Introduce a governance-controlled ‘payout ratio’ parameter (initially set to 90%). This will divert a portion of trading fees (100% - payout ratio) from xSUSHI stakers to the Treasury as revenue denominated in a reserve asset, e.g. ETH or DAI. At a payout ratio of 90%, xSUSHI holders are paid out 90% of the 5bps, or 4.5bps, and the remaining 0.5bps are sent to the treasury as retained earnings. Introducing retained earnings will offer valuable bear market protection as well as allow SUSHI holders to govern a new cash flow, which could be used to reinvest in growth or generate non-operating income.
As recent market dynamics have shown, crypto asset prices remain highly volatile and we should expect this to be the case for the foreseeable future. Sushi’s treasury is currently denominated entirely in SUSHI, and while this provides great upside for the treasury, it also leaves the treasury vulnerable in the event of market dislocations. Since the treasury has no income other than SUSHI emissions (which will end in 2-3 years), and since operational expenses are incurred in USD terms, the treasury might be forced to pay expenses by selling SUSHI in a prolonged bear market (=bad for token price, bad for our Master Chefs, and bad for xSUSHI stakers at the SushiBar).
Thus, as SUSHI holders, if we want to continue enjoying delicious SUSHI at the SushiBar by staking xSUSHI, it is important that we show appreciation to our hardworking Master Chefs by making sure they have an income model that is sustainable longer term. Traditionally, when eating at a sushi bar, one way to do this is by offering the hardworking chefs some sake and saying “Kanpai!”. In our case, we can support the hardworking Master Chefs of the Sushi ecosystem in perpetuity by introducing a ‘payout ratio’ to start retaining some earnings in the treasury.
The ‘payout ratio’ is a parameter that corporations typically have which determines how much of their net income is distributed to shareholders as dividends vs how much is retained in their treasury for reinvestment purposes. Normally, high-growth companies are able to re-invest at a high rate of return, and for that reason they typically choose to set the payout ratio to 0 until they can no longer find productive ways to reinvest the capital. We think this concept is extremely useful and should be a governance-controlled parameter for Sushi holders to determine and change over time.
High-level contours of our proposal:
- Our suggested approach is to divert a portion of trading fees determined by a new parameter, ‘payout ratio,’ into a reserve asset (e.g. ETH/USDC/DAI/USDT/WBTC) and send it to the Treasury as retained earnings that governance can decide what to do with. For example, if the payout ratio were set to 90%, this would mean that 10% (0.5bps) of the 5bps currently earned by xSUSHI holders as dividends would instead be sent directly to the treasury.
- Using total fees generated in the last 30 days ($74.56mm), the Treasury could have generated ~$1.24mm in revenue (@ a payout ratio of 90%), which annualizes to nearly ~$15.12mm.
- While this is a big number and more than covers Sushi’s operational expenses, any excess (i.e. profit) could be used to yield farm to grow the treasury, conduct long-term sustainable liquidity mining programs, pay core team salaries, incentivize the core team with bonuses, and/or diversify the Treasury’s asset base for enhanced bear market protection and further ensure we can continue to support our hardworking Master Chefs.
- Moreover, having a healthy Treasury means that if SUSHI price evers drops too much, Treasury funds (from retained earnings) can be used to buyback SUSHI to support token price and allow xSUSHI stakers to enjoy even more SUSHI!
The purpose of Sushi’s DAO and Treasury is to support and maintain the Sushi protocol in perpetuity. This means that the Treasury needs to always be able to meet Sushi’s operational expenses (e.g. audits, dev salaries, marketing etc.).
Currently, the Treasury’s only income stream is SUSHI block emissions, but SUSHI will reach its supply cap in the next 2-3 years, so this is not a long term solution. Moreover, the vast majority of Sushi’s operational expenses are incurred in USD terms, so block emissions and existing SUSHI held in the treasury cannot be used to meet expenses without being sold.
Although the ~$616.7k worth of stablecoin/ETH in the Sushi Dev Fund and the $2.5mm in stablecoin/ETH/BTC from the sushiHOUSE proposal is a good start to diversifying the Treasury, ~$3.12mm in non-SUSHI assets where >50% is held in ETH/BTC could still prove to be insufficient to meet all operational expenses if BTC/ETH experiences another multi-year bear market like in 2018-19. If this occurs, the Treasury might be forced to sell SUSHI at very low prices to meet operational expenses, which would then cause a further downward spiral in SUSHI prices. It is thus paramount for the Sushi community to expand current Treasury Diversification efforts, and ideally find a Treasury Management solution that:
- Will have minimal, and ideally no impact, on SUSHI price.
- Is low risk (the DAO could choose to collateralize Treasury SUSHI for a stablecoin loan, offering liquidity without selling SUSHI, but this has the potential to go very very wrong—especially without any Treasury income).
- Can generate sufficient amounts of revenue to always cover operational expenses.
- As a bonus, can generate income in excess of yearly expenses so that leftover profit can be used to expand the current Treasury diversification efforts and further protect the Treasury’s asset base in the event of a bear market (i.e. use excess income to Yield farm, stake ETH with Lido/RocketPool, lend stablecoin on Aave/Compound/Cream, invest/do token-swaps with strategically aligned protocols like Yearn, buyback SUSHI, etc.).
We think the best solution that meets all of the above requirements would be for the DAO Treasury itself to have an operational income stream denominated in hard currency, just as traditional corporations and many of Sushi’s peers do (Yearn, BadgerDAO, Aave, and Index Coop all generate income through their product-lines that is sent to the treasury). The most elegant approach to enabling this would be by introducing a governance-controlled ‘payout ratio’ parameter.
This proposal is limited to the establishment of a new governance-controlled cash flow via a payout ratio. Future proposals will be required to determine the processes for how the new treasury income will be spent on operational expenses (dev salaries/bonuses, audits, marketing etc.) and other initiatives (liquidity incentives, investments, SUSHI buybacks).
Sushi currently charges traders 30bps on all trades: 25bps goes to LPs and the other 5bps is reserved as fees until someone generously chooses to serve it up as SUSHI to xSUSHI stakers in the SushiBar. With this take rate, in the last 30 days, the total fees generated for LPs and xSUSHI holders was $74.56mm; annualizing this figure gets us to ~$907.15mm.
We propose the introduction of a ‘payout ratio’ on the 5bps currently sent to xSUSHI stakers (to be set to 90% initially). Concretely, this means 0.5bps would be reserved by the protocol as Treasury income and be served up as ETH/USDC/DAI/USDT/WBTC to the Treasury with the remaining 4.5bps going to xSUSHI stakers as SUSHI. If the ‘payout ratio’ had been set to 90% previously, the Treasury would have generated ~$1.24mm in the last 30 days, which annualizes to nearly ~$15.12mm in income.
We think that a payout ratio of 90% is a relatively low amount of dilution (just 10%) for xSUSHI stakers but would still be very effective in helping the Sushi protocol be sustainable in the long term, since millions of dollars in revenue every year will allow the Treasury to support Sushi’s operational needs comfortably while also giving the Treasury ample amounts of excess profit to invest and diversify its asset base, or conduct SUSHI buybacks during bear markets.
Alternatively, the community might also think that 90% results in too much dilution of xSUSHI income, or that LPs should also give up some of their income too; however, we believe that given Uniswap currently gives LPs the full amount of fees, Sushi should not be diluting LP income any further lest Sushi weaken its competitive positioning. Furthermore, the ‘payout ratio’ of 90% is just a suggestion and can be increased for less dilution of xSUSHI stakers, e.g. to 95% (which amounts to ~$621.33k in the last 30 days and annualizes to nearly ~$7.56mm), but we think that giving the treasury more income will allow the treasury to have a healthy surplus to invest and diversify its assets without having to sell SUSHI.
Currently, when SUSHI is served to the SushiBar (through the
SushiMakerKashi.sol contract), tokens reserved as fees are removed from the liquidity pool, swapped into WETH, and then finally swapped from WETH into SUSHI and ‘served up’ to the SushiBar (e.g. DAI and USDC reserved as fees on SushiSwap are removed from the USDC-DAI liquidity pool, swapped into WETH, then into SUSHI and served to the SushiBar). One possible way, then, to send the 0.25bps of fees allocated to the Sushi Treasury might be to modify
1 - payoutRatioof all fees already denominated in SUSHI into WETH, then send this WETH to the Treasury address before serving the rest of the SUSHI directly to the SushiBar (currently, all fees already denominated in SUSHI are sent directly to the SushiBar within
In all other cases, during the final stage of the
_convertStepprocess (when the tokens are converted into WETH before they are converted into SUSHI), send
1 - payoutRatioof the WETH to the treasury before converting the rest into SUSHI to serve xSUSHI stakers in the SushiBar.
If this proposal is passed and implemented as outlined, no active management will be required and all Treasury revenue/income will then be denominated in WETH. We leave it up to future governance proposals to decide what to do with this WETH, but one idea would be to create a program which programmatically swaps WETH into stablecoin and WBTC every once in a while (e.g. on a monthly basis).
Managing the Sushi Treasury’s income streams and assets to more closely match its fiat expenses is crucially important if the DAO and Treasury are to support the Sushi ecosystem/protocol in perpetuity.
The Treasury’s current near 100% SUSHI allocation could prove to be risky in the event a prolonged bear market occurs, so the Treasury is in need of expanding its ongoing diversification efforts. By creating a new governance-controlled ‘payout ratio’ parameter, to be initially set to 90%, 0.5bps of the 5bps of the fee revenue currently paid to xSUSHI stakers will be sent to the Treasury instead. This gives the Treasury enough revenue every year to cover operational expenses and also an ample surplus to invest in low-risk assets to further diversify the Treasury and bring in non-operating income (e.g. by yield farming, providing liquidity on SushiSwap, staking ETH).
|Treasury’s Fee Rate||0.25bps||0.5bps||0.75bps||1bps|
|xSUSHI Fee Rate||4.75bps||4.5bps||4.25bps||4bps|
|Annualized Treasury Revenue||$7.56mm||$15.12mm||$22.68mm||$30.24mm|
|Annualized xSUSHI Revenue||$143.63mm||$136.07mm||$128.51mm||$120.95mm|
- Even smaller ratio
- WETH+Stablecoin (50/50)
- WETH+Stablecoin (Some other split)
- Aave Revenue Collector Wallet
- Badger Revenue Collector Wallet
- Index Coop Treasury/Revenue Collector Wallet
- Sushi Treasury Wallet (NB: A large portion of the SUSHI held by the Treasury is unvested SUSHI held on behalf of onsen farmers as per this proposal)
- Sushi Growth Fund/Operations Multisig/Devfund Wallet