Dual Finance - Mango Staking Options Proposal

Hi Mango Community, Dual Finance would like to share the following proposal to kick off a healthy discussion around token incentive structures for liquidity mining and governance in particular. We preface this proposal by highlighting that any of the below parameters are configurable and understand the community may want to pilot the changes before finding its end state. A highly recommended walkthrough of the benefits of Staking Options can be found here: Sustainable Token Incentives. Token incentives are the central force… | by Dual Finance | Jun, 2022 | Medium

About us: Dual Finance is designing the next generation of sustainable yield products to be the Base-Layer Incentivization Protocol for Web3. Our breakthrough token incentive mechanism, called Staking Options (SOs) aligns incentives of participants by granting those who provide liquidity or participate in governance, the right, but not the obligation to purchase tokens for a future price. No more token rewards, instead token option rewards.

Dual Finance proposes the Mango community redesign its Liquidity Mining rewards to be issued in SO form. Additionally, Dual Finance proposes Mango add economic incentives to MNGO governance lockups in SO form. The goal of this overhaul of incentives is to revitalize the Mango token economy and disrupt the negative cycle of inflationary token incentives. Ultimately, supply will only unlock now when the price supports it.

The proposed implementation of Liquidity Mining SOs will be 90 day expirations of 30% OTM (out-of-the-money) strikes, rolling every 7 days. Users will accrue 3 times the SOs per 1 MNGO previously earned based on the same liquidity mining points methodology. Effectively for every MNGO token issued from Liquidity Mining, Users now will earn 3x a 90 day call option to buy MNGO at a 30% increase from the current spot price.

Users gain 3:1 upside leverage in this model. The options upon accrual have a real present value that we’re integrating Market Makers to facilitate direct bidding. This way Users who want to just cash out their rewards can do so, they can sell the time-value immediately. If Users choose to hold to expiration, that time-value over will decay to zero and it’s possible the options expire worthless. However based on implied volatility estimates and the proposed expirations & strikes, the expectation is that ~45% of options will be exercised based on their initial delta. This means if not sold prior to expiration, over the long-run users will have 55% of outcomes pay nothing and 45% of outcomes profit an unbounded 3x upside. Currently, Users who are Liquidity Mining are incentivized to sell at any price since their direct cost basis is zero. Staking Options mitigates this dump likelihood and still provides realizable value to users.

The second component of the proposal is that participating in Realms Mango Governance by locking up MNGO will now pay Users in SOs. Upon locking up MNGO on Cliff or Constant Lockup Types, users will receive a SO for the same Duration that they lock up until with a 200% OTM Strike and 25% Lockup Ratio. Current locked MNGO holders will be snapshotted and receive a one time airdrop of SOs matching their current Duration at 200% OTM strike. Essentially for every 4 MNGO locked up for voting users will receive 1 MNGO call option for however long they are locked up, allowing them to buy MNGO when the token appreciates significantly. The rationale for a higher strike is to encourage the community and team to work towards more ambitious long-term goals through governance.

Users can view and exercise these Staking Options at anytime by going to DUAL and paying the exercise amount (strike price * quantity) in USDC. All exercise proceeds minus a 3.5% fee go to the Mango Treasury for the community to grow the Mango ecosystem. For being an early partner and user of Staking Options, Dual Finance will issue a grant to the Mango treasury of 10M DUAL 1 year Staking Options with a strike of the greater of $0.20 & 100% OTM.

The benefits of Staking Options are clear to us but the difficulty ahead will be to educate communities and provide the tools and liquidity so any skeptics can liquidate their SOs immediately for cash. Please comment with any questions or concerns. We look forward to addressing your most critical feedback and hope this is the beginning of a long and fruitful partnership.

Optional Pilot: In order to get more comfortable with the above proposed incentive changes to Liquidity Mining and Governance programs, we propose Mango DAO treasury test out Staking Options and gauge community interest through a generalized implementation to start. Using the Staking Options Studio (SOS) DUAL the community can collectively determine parameters it wants to set for a trial. This implementation sets aside treasury MNGO into a collateral pool for a customizable duration and Users who lock up liquid tokens for that same amount of time will receive SOs on MNGO. For example, the community could set aside 10M MNGO for a 3 month, 100% OTM, 25% Lockup Ratio SO which would be worth ~$75K in present value to the community. Users on a first come first serve basis would receive 1 SO for every 4 MNGO they lockup and at expiration would get all of their locked MNGO back plus additional MNGO if they pay the strike price to exercise their SO. See the attached screenshots of the SOS to visualize this incentive value.

To learn more about Dual Finance’s mission to re-incentivize crypto and bootstrap token options markets, follow us on Twitter (https://twitter.com/DualFinance) and join the Discord (discord.gg/P3uH9AvEp5). Our Dual Investment Pools (DIPs) to earn sustainable, customized yield are also live for testing at https://beta.dual.finance/ !


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To add on to this proposal, the current buybacks should be executed by issuing Downside (put) Staking Options. The treasury can use these tokens as additional liquidty or governance incentives, such as adding these SO puts to the current Serum trading competition bonus pool.

Let me elaborate. Writing puts to the community permit the right to sell MNGO at a specific price, meaning the treasury buys MNGO at that price. This acheives the same effect as resting bids in the order book but extracts additional value from the time value embedded in the puts, commonly known as an option premium.

For example the following 4 put strikes corresponding to the current bids and sizes could be minted and paid as incentives. In present value terms over a 6 month term this equals ~$200k of rewards the community can gain.

The Mango DAO/treasury is in a unique position as it sits on large stablecoin reserves. Downside Staking Options to achieve buybacks provide an opportunity to incentivize positive community interaction and thought leadership for other projects to follow.