[DAO Discussion] Launch Tea Time Liquid Staking and Issue Governance Token

Governance DAO Discussion
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[DAO Discussion] Launch Tea Time Liquid Staking and Issue Governance Token


Scope:

Reconfirm and extend WIP #2: request DAO approval to make delivery payment and launch Wonderland’s “Tea Time” liquid staking solution, and to issue a new governance token to capture the current Liquid Staking Derivatives (LSD) narrative.

Objectives:

  • Make $2mm payment for delivery of Tea Time liquid staking, as per WIP #2, and as retainer for additional chain.
  • Launch Tea Time liquid staking to begin generating new revenue for the DAO.
  • Issue a governance token in Tea Time to capture the LSD narrative earn immediate token sale revenue.

Tea Time Background:

Brief summary:

Tea Time is Wonderland’s liquid staking product, intended to expand Wonderland’s portfolio of revenue-producing products.

This work is now completed and ready to launch. This vote allows the community to ratify the original DAO vote to make the delivery payment and launch Tea Time liquid staking.

As well as covering delivery, this payment also funds development of additional chains for liquid staking, to be decided by the management team and in consultation with the DAO.

This vote would allow the DAO, at the management team’s discretion, to create a new governance token in order to capture the current LSD narrative and create an additional source of treasury revenue. In addition to governance, the token would have utility both as an incentive for staking and LPing the Wonderland staked AVAX ($wlAVAX) token to increase adoption. This is the same mechanism employed by Lido with its $LDO token.

In order to continue the alignment of development and management team incentives, revenue is shared as per the original vote, with the majority going to Wonderland, and the development team’s share reducing over time: 2.5% share for the first year, 2% for the second year, 1.5% each year thereafter. Milestone payments will be put on hold, to be ratified in a separate vote after launch based on market conditions and the success of the platform.

Tea Time Liquid Staking
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Screenshot of Tea Time liquid staking’s web UI

Product Revenue Opportunity:

The Tea Time liquid staking protocol, as named by the Wonderland community, allows fully configurable reward and revenue sharing with users depositing stake. Users’ AVAX is restaked automatically, and Wonderland and the user earn staking revenue continuously.

Users receive the $wlAVAX (“Wonderland AVAX”) staking token in return, representing their stake, which will allow Wonderland to continue to form closer relationships as a trusted brand in DeFi.

With an 80:20 user:protocol reward split (fully configurable by the DAO), Wonderland can capture over $1M a year in revenue from only 2% of the current staking market. As the crypto market rebounds and the Wonderland brand brings new stakers to market, this number could be much higher.

Despite the bear market, Avalanche’s transaction volume and gas usage is at ATHs. Almost 60% of all AVAX is staked, representing around 250M AVAX, or $3B at current market valuation. With staking rewards standing at 8.2% this is $246M of staking rewards being paid out annually.

Token Revenue Opportunity:

The LSD (“Liquid Staking Derivatives”) narrative is pumping hard right now: Lido, RocketPool, Frax and BenQi are all top performers in 2023, pumping by double- or triple-digits:

  • RocketPool, an Ethereum staking service, has seen its $RPL token pump 32% from yearly open just 10 days ago.
  • Frax’s $FXS token is up 37% over the same period.
  • Lido, the largest liquid staking provider, has seen its $LDO token has more than 2x over the same period.
  • BenQi, a new entrant to the liquid staking market, already has an FDV of $50M for its $QI token.
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LDO/USD from yearly open, 4H candles

By issuing its own governance token in Tea Time, Wonderland can capture this narrative and earn instant revenue for the treasury from the token sale. By keeping the majority of tokens back, Wonderland still retains overall control of the protocol.

Comparable liquid staking providers such as BenQi already have FDVs of $50mm. By issuing a token with a $10mm FDV and selling 20% (keeping 80% for treasury), Wonderland immediately covers delivery cost in full while adding a revenue generating product and growing its treasury by $8mm in Wonderland Tea Time ($WTT) tokens.

The Tea Time protocol is architected so that all parameters are settable directly on the protocol’s smart contracts. Functions that are currently controlled via Wonderland multisig can be straightforwardly moved under direct token governance control by the new $WTT token.

Future Additional Chains:

The original WIP included the possibility of adding other chains after Avalanche liquid staking launch.

The delivery payent additionally serves to fund development of additional chains for liquid staking, as decided by the management team and in consultation with the DAO.

Future Revenue Opportunity:

As additional sources of revenue, Wonderland could choose to further grow its treasury by running Avalanche validators of its own: validators collect a fee of at least 2% on delegated staked assets, compounding the above staking revenue numbers.

Positioning

Tea Time positions Wonderland not simply as a classic “DAO fund”, but as an investor in revenue-producing assets that bring income to the DAO over the long term. It’s this sort of long-term vision that brings value to the DAO’s governance tokens.

Lido, one of the largest liquid staking solutions, has already recognized this opportunity and is in the process of building an Avalanche staking solution of its own. Wonderland’s product is ready to go right now. We can beat Lido to market and start earning revenue today.

Risks/Considerations:

Smart Contract Risk:

Tea Time liquid staking has been audited by Peckshield: Peckshield Audit Report, August 16, 2022

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Curious from the numbers people, is paying 2 million to deliver this such a good deal with all the competition out there? Numbers were decided with much higher market last year in wip #2 and with no competition.

“Wonderland can capture over $1M a year in revenue from only 2% of the current staking market.”

Also who knows what happens with fantom and alt L1s (with things like eth sharding).

“As well as covering delivery, this payment also funds development of additional chains for liquid staking, to be decided by the management team and in consultation with the DAO.”

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A lot of it depends on how much revenue this product would create every month, and what it takes to break even on the $2m initial expense. This would be easy to calculate based on input values for AVAX.

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I believe the plan was to use the sale of LSD tokens to cover the cost.

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Just to confirm: the numbers above have all been re-done with current (bear market) prices, and all the listed competitors (Lido, RocketPool, BenQi) already existed when WIP #2 was voted on. Lido is in the process of building its own Avalanche liquid staking product, but hasn’t launched.

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Spot on. The Product Revenue Opportunity section breaks this down using current numbers for AVAX as input.

In fact numbers are actually slightly higher: since the post was written, staking numbers and price have both gone up, so total staked is now 268M AVAX, which at current market value is $3.3B total staked. AVAX is up around 15% from yearly open.

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This is exactly right: we want to use the token sale to offset delivery cost, as well as earning immediate revenue for the treasury on the back of the current LSD narrative :rocket:

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By numbers I meant the original 2 million to deliver which wasnt redone. Just curious how we would even make back that amount with this product realistically.

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Great question. Token issuance aside, and even in the depths of the bear market, the payback time is short with only a small proportion of the Avalanche staking market captured. I’ve used current figures to illustrate that even in this climate, it’s a solid product. Wonderland would own a revenue-generating product, another among its growing portfolio.

If, as seems increasingly likely, crypto as a whole is bottoming (Bitcoin peak to peak is 205 weeks, we’re 212 weeks from previous trough, and 7 weeks from local bottom) then Wonderland is incredibly well positioned for a bull run, and we can look to more optimistic numbers.

Compounding this with governance token issuance (whilst keeping back the majority in treasury) positions the DAO to take advantage of both the short-term LSD narrative, the medium-term product revenue, and the long-term bull market cycle.

I think, understandably, a lot of people are scared right now. But we’re also at the point of greatest possible upside, and it serves Wonderland to have as many products and tokens under treasury control to take advantage of it :muscle:

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Is the protocol already live? tea-time.wonderland.money is up and accepting deposits, but this post seems to indicate that it is not yet official. Did I miss something announcing the calendar for this product (and sorry if I did)?

Further, is there a strategy to publicly announce/promote this new product? This doesn’t have to be an extensive or costly campaign. Even just announcing this to relevant Avalanche ecosystem partners could help bring in non-WL people, which is good for the product as well as the overall WL ecosystem.

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It’s live, but capped at 100 AVAX total staked whilst we ran Production testing with the Wonderland team (now completed). It’s ready to uncap and launch to the public right now :slight_smile:

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Besides liquid staking, Benqi also operates the #2 money market on Avalanche, so it is not comparable for valuation purposes, and I am doubtful the comparison was chosen in good faith. None of the other LSD protocols on Avalanche have over $1 million in TVL, implying Wonderland would need to substantially outperform all of them to have any realistic chance of breaking even on this project.

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It’s not necessarily a bad faith comparison. However, it might not be completely relevant to this decision. This product, once completely developed, should have very low operating costs. Subsequently, every AVAX staked will make money for the DAO. This means is can be a long-term revenue source with minimal upkeep/further development.

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I’m stoked to see this come out. Very well thought out and informative, great proposal.

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I didn’t want to let this get buried because I think it’s good criticism! I agree with @DrZed that the primary focus should be on product revenue, but that doesn’t mean we shouldn’t try to find good comparisons for token revenue.

You’re right BenQi also provides lending, so agree it’s not a good comparison for valuation. I think they can still be useful to get a sense of the current liquid staking market we’re entering though: BenQi’s staked TVL is currently 5.1M AVAX, or around $80M.

BenQi effectively has a monopoly on the Avalanche staking market; Lido has yet to enter the fray, and the remaining Avalanche protocols are very small: #2 Geode has $1.1M TVL with no token; #3 Yield Yak has $1M TVL with $2.5M market cap (but has features in addition to staking). This represents a huge opportunity for Wonderland.

I’d definitely recommend taking some time to explore DefiLlama’s liquid staking section to get a feel for the landscape, particularly among Avalanche’s L1 peers. It’s hard to find direct comparisons, but you start to get a rough sense of protocol valuations vs. features and TVLs.

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Totally agree with this! And one correction: the protocol is completely developed already, and deployed in Avalanche mainnet. We’re ready to go and excited to launch :muscle:

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Thanks, this really means a lot to me and to the team :heart:

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Another way to think about it is that the amount of revenue this product makes is directly proportional to the amount of AVAX stakes. At 7% staking return rate, every AVAX staked through the product earns .014 AVAX for Wonderland per year.

As a result, there should be a concerted effort to promote this product and get the maximum possible number of AVAX staked. Actions taken should include communicating this product to current WL family members, and explaining how it benefits the ecosystem. There should also be effforts to identify and post announcements in other forums as well for non-WL people. Are there any plans in the works to promote the product once it fully launches?

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Just wondering, what differentiates this product from the rest of the liquid staking platforms out there? Or rather, why would someone choose to stake at Tea Time and not somewhere else?

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This is a great question! In my opinion the two most important factors for any DeFi protocol are trust and community, and I’m going to dig into both below.

Avalanche has some design decisions that make it different from other chains, so I’ll give a little background first, but you can skip this if you’re familiar with the technicals.

Avalanche

One of the reasons trust is so important for liquid staking on Avalanche is due to how the chain itself is architected: Avalanche isn’t really a single chain, but rather a collection of chains under a single banner. This will be a familiar concept if you’ve ever looked into Avalanche subnets.

The chain most of us are familiar with, the “C-chain” is Avalanche’s smart contract (EVM) chain. It’s where the majority of the chain’s activity happens, and where tokens (like $wMEMO) are issued. But unlike Ethereum, it’s not where staking happens: instead, Avalanche has a separate staking chain (the “P-chain”) where AVAX must be bridged and staked to earn staking rewards from validators.

Bridging assets between chains cannot be handled trustlessly. We’ve discussed building this functionality with the Ava Labs team directly, but for now AVAX must be bridged via a custodian. This introduces “counterparty risk”: it’s not enough to trust the smart contracts, users must also trust that the protocol is custodying funds properly.

Trust

There is a lack of trust and transparency here on the part of existing solutions: BenQi’s docs make no attempt to explain how they custody funds across chains. The simplest solution, bridging via a protocol-owned wallet, is also the most dangerous: it entails fully trusting a protocol not to rug or be hacked.

Tea Time has chosen to use Fireblocks to handle cross-chain custody. This was not a requirement of the initial proposal, and the team could have taken shortcuts here, but instead has invested time and money to ensure that custody is done right. Fireblocks custodies funds for some of the largest protocols, exchanges, banks and payment providers, with around $3T transferred through their network to date.

Similarly with Tea Time’s smart contract audits, the team could have chosen a box-ticking auditor, but instead spent additional money to retain Peckshield, one of the most well-known and trusted names in blockchain security and audit to thoroughly review contracts.

Community

BenQi holds a de-facto monopoly on the Avalanche liquid staking market. This has so far been left unchallenged for two reasons: firstly, the additional complexities in implementing a good solution, and secondly that it has a large, active community.

BenQi’s $QI token has over 20k unique holders. Its Discord has 3.2k members, and it has 72k Twitter followers. Few communities have this sort of scale… but a handful do. $wMEMO has over 50k unique holders. Wonderland’s Discord has 48k members, and its Twitter account has 148k followers.

With its huge community, and with trust engineered into the protocol from the start, built on recognized names and through thorough security audit, Wonderland is uniquely positioned to challenge BenQi’s monopoly in liquid staking.

Tea Time

You asked why someone would choose to stake at Tea Time and not somewhere else. Right now there is only one real “somewhere else”, and it’s a weak option. Big players like Lido are a way off launching (although don’t doubt that they will: this is a lucrative opportunity) and Wonderland holds a strong brand in the crypto space.

Both Wonderland and Tea Time benefit by working together: we bring a high quality, ready-to-launch product, and Wonderland brings brand recognition and a huge community around it. We can make Tea Time the choice for liquid staking on Avalanche.

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