Proposal: Creation of Liquid Voting Token (LVT)
(Community Grant Pool Category (i) New LST creation and ideation)
Liquid Voting Token (LVT)
Several Solana communities require tokens to be staked in order to participate in the DAO and/or receive rewards. However, many individuals unfortunately have emergencies that come up unexpectedly, and may need to liquidate their staked position but are unable to due to the tokens being staked. This is where Liquid Voting Tokens (LVTs) come in.
Essentially, I think the LVT pool could be launched in a similar way as the CLOUD vault launch, with funds accumulated over a period of a few days before the LVT mint. During these few days, individuals could pledge the underlying token (e.g. JUP), which would be part of the large pool of tokens that is locked when the timer ends.
Individuals would then receive the LVT tokens, which would start to trade freely, while the other tokens are staked. As rewards for staking, voting, or both are accumulated, these should be reflected in the LVT price, along with fluctuations in the price of the underlying token.
The LVT tokens would continue to trade unless/until someone redeems the LVT tokens at Sanctum for the underlying token.
Challenges:
How long to stake? Some tokens have a fixed period (e.g. JUP has 30 days) while others have a variable period (e.g. HNT has up to 4 years). I would leave this up to whoever is creating the pool, but the 1 month (30 day) period would seem to be a good āstandardā, in my opinion.
What happens with voting? Most DAOs offer incentives for either staking or voting or both. This is therefore a critical issue. My initial thought is that there would be a location on the Sanctum page for the LVTs, where individuals could come and temporarily (e.g. JUP votes usually run for 3 days) come and ālockā their LVTs until just before the vote ends, and vote on Sanctum, with the final vote of the entire pool of LVTs being determined by the majority of those locking and voting on Sanctum. I am open to ideas to how to best address this challenge. As mentioned, it is a critical one.
What happens with rewards? As mentioned earlier, as rewards for staking, voting, or both are accumulated, these should be reflected in the LVT price, along with fluctuations in the price of the underlying token. I envision the LVTs having an āex-reward dateā (similar to how stocks have an ex-dividend date), where a snapshot will be taken on a given date which aligns with when rewards in the underlying token will be determined, and whoever is holding the LVTs as of that date will be the person receiving rewards. The price of the LVT should then update to reflect this post-snapshot, again, similar to how a stock price adjusts to reflect it is now trading without the dividend.
Who will build it? Iām hopeful that if there is enough support from the Sanctum community for this idea, the Sanctum team would be willing to build this out to support the broader Solana community. If not, this proposal is DOA (ādead on arrivalā). See āProfitsā section below ā I expect the Sanctum team to be compensated for doing this work.
Is it safe? Hopefully we can leverage the existing LST infrastructure to make sure there is little to no additional risk to having LVTs represent the staked voting tokens.
Benefits:
Liquidity: This goes without saying. Being fairly active in the Jupiter Discord, Iāve seen many posts regarding the 30-day staking period being too long, and others asking if someone would be willing to buy their staked position OTC at a discount due to an emergency or urgent need. I think there is certainly a desire, and therefore a market, for LVTs, although Iām not sure how large it is.
Greater DAO participation: As alluded to above, Iāve seen many folks complaining that a 30-day staking period is too long, and therefore not staking in order to participate in the DAO. Hopefully with the introduction of LVTs, this will help to increase DAO participation, as individuals who may not have been willing to stake directly due to the lack of liquidity, will now use the LVT launch and stake indirectly via Sanctum. A counter point to this would be that the DAOs have created the staking mechanism to hopefully ensure that voters have a vested interest in the projectās success longer term. I personally donāt believe that the creation of LVTs runs afoul of this, since voters can already currently complete OTC transactions when their liquidity/funding/emergency needs donāt align with their staked position, and since the LVT tokens would continue to trade unless/until someone redeems the LVT tokens at Sanctum for the underlying token, at which point it would require the full unstaking period.
Awareness: Hopefully the existence of LVTs increases the awareness of and adds value to the Sanctum community, since it is another product offering.
Profits: Sanctum could charge a small fee that is realized either as a portion of the rewards generated by the LVT pool, taken initially as a portion of the staked amount, or something else, or a combination of these. The Sanctum team certainly deserves something for building out the infrastructure to support this, besides just the recognition.
Overall, I hope the potential benefits outweigh the costs/challenges and the community thinks this could be a worthwhile initiative. I also appreciate peopleās feedback to hopefully better address some of the challenges I mentioned, and especially to highlight (and also hopefully address) any challenges that I might not have thought of. The same goes for benefits. Thank you all!
