Sushi Meiji Restoration
Authored by @ControlCplusControlV, @levx.io, and @Cookies
Like Japan before the Meiji restoration, Sushi has fallen behind and needs to rebuild if it is to avoid collapse.
This proposal aims to instate a new era for Sushi, one led by a reinvigorated DAO and one where the SUSHI token reclaims its place as one of the most productive assets. By addressing both of these issues in a single stroke, SUSHI holders interested in price can be rescued by Gauges, while DAO Members are given the tools needed to begin building a protocol to last for years to come. Gauges will replace xSushi as a more healthy mechanism to reward holders without compromising revenue. The DAO will put Sushi at the forefront of decentralization and light the way for other token-based protocols.
There are 2 main parts to this proposal - the introduction of oSushi Gauges and the introduction of the Meiji DAO.
Separation of Concerns
DeFi has long thought that token price and governance should be tied together, which can be seen in the many non-revenue generating protocols latching onto a narrative to pump their token. This proposal seeks to introduce a separation of control that will ensure successful token economics as well as honest and healthy governance. The Gauges and generated revenue will be governed by oSushi holders, who will be motivated to increase the SUSHI token price. The Meiji DAO will focus on driving forward the development and direction of the protocol, and most importantly will be free from interference from those looking to short-term pump the price of the token.
Although the two tiers of governance are separated, they both have the same long-term goal of seeing SushiSwap become a great success. The key feature here is that the governing entities are removed from each other enough to ensure that bad actors are prevented from gaining control over the protocol, while simultaneously allowing the free market to do what it does best.
Similar two-tiered governance models are beginning to take shape throughout DeFi. We believe it is likely that non-transferrable “soulbound” tokens coupled with voting escrow token economics will pave the way towards improved decentralized governance and token incentive models as we move forward.
The Meiji DAO
The new Meiji DAO will take inspiration from one of the most successful DAOs to date, MolochDAO. Token-based governance does not work, as has been explained many times by Vitalik himself. The Meiji DAO instead works based on shares, which are non-transferable governance rights. Another large improvement of the Meiji DAO it is entirely on chain (with deployment options to Ethereum mainnet or a trusted layer 2), meaning that the Sushi protocol can execute entirely permissionless without buy-in from any organization.
The Meiji DAO provides many improvements over the current one, with one of the main benefits being that governance and operations can move on chain. The Meiji DAO being smart-contract based also allows many exciting new possibilities such as Sushi being able to “sign” smart contracts with other DAOs, own liquidity, and take loans from places like Aave, among many other possibilities.
The Meiji DAO will also see a more decentralized form of governance and put Sushi at the forefront of decentralized governance once again without minority control or proposals requiring buy-in from whales. This will foster community growth which in turn will result in better contributors to push Sushi further.
Gauges will provide a new tokenomics shift investors have been wanting, and work to remedy any current bleeding of token price. Since only 1 year of SUSHI emissions remain, ve economics will prepare Sushi to remain sustainable and thrive in this new environment.
To prevent Shares from just becoming tokens again, they are granted by locking up SUSHI in an entrance contract (of which you can exit at any time, forfeiting shares), and follow the formula of
Shares granted = sqrt(Total SUSHI you've locked up) / log(sqrt(Total Members)). This formula was chosen because it results in a distribution similar to that of Quadratic voting, where whales see diminishing returns in shares granted instead of emphasizing the power of the average contributor, but the denominator slows the effectiveness of Sybilers. Additionally, the Meiji DAO is protected from Sybilers since a Member can be kicked out of the DAO for malicious behavior (not disagreements, but Sybiling and other destructive behavior) with a vote where at least 80% are in favor.
This Mechanism is shown below, at different member capacities. (The number in the
log(sqrt (_)) in the denominator is how many members are in the DAO, with the x-axis being SUSHI locked up, and y being shares granted)
The tables below show shares granted at various thresholds of members and Sushi locked up into the DAO. The result is a mechanism that has some in-built Sybil resistance, which compliments nicely with a minimum share threshold and member slashing to protect the DAO from Sybil or other governance attacks.
|Total Members||100 Sushi||5000 Sushi||10000 Sushi|
|100||10 shares||70 shares||100 shares|
|1,000||6 shares||47 shares||66 shares|
|60,000||4 shares||29 shares||41 shares|
|1,000,000||3 shares||23 shares||33 shares|
Shares are also not granted immediately, and instead, Members must wait for double the voting period before they can vote on proposals. This is designed to prevent new voters from joining the DAO in an attempt to attack or vote through a specific proposal without prior service or participation.
As a final backstop against sybiling and other attacks, an optional “High Kitchen” can be instated made up of trusted community members and contributors. While not granted special voting powers, this “High Kitchen” can veto proposals through the DAO with the intent of this power being used to defend the protocol against governance attacks, or similar vectors which arise from the new DAO being on chain.
It is important to note this High Kitchen will be chosen by the community on the finalization and made up of trusted community Members. The High Kitchen cannot rush through any proposal, nor do they have the power to act on behalf of the DAO. They can merely block proposals from being executed if they are deemed harmful, and a last line of attack.
The idea is to eventually remove the High Kitchen, but as fully autonomous DAOs are a novel concept, it is important to have some operational guardrails in place. This is one of them, so while mechanisms will be built in the DAO to allow the removal of the High Kitchen (such as a majority vote from within the Kitchen), they will remain to protect the DAO at first.
Since users in the DAO cannot vote on Gauges with their SUSHI locked up, the DAO is funded through 10% of the xSushi fee (the other 90% going to gauges), and 30% of remaining SUSHI emissions (this 30% is granted as SUSHI is emitted, not a chunk all at once). This money is designed to allow the DAO to do things like facilitate development bounties, attend conferences, pay devs, or anything to facilitate the growth of Sushi as a whole.
Proposals on chain will be able to suggest arbitrary
eth_call actions from the DAO, opening up many new possibilities for governance. Some of the main benefits of this are opening the door for things like protocol-owned liquidity, and Sushi being able to finance from protocols like Aave.
The operational goals for this DAO are to move development to a bounty-style system. So the ideal flow for the Meiji DAO becomes
- Proposal for a new idea proposed by Member
- Proposal passed by the DAO
- DAO posts bounties to implement the idea
- DAO votes to pass an implementation, paying the developer in the same proposal
Of course, this is an ideal situation, and it will take time before the Sushi DAO operations can reach this level. Meiji will put in place the framework for this to be possible though.
While not fully detailed here and a flexible construct, the idea behind bounties is to provide an open way to implement proposals in the Meiji DAO. So if the proposer isn’t able to implement their idea, the DAO can then post a “bounty” to implement the proposal. Then approve an implementation once written, and pay the author.
Voting exhaustion is also another issue the Meiji DAO needs to solve (voting on everything pushes people away fast). The Meiji DAO will curb this through 2 configurable parameters, Maximum Weekly proposals, and Maximum Signaled Proposals. When a proposal is made by a Member, it then must be signaled by other members. At an interval to be determined during Parameter Finalization, the top signaled proposals are then brought to the voting block where voting on each one begins. This limits the number of proposals which can be spammed and provides on-chain proposal curation.
If this proposal passes a final vote will still be required to both deploy this new DAO, and to finalize parameters such as voting period, share quorum threshold, minimum share amounts, and any other needed variables. This proposal is to determine whether there is support for the Meiji DAO, but the contracts won’t be enacted until a later implementation vote.
Curve-style gauges have been a constant source of admiration from the DeFi community, as a way to distribute revenue and protect token price. Previous proposals such as oSushi and recently from LevX have looked to add Gauges to Sushi, and this proposal will see Gauges similar to the ones discussed there implemented.
The gauges proposed here are near identical to those proposed in the oSushi proposal, but one modification is needed for oSushi to work. Since SUSHI emissions are cut off in just over a year, Gauges will also need to be funded with the xSushi fee.
So the implementation of Gauges will see 90% of the total xSushi fee redirected to Gauges. These xSushi fees will then be used to buy SUSHI which will then in turn be distributed by the gauges. In addition to xSushi fees, 70% of remaining SUSHI emissions which would usually have been distributed via Onsen will be redirected oSushi Gauges.
oSushi would then be implemented with the following parameters.
This is similar to veCRV in Curve ecosystem but to inherit the legacy proposal, we’ll use the name oSUSHI instead of veSUSHI. To receive oSushi you must lock up your SUSHI for at least 1 month up to 4 years. The longer the period is and the more SUSHI you lock up, the more oSUSHI you get. However, all of your SUSHI will be locked up in the contract until your chosen lockup period ends.
Unlike SUSHI, this token is non-transferrable, so you can’t buy or sell it. When you lock up your SUSHI you can choose to delegate your oSushi to someone else, but this delegation is one-time and cannot be changed until your vesting term ends (Similar to how Curve works). Also, while you can unlock your SUSHI, doing so will impose a penalty of 50%, which will then be distributed through the Gauges as extra emissions.
Your oSUSHI balance decays linearly every week. If you lock up more SUSHI the unlock time remains the same. You can also increase your lock-up period up to a maximum of 4 years, which will decrease the rate at which your oSushi decays.
With oSUSHI or gauge voting power, you can vote for gauge weights to decide which pool will receive more SUSHI and fee emissions. This is done via the GaugeController contract, as described below.
The GaugeController contracts maintain a list of all the pools that are eligible for SUSHI emissions, across all chains. This also means that each chain could have a different weight, so for example if Optimism or Polygon want to run a liquidity mining program, they can boost weights for pools on their chain. Each chain could have a different weight and as decided by oSushi holders. (For example, the whole Ethereum pools receive 3x boost, polygon ones 2x, optimism ones 1x, etc) Adding pools to this list is also decided on through a vote by oSushi holders.
oSUSHI holders vote for pools to decide which one should receive more SUSHI emissions. They can use up 100% of their voting power for 1 pool or distribute it across multiple pools. Once their vote is cast for a specific pool, it cannot be changed to a new pool until the next week.
Each pool will have its own LiquidityGauge that users can lock up their LP tokens and this contract is registered as a pool in GaugeController, not the LP token itself. This contract keeps track of which user should get how many newly minted SUSHI with a boost of up to 2.5x in proportional to how many oSUSHI they already locked up.
In short, to receive the maximum emission as an LP, you need to deposit your LP tokens into its corresponding LiquidityGauge contract and vote with as many oSUSHI as possible.
Bribe contracts reward voters who voted for gauges with additional tokens on top of SUSHI emissions. One gauge could have multiple Bribes which means voters could receive multiple reward tokens. We could expect each token project encourages their liquidity providers to deposit their LP tokens to LiquidityGauge and vote for their gauge to receive juicy yield.
This contract will be used as the dummy pool in the mainnet if this proposal passes, to distribute SUSHI for each pool in GaugeController with all the factors in consideration including the emission amount per week, relative gauge weight between pools, and how much LPs got boosted by voting with oSUSHI, etc.
The Impact of Gauges on Token Economics
Gauges look to fix one core problem right now - lack of commitment from holders. As it stands, xSushi absorbs most of the protocol revenues but xSushi holders can exit at any time. This increases volatility for the SUSHI token price and leads to revenue flowing out of the hands of the protocol into the hands of holders who look to leave at the first sign of trouble. Vesting solves this problem by rewarding people for how long they are willing to hold for, and holding them to it. Gauges ensure that value flows to entities that are aligned with the long-term success of the protocol.
In addition to fair revenue distribution, the VE token model also makes it easy to bootstrap deep liquidity. This can be done by farming and locking, or by bribing locked VE token holders to vote for a particular pool, which, in turn, will increase fee distribution in the form of sushi + sushi emissions. This method has proven to be very effective through protocols such as Curve, Frax, Balancer, and most recently Velodrome. Liquidity and volume are what bring revenue to the SushiSwap protocol. SushiSwap must regain deep liquidity and high volume to provide fees to oSushi holders. The implementation of gauges will help in this regard, as can be observed in the image below which outlines the mechanics of the oSushi system.
Another important factor to consider is how the implementation of gauges, oSushi, and the Meiji DAO will remove liquid SUSHI from the market. Currently, the liquid nature of xSUSHI is a net negative for the price of the SUSHI token and the long-term success of SushiSwap. Fees and emissions NEED to be distributed to partner protocols and investors who are focused on the long-term success of decentralized finance. As these entities lock SUSHI in return for oSUSHI and DAO shares they will remove a large percentage of the current liquid market cap, therein making SUSHI a more highly sought-after token and likely increasing the market price.
The graph below shows two scenarios in which SUSHI is removed from the liquid market. In the “base case” the only SUSHI removed is the amount that is currently held as xSUSHI. The “base case” assumes no additional removal by people locking for shares of Meiji DAO and only considers that 50% of future emissions will be converted to oSUSHI. This scenario leaves room for some variation between current xSUSHI holders not locking and some newcomers locking SUSHI for DAO shares. In the optimistic scenario, 50% of the current supply is locked in an arbitrary percentage between oSUSHI and DAO shares, additionally, 75% of future emissions are locked.
It’s clear that if between 20-60 percent of liquid SUSHI tokens are locked for fee + emission distribution or DAO governance depending upon where people are excited about participating, the circulating SUSHI supply will drastically drop. If all other dynamics such as TVL and volume remain consistent the value of the SUSHI token will increase. Of course, it would be ideal to grow TVL and volume, which opens the door for discussion on the possibility of additional token emissions to regain lost liquidity across many chains and capture far more fees, in turn, solidifying the success of SushiSwap in the highly competitive DeFi space.
If this proposal passes work will begin on oSushi Gauges as described above, as well as the contracts for this new Meiji DAO. Those contracts will be provided pre-audit but with thorough testing and of the highest quality. This process will be led by LevX and ControlCplusControlV to lead development efforts.
- Gauges are created to control Onsen rewards on Liquidity Pools
- Gauges replace xSushi, favoring a new tokenomics model to let SUSHI begin building long-term value
- Tokens used in Gauges cannot participate in DAO and vice versa, but users can still participate in both
- New DAO created, which requires lockup of $SUSHI to enter.
- New DAO is Share Based, which grants shares based on a lockup mechanism favoring multiple medium participants rather than a few large ones (similar to quadratic voting)
- DAO gains 10% of the Protocol Swap fee (also known as the xSushi fee) and 30% of token emissions to fund the project’s long-term success.
- Sushi Gauges are created to distribute 90% of the Protocol Swap fee (also known as xSushi fee) rewards and 70% of newly minted $SUSHI.
- Maybe (Adjustments Needed)