NEAR Governance House of Stake Proposal by Gauntlet

[luciotato]

a few comments:

• at this moment, the sputnik meta-pool council must be involved in setting protocol fees, so even if the DAO is attacked, it does not translate into the risk of setting fees to 99%. But you have a good point, so we will also propose a 10% cap by contract code to remove that risks.

• The mpDAO or LNR holders setting fees to 99% is not a plausible scenario. It does not make economical sense because it will mean the destruction of the LST protocol, in exchange of 3 months of staking rewards. Let’s refrain from posting scenarios where the consequence is a destruction of the protocol, let’s start from the base that POS works because the players have skin in the game and they don’t want to destroy their own protocols.

• Regarding assigning all stake to a 99% fee validator, right now by contract code no validator can receive more than 49.99% of the total stake managed by the meta-pool smart contract. (49% is still high, we will propose to the DAO to setting the cap at 5%). Even if by some attack a validator is assigned 49.99%, the stake movement is not immediate. Under normal conditions a 49% assignment will require 8 to 10 months to become effective stake, and even in the worst case scenario of somehow full control by some attacker, moving stake requires 4 epochs, and by contract code you can not move stake if the users require unstaking, so again, worst case scenario means the destruction of meta-pool protocol but no risk for the NEAR protocol itself or risk for the underlying user’s NEAR (they will have enough time by contract to unstake and recover their NEAR)

• metapool.sputnik-dao needs 2 people to approve a proposal, that’s another good point and even if we have been operating since NEAR’s day one without any incident, that can be improved by moving metapool.sputnik-dao to a 3 of 5, or 4 of 7 council. Point taken. Will be improved.

• “why not make a new LST that has 0% fee”?, because part of the advantage of LSTs is that we actively monitor validators to balance increasing the Nakamoto coefficient with obtaining a good yield for the users. You need to pay people for their services. You need to pay for monitoring. You need to pay for maintenance. You need to pay for validation.
  But having an LST contract that is non-upgradeable and with a fixed fee to cover operations is not a bad idea and the meta pool team is keen build that as public goods.

The idea is to code and deploy a third LST, a Neutral LST, non-upgradeable and with a fixed fee. Let’s call the token NLST.

1. If you stake there you can use the NLST to vote to which validator your NEAR will be staked (we already do something similar here: https://www.metapool.app/stakevote/?network=near )

2. The key problem here is validator monitoring, that must be done off-chain for now. This can be solved at first via feeding the NLST contract with our own validator monitoring, just to avoid high-fee validators or offline ones, and in the near future (pun intended), as a V2, that could be solved by an AVS on a NEAR restaking platform. In any case you need protocol fees either to pay for the maintenance, the monitoring or to pay for the AVS service. TANSTAAFL

[luciotato]

The question is: “what happens if the validator goes offline?” People are stuck for 3 months or more with an off-line validator, and that also reduces the censorship-resistance of the entire NEAR protocol.

I made another proposal for neutral LST here: Neutral LST

I believe it is better to have a solution at the smart-contract level and not tied to the infra.

[slimedrgn]

Regarding “what happens if the validator goes offline?”, it looks like a question with 2 choices - LSTs or no LSTs. Both choices have some tradeoffs. With questions like this, it’s important to think outside the box, not limiting the choices by what is already built. I think there could be a better way of locked staking - for example, using “Staking Vault” NFTs / accounts. Each user has their own Vault NFT under *.venear-staking-vault.near name, this NFT holds the stake, the same way as LSTs work now. This NFT will be locked in veNEAR contract, and you can’t withdraw NEAR while the NFT is locked, but you can unstake from one validator (with the normal unstaking delay of 5 epochs) and delegate to another validator in “remote control” mode while the NFT is still locked. When it’s unlocked, the voter can withdraw NEAR from this NFT. This approach solves the problem of validators going offline / setting 99% fee, since people can just unstake and delegate to another validator in ~3 days, as they do now. It gives voters the flexibility of moving their delegation to another validator while it’s still locked and can’t be withdrawn for 3 months, until the veNEAR contract returns the Staking Vault NFT to the voter. It would have no additional fees, wouldn’t need a DAO or an algorithm to disperse the stake to 200+ validators, wouldn’t have an organization that can potentially steal the money. The staker is in charge of monitoring their validators, everything will be the same as it is now with native staking (please don’t start calling it “legacy staking”).

[Mayor_of_Pumpopolis]

There’s nothing wrong with top-down planning, but it needs to be done competently. If we need to accept faux decentralization to deliver on buzzword bingo, it doesn’t change the need for competence.

The problem with previous grants wasn’t in a lack of decentralization, low volume of votes or community engagement. These are all meaningless metrics. The problem was a lack of competence. Projects were funded which never delivered. The core team heavily funded and promoted things which nobody needed or asked for.

Who were the proposed customers for “The BOS”? Did no one ask this before embarking on that years long journey to nowhere?

Vaporware projects were promoted on official channels by paid social media staff. This sucked air out of the ecosystem for legitimate projects and builders who have delivered working projects. Grand narratives with no profit motive or envisioned customers similarly deplete the ecosystem.

These strategies offered short-term hype at best. In the medium to long term, users and developers lose faith due to mismanaged expectations. There is a reason why other ecosystems have attracted robust, organic growth while NEAR’s superior tech takes a backseat.

What is being proposed here is even more vote-yourself-grants, with extra steps. Many of the original grants selected by insiders before the NDC were not executed competently. Why should this process, which appears to be a synthesis of both approaches be different? Obscuring the problem doesn’t change the core issue.

Problems will continue until there is a legitimate system of market incentives which penalize failures. Long term performance must be rewarded and incentivized.

[Hershel]

@Crypto_woody

how much did you get paid for this framework?

Less than NF COO receives monthly https:// pikespeak.ai/wallet-explorer/cjpd.near/history and withdraws on Binance

[agt]

Competently and consistently

[luzmargaritas]

Agree with the suggestion of AI use for the “temperature check” also with establish metrics to evaluate the change process

[cloudmex-alan]

The fixed lock approach is a better way to show commitment of NEAR Ecosystem into Governance.

Before looking to mix DeFi and Governance, is better to think how Governance should work on it self.

[Keyrock]

Thanks to the Gauntlet team for drafting this proposal and to the community for their valuable feedback and engagement. Based on the extensive discussion and feedback regarding the latter section of the proposal, which focuses on Governance Architecture, we have decided to focus on the proposed Tokenomics. Following are our thoughts on the suggested Ve-tokenomics, specifically the two proposed approaches.

Approach 1: Fixed Lock

• Due to altcoin volatility, many users are adverse to exposing themselves to liquidity and time-duration risks by locking up their tokens. Most DAOs already struggle with governance participation, and this lockup requirement might act as a barrier to entry for users wanting to participate in governance due to the minimum lockup period of 3 months required to obtain veNEAR.

• Retail and smaller holders may be asymmetrically affected by this risk as they have the least incentive to lock and participate in governance. This may lead them to become underrepresented in the DAO.

• To incentivize locking tokens, veNEAR holders will earn rewards. As mentioned in 4.2.5.1, to make veNEAR competitive against on-chain alternatives, these rewards are set to 5.8% APY. The NEAR rewards will be distributed to NEAR holders based on their pro-rata share of the veNEAR supply. However, due to lockup periods affecting a user’s veNEAR amount, the APY a user earns depends on both a user’s self-chosen lock-up period and the average lock-up period of the total veNEAR supply. Take the case that 100m NEAR has been locked as veNEAR with an average time of 2 years. As a result, 580k NEAR is distributed among 200m veNEAR. A user’s APY can vary based on their lock period, as seen in Table 1.

  Lock-up Period	VeNEAR	Effective APY
  3 months	1.125	3.26%
  1 year	1.5	4.35%
  2 years	2	5.80%
  4 years	3	8.70%

• Due to the variable rate of APY, the target APY rate only ensures that APY is competitive for users whose veNEAR lockup period is equivalent to the average lockup of all veNEAR. Additionally, locking tokens for long durations encompasses large amounts of time and liquidity risk, which should be considered when benchmarking APY against on-chain strategies where the token remains liquid.

• Based on the above, we suggest changing the target yield rate such that even the bottom 10% of users based on lock-up period still earn 5.8%. This ensures short-term locks are competitive with on-chain strategies and longer locks are rewarded in proportion to the risk taken.

• It is mentioned in 4.2.5 that the target rate should remain below 8.8% - equivalent to the NEAR staking rate. However, as LSTs can be deposited for veNEAR to accrue both staking and NEAR rewards, there is sufficient economic incentive to stake NEAR regardless of veNEAR’s maximum APY.

Approach 2: Rolling Lock

• The Rolling Lock approach lets users accumulate veNEAR voting power linearly over time. Users can enter a queue and receive boosts based on the time staked. As vePower increases, economic rewards increase, creating an incentive for users to keep their NEAR tokens locked for longer periods.
• We believe that users should be rewarded in proportion to the economic value they bring. While users who lock veNEAR are aligned with and benefit the protocol, we have concerns about whether the rolling lock approach incentivizes governance participation or merely rewards users without requiring active involvement.
• This may be seen as a free yield opportunity by farmers, and large amounts of NEAR emissions may be required to reach the target rate APY. Since all these costs are paid by the DAO, it is inefficient to pay APY if most users are passive and unproductive farmers.

Based on the above, we have created an iterative version of the Rolling Lock model. Instead of a user’s veNEAR accruing based on time, it accrues based on the user’s governance participation. This aims to align incentives by rewarding those who are active in participation. Secondly, we believe this will eliminate free riders and reduce overall costs to the DAO since the intention is to maintain a 5.8% reward rate.

Suggested Approach 3: Vote-based Rolling Lock

• Similar to the Rolling Lock, users lock their NEAR or lstNEAR for veNEAR. This lock has no pre-specified time period and has a 3-month unlock period. 1 NEAR locked is 1 veNEAR.

• A user will accrue veNEAR power as their voting participation increases. Voting participation is the percentage of voting in the last 50 governance proposals. The maximum boost a user can get is 2 additional veNEAR for each NEAR deposited (resulting in a total of 3 veNEAR/NEAR).

• The formula for a user’s veNEAR is:

  veNEAR = NEAR deposited + (Voting participation in last 50 proposals × 2 × NEAR deposited)

  A user’s boost is the maximum boost multiplied by their voting percentage. A user with 100% participation will have 3 veNEAR, while a user with 50% participation will have 2 veNEAR.

• As increasing voting participation requires proposals to vote on, accruing veNEAR is also time-based. However, in this approach, the rewards are limited to those actively participating, incentivizing participation and reducing costs to the DAO.

We believe this approach aims to align economic rewards with active governance participation, reduce barriers to entry, and lower costs to the DAO. By promoting active governance participation, it seeks to ensure a more sustainable incentive system for veNEAR holders.

[claudioac]

Thank you Gauntlet team for sharing the proposal for HoS.

Hello Nearians! As you know at Meta Pool DAO we have been developing and working in on-chain governance for our LST platform since 2021 and more actively since 2022. Links to our latest Meta Pool DAO Grants Round N.7

We are keen to support this initiative and would like to add some comments to it.

@alex.shevchenko and @zavodil have some great points of view and would recommend that your team review their points of view.

• Fixed Lock NEAR to get veNEAR, will show the real commitment to individuals and organizations that want to be part of the NEAR governance.
• As to allocating the rewards for veNEAR holders, I would suggest that HoS only awards it to those that are actively voting. We are already doing this for our own governance at Meta Pool DAO. Lower participation but true believers in governance are involved.
• Screening Committee, start with a short list of individuals. NF/Pagoda/NEAROne should be 50% and then another 50% of core projects contributing to the ecosystem. Less is more in regards to this group. Allow the committee to vote on the first proposals to get the ball rolling.
• Delegates, again less is more. There will not be a “perfect” delegate(s), experience in specific areas should be mandatory and clear track record of executing plus delivering is a must.

LST´s
My point of view will be biased, since I am part of the Meta Pool DAO. @luciotato post addresses some of the concerns brought by the community.

Again, we have always put community front and center in our DAO, here is the BOS component for our Meta Pool Improvement Proposals, enabling on-chain discussions which I encourage folks to use and participate in our DAO. We want to make the necessary adjustments that will enable our LST to comply with the requirements from the community. So stNEAR can contribute to the growth of the NEAR Protocol network. Not just by enabling decentralization through our Meta Vote platform, but also through direct governance participation.

The NEAR ecosystem has our commitment to shape this proposal to the values of what everyone here has contributed to build during all these years. Some of us since mainnet launch and others through out the different cycles.

We want NEAR Protocol to flourish and I want to help this proposal deliver value for all the ecosystem participants.

[claudioac]

Active governance is key. If you vote you earn rewards as easy as that!

[claudioac]

I agree that funding projects for BOS was very experimental. We also built a couple of components that focused on our audiences. Like our Meta Pool Improvement Proposals, it was a bet that the NEAR Protocol core team built and did not find Product-Market-Fit for mass adoption, time to move on.

This is part of where NEAR was back then and now we see a shift towards AI. This is all tech that some of us will use and others wont. I think everyone has learned and as an ecosystem we are doing our best to keep delivering value with the technology that the core team is building. Some of it might be hits and other misses, we should not get discouraged. Lets keep buidling, I appreciate the concerns you have expressed.

As for this proposal, we need to focus on transparency and enable contributors to the ecosystem to participate.

[Nader.frax]

We at Frax Finance are excited to see the Gauntlet “House of Stake” proposal for the NEAR Ecosystem. This comprehensive governance framework aligns well with our vision of transparency, accountability, and sustainable growth. The Frax community is enthusiastic about the potential of this proposal to enhance governance and drive meaningful participation within the NEAR ecosystem.

Additionally, we are particularly interested in the integration of frxNEAR in the coming months as another liquid staking token (LST) within the vote-escrow governance framework. This inclusion will further strengthen the synergy between NEAR and Frax, promoting more robust DeFi interactions and expanding opportunities for both ecosystems.

We fully endorse this proposal and look forward to the positive impact it will bring.

[Ozymandius]

Tuning in here after seeing the post and the initial response.

1. I am very glad to see governance moving forward with NEAR. It has been a missing piece of the ecosystem that needs to be addressed so that the annual inflation can be used effectively and there are more ways to get involved outside of the small inner orbit of OGs.

2. The mechanics of the design look sound, and at the very least will make sure that the NEAR token holders are encouraged to look into the ecosystem at how ecosystem rewards are being utilized. Ideally there is a balance of accountability and participation from this.

3. On this proposal vs. NDC and the past: I would encourage everyone to embrace this experiment with their best foot forward. The question here is if we want governance on NEAR this cycle, or to kick the can (again) - that should largely incentivize everyone to help communicate and participate in this proposal so we can finally grow $NEAR as an ecosystem.

Personally, I think Gauntlet will be able to deliver. The real question is if the NEAR community is ready to actively engage (so we don’t have a Compound like attack). I think now is a good time to begin.

[sean]

I am excited to see the next evolution of NEAR governance but have some hesitations with this current proposal. I dislike the proposed long lockup periods for veNEAR, which range from 3 months to 3 years. Such extended lockups pose significant opportunity costs and risks, particularly favoring large holders or organizations who can afford to lock tokens for extended periods. I view NEAR’s current 3-day unlock period is a competitive advantage, and changing tokenomics to support veNEAR could undermine this. I’d like to see shorter lock ups on the lower and upper bounds for veNEAR.

The proposed delegate requirements, including holding 0.5% of veNEAR supply, KYC processes, and high voter participation thresholds, seems restrictive on who will want to be a delegate.

Utilizing the 0.5% annual inflation for governance is a positive step, but the token locking mechanism may inadvertently drain liquidity from other parts of the ecosystem.

[404Gov]

404 DAO is excited to see this proposal by Gauntlet. We appreciate the intentionality of the proposed governance framework which aims to increase NEAR token holder alignment and promote ecosystem growth. Our experience working with Gauntlet in other DAOs has been positive, and we look forward to continuing to work with them, as well as with the broader NEAR ecosystem.

[Gauntlet]

Thank you, again, for all the great community feedback. Including some responses below:

Delegate Applications

The proposed Endorsed Delegate application process will be essential to the success of House of Stake governance. It is designed to allow delegates to express their experience and authority on matters pertinent to HOS governance, promote transparency and disclosure of COI, and enforce relevant compliance standards. These applications will include requirements and segments such as:

• Historic engagement in the Near ecosystem and protocol.
• Alignment with the Near ecosystem.
• Conflicts of interest.
• Historic and target voting participation.
• A delegate Code of Conduct, including expectations regarding integrity, transparency, accountability, and active participation.

To maintain endorsed delegate status, they will also be required to meet the following standards:

• Voting participation needs to be > 80%.
• Submit their rationale for their votes.

Endorsed Delegates set the tone of the governance forum, and they steer the proposals in the right direction by giving their guidance & feedback in an objective manner

Delegate Engagement

The delegation will remain decentralized, allowing delegates to both receive and grant delegation permissionlessly via the on-chain governance system. The standard of communication is a requirement of Endorsed Delegates; the community will have the power to actively monitor and ensure that non-communicative or negligent delegates are revoked of their Endorsed Delegate status by making a proposal to remove a delegate from the forum. It’s important to note that this role exists to ensure participation, not delegate opinion (to which they are entitled as delegates of the protocol)

As per delegate removal, the structure here is designed to execute delegate removal in instances of harm to the community. Where stake-weighted voting should theoretically help address incentive alignment toward bad actors gaining outsized power, the Screening Committee is independent of the Security Council and will serve as a last-resort defense against bad actors of higher severity, including the potential of malicious collusion or governance attacks. We believe that the Committee will be appropriately positioned to execute blacklisting in extreme cases.

Preventing Fatigue

The presence of the Screening Committee has an added benefit in its ability to fight voter fatigue. So they can screen the first level of spam/fraudulent proposals. With the spam/fraud filtered by the Screening Committee, Delegates can focus on the important proposals & spend their time on proposals that have the potential to contribute significantly to the NEAR ecosystem.

Concerns re: Whales and Collusion

House of Stake is designed to help deter governance attacks in two manners:

1. Presence of Screening Committee: When an attack occurs, the Screening Committee acts as a first line of defense. They can make it significantly harder for malicious proposals to pass by requiring a 75% approval (rather than a 51% approval) for their ratification.

2. Security Council as Emergency Backstop: If both the Screening Committee and the delegate system approve a compromised proposal, the Security Council can upgrade the protocol to include protective measures, stop the proposal, and block the attack.

We want to reiterate that the Screening Committee can only increase/decrease the quorum. A Screening Committee cannot veto any proposals; it just makes it harder for “bad proposals” to pass

Delegate Incentives

Once the proposed “Call for Delegates” and the initial tranche of Endorsed Delegates have been approved, Gauntlet will propose comprehensive delegate incentives and a compensation plan. We will certainly consider these (and other) community comments and feedback. The delegate compensation plan will be transparent, with a Total Reward amount to be voted on and approved by the community. The Gauntlet applied research team continues optimizing this formula and conducting independent research and academic review (i.e. research paper here).

Incentives to veNEAR Holders

The 580,000 NEAR here refers only to the first phase of incentives, which will roll out veNEAR holders targeting 10 million NEAR locked-in veNEAR Contracts. As the total NEAR locked in veNEAR contracts increase, the minimum required annual NEAR rewards paid to veNEAR holders will also increase. As discussed in section 4.2.5.1, Gauntlet will be available to fine-tune this and give a deep dive on each presented solution once the proposal is accepted & veNEAR is live.

Regarding LSTs, work is ongoing to make veNEAR compatible with non-LSTs, and we will have further updates on this shortly.

Regarding locking mechanisms, the rate of increase in veNEAR Premium is linear in nature for both Rolling Lock & Fixed Lock. So, the rate of increase for 1 veNEAR per epoch is the same for every user. The difference comes from the amount of time locked up by a user. The higher the lock-up period, the higher the premium a user will be able to receive on veNEAR. It is important to note that veNEAR can have a max premium of 200%, which happens at 4 years

Legacy Stakers and LSTs

We want to ensure the community that we’ve heard and are actively responding to feedback concerning the development of tooling that allows legacy stakes to select their validator and receive veNEAR without requiring them to utilize LSTs or change their chosen validator. The Gauntlet and Near Foundation will continue to update the community as progress continues.

Lastly, many community concerns regarding fatigue, governance design, and delegate expectations can and will continue to be adapted as the DAO evolves. It’s important to remember that this proposal lays a strong foundation for the House of Stake, but the future of near governance is intended to evolve along with its community, protocol ecosystem, and technical development.

Next Steps:

With the 2 week period of feedback coming to an end, Gauntlet will work with the Near Foundation and community to provide the details of the mechanism update to enable legacy stakers to receive veNEAR, and move forward with the proposal.

[Gauntlet]

1. Re point 1: Thank you for pointing this out! This has been updated in our blog post

2. Re point 3: You are correct; we have revised this in our article, which says that the unlock duration for Rolling Lock would be 3 months by default.

3. Re point 6: Agreed. We proposed four solutions to scaling the veNEAR rewards, some of which use components from other successful projects that our team has analyzed. We are open to diving deeper into any of these options or reviewing options proposed by the community.

[claudioac]

Putting NEAR token holders front and center is key in the proposal, allowing them to generate more value for the ecosystem and also at the individual level.

You have the full support of the Meta Pool DAO as long as this is the key driver for the HoS!

[luzmargaritas]

Meta Pool has always supported the strengthening of the NEAR protocol with initiatives that ensure that the community participates actively and fairly. These are not simple issues, but this new form of governance aims to achieve that.