SIP-7: Set sUP APY target to 20%

Governance
1

Abstract

This proposal establishes a target 20% APY model for sUP rewards replacing the uncapped variable rate model used currently.

If approved, the sUP rewards rate will target an initial 20% APY. Rewards may be funded through protocol net revenue routed to sUP or existing authorized treasury emissions.

This proposal keeps the existing 14-day sUP cooldown unchanged.

Background

SIP-2 extended the sUP redemption cooldown from 1 hour to 2 weeks and formalized a fixed sUP reward rate of 500,000 UP per month. At the time, this represented approximately 54.5% APY at then-current staking levels.

SIP-2 also explicitly provided that governance may modify, extend, or revert either parameter in the future through subsequent proposals. SIP-7 uses that governance authority to update the reward-rate parameter while leaving the cooldown parameter unchanged.

Since SIP-2 passed, market conditions and staking participation have changed materially. Additionally, the introduction of validators, which also requires sUP staked, expands sUP supply which will drive down yields.

SIP-7 updates the model from a variable monthly APY to a target 20% APY.

Mechanism

This proposal replaces the variable UP reward rate with a 20% target APY.

This proposal does not modify the cooldown duration established in SIP-2.

Users who initiate cooldown after a distribution keep the economic benefit from rewards already distributed, but do not accrue new rewards while in cooldown.

The 20% target APY may be funded by:

  1. Protocol net revenue routed to sUP under SIP-1.
  2. Authorized treasury emissions up to 500,000 UP per month when revenue does not fully cover the target.

Over time, the intended direction is for real protocol revenue and buybacks to cover more of the target APY, reducing reliance on treasury emissions. If SIP-1 distributions and authorized treasury emissions do not meet the 20% target, the APY will be a variable amount less than the target based on vault TVL.

Rationale

The current fixed monthly reward amount was useful for early certainty, but it currently over-incentivizing sUP in current market conditions. A fixed token amount means the implied APY can rise when users unstake, which rewards a shrinking active base with a larger yield.

A target APY model is cleaner:

  1. Rewards scale with actual active sUP participation.
  2. Cooldown shares stop earning immediately, preserving alignment with long-term stakers.
  3. Emissions become easier to model out and govern.
  4. The program can gradually shift from treasury-funded rewards toward revenue-funded rewards and buybacks.
  5. sUP remains attractive without relying on an excessive fixed subsidy.

This preserves the intent of SIP-2 while improving the mechanism.

Governance Considerations

  • Governance may update the target APY in a future proposal.
  • This proposal does not modify the SIP-1 fee routing parameter.
  • This proposal does not guarantee future protocol revenue, future buybacks, or a fixed return.
  • The target APY is a governance-defined rewards target, not a guaranteed yield.

Voting Options

For

Vote For to:

  • Set the target sUP APY to 20%.

Against

Vote Against to:

  • Make no changes. sUP rewards remain variable.

Abstain

Abstain from voting.