavior in the long run

In a nutshell B-1-1

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one potential solution to the problem with A (increase total nodes to 11.8k) — allow existing DNOs option to get bonded in a proportional amount of additional nodes – if I have 10 nodes, then I get an additional 2 nodes (or 1 for 5), and/or proportional share of new nodes as a node share.

I’m more for option B, just airdrop the existing DNOs the inflation adjustment in token to the existing bond wallet.

Agree with locking in for an extended period of time.

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Set two cutoff dates, first at 2.0 launch, second later.

Firstly, any other cutoff point other than a future date seems worse to me. Else somebody is bound to feel unfairly left out. With price being the lowest since the alameda fallout, anyone who has deregged and sold can easily reregister. Also those who have registered since then should not get the short end of the stick. They are taking the most risk.

The more nodes registered, the better it will be for the network.
For the same reason I would also be for a lockup period such that those who registered after launch (but before the second cutoff date) and dereg before 1-2 years get only their 100k ren back. Anyone registering before lauch are already risking enough to also get the risk of lockup.

Also by not setting the cutoff point to a future date, there is even less short-mid term upside to buying ren.

There’s also the argument that we should not disincentivise new nodes now, because the more nodes now the less potential ren for the dev team (through the foundation of course), which could make the launch faster when that is a cutoff point. But I imagine the team is plenty motivated as is.

Therefore I suggest two dates. All nodes spun up before launch get an unconditional 18k ren. All nodes after that but before the second cutoff point get 18k but on the condition that they don’t dereg before e.g. 1-2 years.

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i’d say, let’s keep it simple with option B (as was voted for in RIP18) and include only those who were eligible to vote for RIP18… anything else can be gamed, risks dumping (opportunists registering now just for airdrop), or adds complexity (implement some kind of long-term locking…). the few people who deregistered recently will complain but eh, the only reason for deregistering was to derisk and it’s well known: no risk no gain. fair and square.

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IMO, we should keep the tokens for the treasury. Does not make much sense to airdrop to ourselves since will not benefit the ecosystem, just the individuals.

There are 2 scenarios at the end,

  • Protocol is successful. All of us will be rewarded by volume thru ecosystem and price of the token will go up. 20x from here is very easy on this case.

  • The other option is the protocol does not succeed, meaning the value of our holdings goes to zero, the airdrop did not make any difference in our live (unless airdropped tokens are dumped in the market after receive them, WE MUST AVOID THIS)

A healthy treasury is key to succeed. We need to pay and incentivize developers, pay legal expenses, licenses, incentive other projects to come to Ren, probably incentivize users and others, etc.

I vote “no” for any airdrop at all.

If we struggle to have a decent quantity of DNO, then, we could use the treasury to incentivize and encourage more DNO. Only if needed

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There are a few important mechanical things to note.

Legal and trust considerations

Regardless of whether the DAO were to choose a Guernsey purpose trust under the dYdX framework or a Swiss foundation, and despite the fact that the DAO would have legal rights to modify the trust itself, the DAO would not have the right to direct either type of legal entity to make a transfer of funds for any specific use, including airdrops. This means that while the entity could honor a Snapshot vote by the DAO on a potential airdrop, it would ultimately be up to the entity itself to determine whether some use of funds were in the best interests of its own broader purpose(s).[1]

When using the Purpose Trust under Guernsey law, DAO token holders retain many more rights that enhance the multi-sig arrangement. At a high level, DAO token holders retain the legal right to direct Trustees to remove Trustees, add Trustees, remove the Enforcer, add an Enforcer, or terminate the Purpose Trust and transfer funds wherever the DAO token holders determine (other than to the DAO or the DAO token holders). A Purpose Trust structure with the rights outlined above ensures that Trustees and Enforcer can always be held accountable. However, Trustees retain control over day-to-day decisions regarding the use of funds, including the transfer of all funds for a specific use consistent with the purpose of the Purpose Trust without DAO token holders having any right to direct those transfers. (source)

This changes the governance structure from a direct democracy to a representative democracy, which means that trustees and candidates for trustee should be held to transparency and account on their views so the DAO can make informed appointments and prune them effectively.

Making the airdrop tax-friendly

Let’s assume for a moment that only registered operators were airdropped. In many jurisdictions, airdropping REN directly to operators’ Ethereum addresses could create a taxable event for them. However, it might be possible to implement the airdrop in a way that would allow them to defer that taxable event until they deregistered and withdrew their bond. This could be done by airdropping REN directly to DarknodeRegistryStore and simply adding 18k REN to the refunded amount if the node was registered before a certain epoch and deregistered after the end of that epoch. As a bonus, operators wouldn’t need to deregister and re-register with the airdrop, and the Snapshot algorithm wouldn’t need to be updated.

  1. For examples of a trust’s purposes, refer to page 17 of the dYdX Grants Trust Agreement. ↩︎

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In the long-term, DNOs will benefit most from the protocol ecosystem becoming as widely used as possible. However, the actions which best support this goal may not always align with the short-term interests of individual DNOs. Additionally, different DNOs may have different interests, depending on the number of nodes they control, their tenure, etc. Representative democracy is a time & battle-tested solution for this problem. It also seems to fit neatly with the structure and purpose of a trust.

So, what’s best for the long-term growth of the protocol?

Re: the airdrop, I agree with @martign0. It seems like this is a situation where the short-term interests of DNOs do not align with the long-term interest of the protocol. An airdrop doesn’t directly incentive development or decentralization, and it would mean fewer tokens available for other programs. Tbh, I doubt many current DNOs would stop participating in the network if if they don’t get an airdrop.

Re: the node limit, increasing this proportional to the number of new tokens created would seem to benefit the protocol by allowing for greater decentralization. Hard-coding the current cap while also inflating the tokens seems like it could have some weird and unpredictable consequences (for example, there could be a situation where more DNs try to register than are allowed under the cap). Also, it creates a precedent/roadmap should there need to be a need to add more nodes in the future.

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Unless someone else can offer a strong enough argument against, I’m starting to think just leaving the bond at 100,000 Ren and allowing a higher maximum possible node count is the best path forward.

Reasons:

  • 10,000 max node count is more of a human-friendly round number and not a technical law. Increasing max nodes by 18% isn’t going to be a game changer
  • Possible burns in future will reduce this max anyway, and any burns would introduce another challenge if bonds were set to 1/10000 of max supply.
  • Ren as gas token will introduce demand on Ren and most likely increase token price while reducing available supply anyway.
  • With much of the inflationary Ren being held back and not released or sold for some time, tokenomics will not change much in initial years.
  • No chance for traders to take advantage of an airdrop, only to dump, and no chance of upsetting loyal fRens who may have deregistered with intention of re-registering. Also won’t disenfranchise fRens who have saved up 100k Ren for a node only to now have to acquire an additional 18,000.
  • More money for the foundation to use on Ren.
  • More nodes reduces rewards, but also allows more shards and more shards allows greater security.
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The argument against leaving the bond at 100k REN is that registered operators have no incentive to dilute their own revenue.

Increasing max nodes by 18% means decreasing max revenue by 18%.

If A and B are both good, it doesn’t make sense to not do A strictly because B is good by itself. A + B > B.

The only way to avoid upsetting deregistered operators is for registered operators to pay them out of their own pocket.

There are no shards in RenEVM.

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Operators have the power to protect themselves against the inflation they voted for, which is why they should do it? Sounds like circular reasoning to me.

Do you imply this is a game changer in your view? To me this is just a consequence of the inflation, everybody is diluted by 18%…

By the way, does this argument really hold? There are 180M new tokens, so max 1800 (or 1525 at new bond level) additional darknodes. We don’t know yet how the new tokens will enter the market. It cannot be excluded at this point that these tokens end up in the hands of entities that are much more prone to running nodes (e.g. if they are sold to a particular institution at a discount as has been posited). This means revenue per node can be decreased by much more than 18%, with or without dilution protection.

This perspective depends on the base case being that operators are not diluted, which is being paid out of token holders’ pockets.

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one thing you could do is offer the option for free node bonding, 5:1. Those with 5 nodes get an option to open up another node, those with 10nodes, get 2, etc. It’s not perfect, but would offer recovery of revenue income.

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So what about people with 1,2,3,4 nodes?

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Of all the significant, existential issues facing Ren, I would put this very low on the list. Clearly the answer is to keep the bonding number at 100k REN and keep all money in the treasury. As DN operators you win “extra” in good times (higher monthly fees unavailable to mere token holders), but you suffer more in bad times (now). That is the nature of ownership. Gaming the system with beneficial airdrops when times are bad only insulates DN operators further from operations. Are DN operators going to finally take actual responsibility for Ren or not?

Also, I have been screaming for over a year about the treasury, how handing over our entire treasury to Alameda was a terrible idea, and why we needed more clarity on where the money went, what Ren received, specific Alameda commitments, etc. The risk was obvious: Alameda stops financing Ren and then what do we do? Of course this was ignored by Ren Labs and the more active members of the community, and now look at the situation. Exactly as I predicted.

There are a number of key things that need to happen now, and rebuilding the treasury is one of the most critical. All money should remain in the treasury, nothing should be airdropped to DN operators. Requiring more REN to bond is silly, especially because - if Ren is successful, a huge “if” - this will be a multi-year fight and will likely involve further inflation. Anyone telling you this is a one time raise is misguided. Introducing steady inflation is not a bad thing, so long as the protocol is delivering actual value. That is the real issue here, the lack of value, lack of a credible plan to fix operations. That is where your efforts should be focused.

You are rearranging deck chairs on the Titanic (airdrops to DN operators) instead of facing the real, existential issues that need to be resolved asap. Probably because the existential issues are difficult to solve, and nobody wants to really talk about them. Just like previously nobody wanted to talk about specific commitments from Alameda after the acquisition. Real, existential issues include the following:

  1. There is no clarity on what “Ren” means any more. This began with the Alameda “acquisition,” and was clearly on purpose, to blur the lines around who actually owns and controls the assets and IP. Later - much later - we learned that Alameda controls “all Ren assets and IP.” So how does “Ren DAO” fit into that structure? What do you actually control? You have zero developers and apparently no rights to any assets and IP. Shouldn’t that be your primary focus now, clearing that up? What value does Ren DAO add to any of this? What if Ren Labs walks away tomorrow, what is left here?

  2. There is no leadership. The previous founders, in order to trick you into thinking everything was “business as usual” after the Alameda acquisition, facilitated the creation of Ren Labs. The implication was Ren Labs = Ren Protocol, remember how they spoke about the founders of Ren Labs actually being the founders of Ren (because they were early team members)? And promised to be heavily involved in operations moving forward? Gaslighting. But later we learned the truth: Ren Labs was a mere outsourcer to Alameda, and the actual founders disappeared.

So what is Ren Labs role now? Why is the community assuming Ren Labs will lead this community forward, what is their motivation? It’s simply because you are totally dependent on them for development, and hence they hold all the power. You are forced to accept their leadership. The role of Ren Labs must be clarified, and all activity must be moved under Ren DAO. If the technology is not controlled by Alameda, then who controls it? The Ren DAO? Ren Labs? You (Ren DAO?) seem to think you own Ren 2.0. , but why? What happens if Ren Labs walks away tomorrow, what is left at Ren DAO? Nothing, of course… Isn’t that a much greater issue now than airdrops?

What is Ren Labs motivation to stick around and make this work for the community? Why is Ren Labs looking out for your interests? Maybe they are, but why? Before it was clear: they were paid a lot of money each quarter as part of the Alameda acquisition. But now? Why are they going to continue to work for the “Ren DAO”? Is it because you will pay them? If so, what type of control do you have over their work? Has this been defined? Or are we back to hope and promises?

  1. There needs to be an independent review of the technology. This assumes you even have rights to the technology, but assuming yes (I’m skeptical). What do you, Ren DAO, have? Currently you are totally dependent on Ren Labs. But that needs to change. You need a Ren DAO controlled, independent review asap. And management of that technology must fall under the control of Ren DAO.

  2. What is the strategy to open source? Assuming you have IP rights to Ren 2.0, assuming the technology is solid, you won’t be able to open source for a long time. Why? Because your brand is terrible (and will likely get worse once renBTC redemptions suddenly end), and you have almost zero partnerships after 3 years. That gets back to leadership. It will take years to fix this, not months. Open sourcing now - again, assuming there is value in the technology - would simply allow 3rd parties to take whatever you have and exploit it as they like. Aave is open source but they continue to gain market share. Why? A very strong brand and many partner integrations. That is not the case here… How are you going to fix that?

This is a turnaround situation that requires bold leadership if you are serious about saving Ren. Setting up a foundation could be part of that plan, but without addressing the issues above, you are just delaying the inevitable. Ren desperately needs a paid CEO who can answer to DN operators, clarity on IP and technology, clarity on the role of Ren Labs within Ren DAO… These existential issues cannot be solved by committee! Forget about airdrops and rearranging the deck chairs, focus on what really matters.

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Thank you for your passion and time to write this out, and for sure some of these things do need addressing but also most are being addressed in the discord. I created this thread because it is one of many things needed to sort out. It isn’t the most important but there have been conversations about this topic in the discord and I felt a dedicated thread was needed.

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Completely real as usual.

But, other than laying the groundwork for the legal entities which would need to exist in order to custody the IP, hire executives, pay developers, etc., how else can the community really help here?

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We must have a functional structure built, with clear leadership.

As less mature is an organization, more hierarchy is needed, and on this case, a functional organizational structure with the right expertise is a must. We need a CEO for sure, and clear roles and responsibilities for each team member.

As we mature, we could decentralize (possible get away from a functional structure and be more like matrix or project organization) and do more things as a DAO should be, but until there, community needs a paid team.

All @DeFi_Whiskey wrote there is right, and not easy to fix, specially if that team with clear leadership is not built.

That should be our priority after the legal entity is established, and it is where the community can help: Create the right organization with the right leadership and leave space to the new organization to build the pillars from where this project shall growth.

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what about offering everyone the opportunity to double their nodes?
essentially free bonding for the DNOs hanging in through this transition.

keep 100k REN bond, otherwise
no token increase in airdrop to the DNs
Nodes max to the 11,800 total
Those taking the deal will have 1 year minimum requirement.
Monthly operating costs of the nodes continue to be bourne by the DNO

We have under 2k nodes in operation now (or at least registered), we’d still be under 50% total capacity.

I don’t know how it’d work with the overall tokenomics, but just an idea for those operating nodes but not 5 to 10 node increments (also to consider the DNOs that spread out their nodes in different wallets).

Just allow everyone operating at this transition point to 2x their nodes, somehow.

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Interesting conversation,

My general idea is that there should be no changes to the maximum number of nodes, nor any future airdrops with the sole purpose of compensation to operators.

Currently, Ren has an uncertain future where we should all join as a community with the sole purpose of 1) saving Ren and 2) creating value for the project. The alternative would be the dissolution of Ren, which remains a possibility.

The issuance of new tokens should, in my opinion, only go to the RenDAO Treasury and no airdrop should take place. This would give more oxygen to the project, secure the finances, and subsequently be able to tackle the next problem, which seems to be the relationship between the dev team and RenDAO.

It is also important to note that despite the project having been operational for years, the amount of bonded REN has consistently been around 20% of the circulating supply, regardless of the market, whether bullish or bearish.
There is not enough data to conclude that an inflation of 20% of the token supply would necessarily result in the creation of new DNOs. DNOs require a certain level of commitment that not everyone is motivated to have.

Therefore, I am opposed to any type of airdrop and would rather the Community understand the criticality of the moment and the need for a robust Treasury.

I would also like to point out that the case of Ren is not the first to see the community’s choice to increase the token supply. In fact, Yearn went through a similar process in January 2021 (a.k.a. YIP-57), citing the need to:

  • Retaining existing contributors
  • Incentivizing new contributors
  • Capitalizing the Treasury to a scale comparable to industry peers in order to better support growth

I do not see any particular difference between their case and ours.

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During RIP18 we clearly voted for the airdrop to “current registered darknodes” “at the time of this proposal”. No need to have this discussion again because otherwise, we disregard the RIP18 vote.

I mean, if we now vote here differently (meaning, e.g., no airdrop or different snapshot date), I and likely many other DNOs would have voted differently during the RIP18 vote. Meaning we would have to redo the vote regarding the inflation then, something I think nobody wants.

So let’s keep this according to how it was described in RIP18, and move on.