Towards a KPI-Based Revenue Share Framework for LQ Stakers

[gil]

Towards a KPI-Based Revenue Share Framework for LQ Stakers

Summary (TL;DR)

This proposal introduces a KPI-based framework for distributing protocol revenue to LQ stakers, based on clear, objective revenue thresholds.

• Goal:
  Re‑establish LQ as a revenue-sharing token in a way that:

  • Protects a hard minimum of funding for protocol sustainability (debt, salaries, ops).
  • Makes the LQ value proposition predictable and data-driven.
  • Reduces trust erosion from frequent, ad-hoc changes to revenue splits.

• Core idea:
  Define a function
  r̄
  where:

  • r̄ = rolling average monthly protocol revenue over the last N months.
  • s(r̄) = percentage of protocol revenue directed to LQ stakers:
    • 0% (=0 % PD)
    • 12.5% (=2.5 % PD),
    • 25% (=5 % PD),
    • 37.5% (=7.5 % PD),
    • 50% (=10 % PD).

• Example (illustrative only):
  Using a 4‑month rolling window:

  • If average monthly protocol revenue < $100k → 0% to stakers.
  • $100k–125k → 12.5% to stakers.
  • $125k–150k → 25%.
  • $150k–175k → 37.5%.
  • above 175k → 50%.

This proposal is primarily meant to open a serious discussion on a KPI-based framework and its parameters. It is not intended to go on-chain soon in its first version, but aims to converge the community on:

• The principle: revenue share should be a transparent function of protocol performance.
• The parameters (thresholds, window size, governance protections).
• Data driven governance

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Motivation & Context

1. Funding needs and sustainability

For long-term financial sustainability, Liqwid must:

• Repay outstanding POL loan debt:
  • Roughly $1.5M remains outstanding (on a total facility of around $5M).
• Cover operational and development costs:
  • As per the 2025–2026 Infrastructure & Operations Budget, total planned expenditures are around $456,500 for 2026, i.e. $38,042 per month.
• Progressively become fully funded by protocol-generated revenue rather than ongoing external financing.

The DAO and Liqwid Labs are also exploring one-shot funding sources:

• A Fund 15 Catalyst proposal (~200,000 ADA grant).
• A TWAP-based private LQ sale (Proposal 111) aimed at repaying the remaining POL debt.

For the purpose of this proposal, we treat these as complementary, opportunistic sources. The KPI framework focuses on recurring protocol revenue and its allocation between:

• DAO / Treasury funding (usable to fund Liqwid Labs, POL interest, salaries, etc.).
• LQ stakers (programmatic revenue share).
• (Indirectly) the core team and ecosystem via DAO-controlled spending.

Terminology (for clarity):

• DAO / Treasury = on-chain and multisig-controlled funds governed by Liqwid DAO.
• Liqwid Labs / core team = funded (directly or indirectly) via DAO budgets and treasury flows.
• LQ stakers / Programmatic Rewards = LQ holders staking and receiving a share of protocol revenue governed by this framework.

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2. LQ as a revenue-sharing token

Historically, LQ has been marketed as a revenue-sharing governance token:

• Governance decisions activated Programmatic Distributions (PD) for LQ stakers:
  • 50% of the 20% net margin on borrower interest.
  • 50% of the 1% loan origination fee.
• Documentation and previous governance votes have explicitly framed LQ staking as:
  • A way to earn direct protocol revenue share (not just emissions).
  • A key part of the token’s economic value proposition.

Recent governance discussions and Proposal 110 (tokenomics overhaul) show that:

• Many DAO members (community and core team) still see LQ as a revenue-sharing instrument, but:
• There are strong concerns about sustainability and overly generous revenue share too early while the protocol is:
  • Still in debt,
  • Still scaling revenue,
  • Still building its treasury and reserves.

In those discussions, core team members (e.g. Florian Volery) have expressed:

“I will be the first to support re-activating the program rewards for LQ stakers as soon as it becomes financially sustainable to do so.”

This proposal tries to formalize that idea:
“program rewards resume once it is financially sustainable” → define “financially sustainable” via explicit KPIs (protocol revenue thresholds).

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3. Long-term financial reality

If the protocol is persistently underfunded:

• Development slows or stops.
• Market share can be lost to competitors.
• The protocol becomes technologically and economically less relevant.
• Ultimately, protocol revenue can shrink, making any short-term revenue share to stakers worth less and less.

From a long‑term perspective, for LQ stakers it is rational to:

Forgo some revenue share now, if and only if this significantly increases the odds that protocol revenue (and thus future revenue share) will be larger and more durable later.

A KPI-based framework is a way to encode this trade-off:

• Below a certain revenue level, all income is reinvested into the protocol via the DAO.
• Above that level, stakers resume and increase their share of protocol revenue in clearly defined steps.

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4. Current revenue splits (as of December 16th 2025)

Current, but currently under voting:

• Interest repayments:
  • 80% → lenders (this is not protocol revenue).
  • 20% → protocol net margin (this is protocol revenue).
• That 20% net margin is currently split:
  • 10% of total interest (i.e. 50% of the net margin) → LQ stakers (Programmatic Distributions).
  • 10% of total interest (i.e. 50% of the net margin) → DAO treasury.
• Loan origination fee:
  • 1% of borrowed principal.
  • Currently split 50/50 between DAO and LQ stakers.

For this proposal, we define:

Protocol revenue, R (per month) =

• (20% share of repaid interest allocated to DAO + stakers) +

• (100% of loan origination fees).

This is the quantity that will drive the KPI thresholds.

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5. Protocol revenue data (2025)

From the weekly analytics (as of December 15th 2025):

• Year-To-Date repaid interest share (protocol revenue from interest):
  $627.57k (sum going to DAO + stakers).
• Year-To-Date loan origination fees:
  $268.69k (sum going to DAO + stakers).
• Year-To-Date total Programmatic Rewards (staker share):
  $451.41k (≈ 50% of the sum above).

Over ~11.5 months of 2025, this corresponds to an average monthly protocol revenue of approximately:

• Interest share: ~$54,571.30/month.
• Loan origination fees: ~$23,364.35/month.

So:

Average total protocol revenue 2025:
R ≈ $77,935.65 per month,
implying a full‑year projection of ~$935,227 for 2025.

These numbers show that:

• The protocol is already generating substantial revenue, but
• There is still a non-trivial gap between:
  • Required funding for debt + operations, and
  • The desire to keep a meaningful revenue share for LQ stakers.

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6. Trust erosion and “moving goalposts”

Recent governance debates and proposals have highlighted trust / visibility issues:

• Revenue share splits and emissions have changed multiple times, as per governance
• Some changes (or proposals) involve retroactive alterations to Programmatic Distributions.
• The LQ value proposition keeps shifting:
  • From “strong revenue-sharing token” → “treasury-first, minimal staker benefits (for now).”

For many market participants, the main concerns are:

• The absence of long-term, rule-based visibility on how LQ participates in protocol success.
• The perception that revenue share can be turned off or capped arbitrarily depending on immediate funding needs.

A KPI-based framework aims to:

• Reduce arbitrary, ad-hoc changes.
• Provide a calculable, predictable link between protocol revenue and staker share (useful for market participants assessing the value of the LQ token).
• Restore some confidence and credibility for LQ’s long-term economic role.

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Specification: KPI-Based Revenue Share Framework

1. Definitions

Let:

• (R_m) = protocol revenue in month (m), defined as:

  • 20% of interest repayments for month (m) (DAO + stakers share), plus
  • 100% of loan origination fees for month (m),
    all expressed in USD (as done in analytics).

• r̄ = rolling average monthly protocol revenue over the last N full months:
  

  

  s(r̄) = staker revenue share percentage applied to protocol revenue, R:

  • This is the percentage of R (i.e. of net margin + origination fees) that goes to LQ stakers,
  • The remaining (1 – s(r̄)) of R goes to the DAO / treasury.

2. Threshold-based mapping

(illustrative parameters only)

We introduce 4 thresholds T₀, T₁, T₂, T₃ (all in USD per month). Then define:

• If (r̄ < T_0 → s(r̄) = 0% (= 0 % PD)
• If (T_0 ≤ r̄ < T_1) → s(r̄) = 12.5% (= 2.5 % PD)
• If (T_1 ≤ r̄ < T_2) → s(r̄) = 25% (= 5 % PD)
• If (T_2 ≤ r̄ < T_3) → s(r̄) = 37.5% (= 7.5 % PD)
• If (T_3 ≤ r̄) → s(r̄) = 50% (= 10 % PD)

Where:

• • s(r̄) is a share of total protocol revenue R, i.e.:
    Revenue to stakers in month m = s(r̄) . R_m

• The DAO receives:
  Revenue to DAO in month m = (1 - s(r̄)) . R_m

3. Rolling window (N)

• Use a rolling window of N months to compute r̄.

4. Scope of the framework

• This proposal only governs the split of R (protocol revenue) between stakers and DAO.
• It does not change:
  • the 80% share of interest going to lenders,
  • the interest rate models or market parameters,
  • the LQ staking APR from emissions,
  • the market incentives.

Those can be governed by separate proposals. This framework is exclusively about protocol revenue share, not emissions.

5. Distribution cadence and asset

• Cadence:
  Revenue shares to stakers are calculated and distributed on a monthly basis, consistent with prior PD practice.
• Asset and mechanics:
  This proposal does not prescribe a change of asset or distribution method:
  • It can be implemented in LQ (as PD are now),
  • Or evolve into ADA-based “real yield” in a separate follow-up proposal.
• The key point here is the percentage and KPI logic, not the exact payout asset.

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Parameterization: Choosing Efficient and Fair Thresholds

1. Base monthly revenue threshold (T₀)

Objective: Protect a minimum funding level for:

• POL debt repayment and interest,
• Infrastructure and operations,
• Core development.

Proposal (principle):

• Set T₀ as an absolute dollar amount, linked to the planned 2026 budget, not a percentage of it.

Rationale:

• Avoids the “moving goalposts” problem where budget inflation automatically raises T₀.
• Makes budget proposals and the KPI framework decoupled:
  • If a future team wants to increase budgets, they must justify it separately.
  • They do not automatically shift staker thresholds upward.

Limitation:

• Over time, USD inflation / debasement may make a fixed T₀ outdated.
• Adjustments to T₀ can be done via separate governance proposals, ideally with:
  • Higher quorum and/or supermajority.
  • A time delay before taking effect.

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2. Progressive thresholds (T₁, T₂, T₃)

Objective:

• Provide gradual increases in staker revenue share as the protocol scales, instead of a binary on/off.

Principles:

• Thresholds should be:
  • Wide enough that small variations in r̄ do not constantly flip tiers.
  • Few in number for simplicity (here: 4 thresholds, 5 tiers).
• Thresholds are expressed as absolute monthly revenue levels in USD.

Interpretation:

• Below T₀: all protocol revenue goes to the DAO/treasury.
• Above T₀: an increasing portion of revenue starts flowing to stakers.
• At or above T₃: stakers receive the full historical 50% share again (= historical 10 % PD).

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3. Rolling window length (N)

Objective:

• Smooth out short-term volatility while ensuring responsiveness to genuine changes.

Candidate:

• N = 4 months rolling window.

Rationale:

• Crypto & DeFi markets can be noisy month-to-month.
• A 4-month window:
  • Filters out seasonal or idiosyncratic spikes.
  • Still reflects the current revenue regime fairly quickly.
• Data is already accessible in weekly snapshots; converting to monthly and averaging is straightforward.

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Example Implementation (Illustrative Parameters Only)

Note: These are example numbers used for clarity. They should be debated and refined with more precise inputs from the core team and community.

Inputs used

• 2025 average protocol revenue: R ≈ $77,935.65/month.
• 2025–2026 Infrastructure & Operations budget: $38,042/month.
• Current on-chain design:
  • 80% to lenders.
  • 20% to protocol (DAO + stakers) + 1% loan origination fee.
  • 50/50 split of protocol revenue between DAO and stakers.

Proposed example parameters

• Rolling window: N = 4 months.
• Thresholds:

4-Month Rolling Average Protocol Revenue (r̄)	LQ Stakers Revenue Share (s(r̄))	PD equivalent
r̄ < $100,000	0%	0%
$100k ≤ r̄ < $125k	12.5%	2.5 %
$125k ≤ r̄ < $150k	25%	5 %
$150k ≤ r̄ < $175k	37.5%	7.5 %
$175k ≤ r̄	50%	10 %

Interpretation:

• Base threshold (T₀ = $100k):

  • At current 2025 average (~$77,936/month), stakers receive 0% of protocol revenue.

  • All protocol revenue flows to the DAO/treasury to fund debt repayment and operations.

  • After infra/ops/devs costs, and for an example current revenue of $77,936 per month, the DAO is left with $39,894 per month (to repay eventual debt and build up a treasury)

  • To reactivate revenue share, protocol revenue must increase by roughly one third vs. the 2025 average.

• Full-share threshold (T₃ = $175k):

  • To restore the full 50% revenue share to stakers (=10 % PD), protocol revenue must reach ~2.25× the 2025 average.

  • This encodes the idea that “LQ stakers get their full historical share only once Liqwid has grown substantially and is clearly sustainable.”

  • At 50 % staker share on > $175k, the DAO still gets > $87.5k per month

  • After infra/ops/devs costs, the DAO is left with > $49,458 per month (to repay eventual debt and build up a treasury)

Projection:

Based on $38,042/month for infra/ops/dev costs.

4-Month Rolling Average Protocol Revenue (r̄)	$ for LQ stakers	$ left for DAO/Treasury per month after costs
r̄ < $100,000	0	< $61,958
$100k ≤ r̄ < $125k	$12,500 ≤ amount < $15,625	$49,458 ≤ amount < $71,333
$125k ≤ r̄ < $150k	$31,250 ≤ amount < $37,500	$55,708 ≤ amount < $74,458
$150k ≤ r̄ < $175k	$56,250 ≤ amount < $65,625	$55,708 ≤ amount < $71,333
$175k ≤ r̄	> $87,500	> $49,458

Such parameters:

• offer strong DAO/Treasury revenue in first revenue growth stage
• allow consistent funding across tiers until high revenue growth targets, then no cap
• quickly regrow the LQ stakers revenue share as revenue grows

The parameters are provisional and here for discussion. They can and should be adjusted as the DAO refines its view of:

• Debt repayment trajectory.

• Realistic growth paths for protocol revenue.

• Desired speed of reintroducing revenue share.

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Overall Limitations

This framework has important limitations, which should be acknowledged explicitly:

1. Rigidity vs. flexibility

   • A KPI-based framework is more rigid than ad-hoc decisions:
     • It can limit adaptation to rare or extreme circumstances.
   • However, flexibility still exists:
     • Thresholds (T₀–T₃) ensure different financial conditions/adaptation
     • The DAO can still adjust other levers (emissions, incentives, budgets) independently.

2. “Why not just vote when needed?”

   • Some may argue this is unnecessary complexity and we can just “decide on the go.”
   • The counterpoint is that frequent, discretionary changes have already contributed to:
     • Trust erosion.
     • Confusion about LQ’s long-term role.
   • A rule-based framework reduces emotional, short-term debates and centers discussion on parameters instead.
   • A data driven framework offers better projections for market participants

3. Scope

   • This framework:
     • Keeps the 80% lender share untouched (though in theory this could be revisited if protocol revenue becomes extremely high).
     • Does not define the split within the DAO treasury between:
       • Core team salaries,
       • Reserve building,
       • Growth initiatives, etc.
     • Does not include revenue from treasury yield or external investments (these could be incorporated into R in a future refinement).

4. Governance mutability

   • The DAO can always revote and change or remove the framework.
   • This partially defeats the goal of “guaranteed” predictability.
   • The best mitigation is:
     • Raise the governance bar for modifying this framework (higher quorum/supermajority),
     • Introduce time delays for any change.

5. ‘sawtooth’ effect on DAO / Treasury revenue

   • From 1st to a bit after max threshold: DAO / Treasury revenue can be lower after reaching a higher revenue
   • But this can be a motivation to beat max revenue threshold

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Overall Benefits

1. Predictable, data-driven link between protocol success and LQ value

   • The KPI framework makes LQ’s revenue share a transparent function of protocol performance, not a series of ad-hoc decisions.
   • Market participants can value LQ based on observable metrics (protocol revenue from the analytics dashboard) instead of trying to guess future governance decisions.
   • This directly addresses “moving goalposts” and trust erosion highlighted in recent debates.

2. Protection of a hard minimum funding level

   • Below the base threshold (e.g. $100k/month in the example), 100% of protocol revenue goes to the DAO / core team, ensuring:
     • POL debt servicing and repayment,
     • Infrastructure and operational costs,
     • Continued product development.
   • This explicitly encodes the principle that treasury health and solvency come first, before stakers share in revenue.
   • It reduces the risk of “starving the protocol to pay stakers too early.”

3. Aligned incentives between stakers and builders

   • Stakers only start receiving revenue share once the protocol reliably earns more than it needs for baseline survival.
   • Above that point, both sides are aligned:
     • The core team wants higher r̄ for more room for salaries, R&D, reserves → they need to exceed max revenue threshold to get uncapped potential while getting consistent tiers until then.
     • Stakers want higher r̄→ tier system quickly regrow their revenue share.
   • This reduces the perceived conflict between “treasury-first” vs “stakers-first” camps.
   • Noticeably: DAO/core team share in $ terms is uncapped and high only if meeting maximal revenue growth threshold → aim for above max the target

The only way for the Core Team to unlock massive resources for the treasury (to hire more, build bigger reserves, etc. passed the minimum guarantees) is to escape the zone entirely by pushing revenue well past $175k.

4. Gradual, smooth transitions instead of binary flips

   • Multiple tiers (0 / 12.5 / 25 / 37.5 / 50%) and a rolling window avoid abrupt all-or-nothing switches.
   • Thresholds + % share for stakers creates stable DAO/treasury across tiers
   • This is healthier for:
     • Financial planning (for Liqwid Labs and the DAO),
     • Market expectations (no sudden surprises for LQ stakers).

5. Clear, measurable community goal

   • The framework turns “reactivate programmatic rewards” into a concrete target:
     • e.g. “Once protocol revenue averages $X/month for Y months, stakers get 12.5%; at $Z/month, 50%.”
   • This gives the community and contributors a simple scoreboard to rally around:
     • Attract TVL,
     • Increase utilization,
     • Grow new products (RWA, BTC DeFi, etc.).

6. Improved perception for both stakers and external investors

   • For prospective strategic or institutional investors:
     • Shows Liqwid is serious about solvency and treasury sustainability.
     • But also that LQ has a credibly rule-based path to economic participation in protocol success.
   • For current and future LQ stakers:
     • Restores confidence that revenue share is not arbitrary, but governed by explicit KPIs.
     • Differentiates Liqwid from protocols where tokenomics remain entirely discretionary.

7. Implementation-light and future-proof

   • Uses metrics already:
     • Tracked and published (weekly analytics → monthly aggregates),
     • Easy to compute.
   • Does not require changes to:
     • The core interest-rate models,
     • The 80% lender share,
     • V2/V3 contract logic.
   • The same structure can later be extended to:
     • Include treasury yield,
     • Add new revenue sources (RWA fees, BTC DeFi fees),
     • Fine-tune threshold values without changing the core idea.

8. Partial protection against future “moving goalposts”

   • If the DAO adopts this framework with:
     • A higher quorum and supermajority requirement for changes, and
     • A minimum 30-day timelock before any modification takes effect,
   • Then it becomes significantly harder (though not impossible) to arbitrarily revoke LQ’s revenue share again.
   • This gives LQ holders a stronger social contract:
     changes are still possible, but only via a more rigorous, slower governance process.

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[FlorianVolery]

Thank you for the thoughtful proposal you have put forward.

You clearly outline the current realities and their implications, particularly in points #2 and #3 of the “Motivation & Context” part. Following Vote 110, the Liqwid protocol has explicitly committed to a path toward financial sustainability, and your proposal aligns well with that direction.

Overall, the proposal is well written and introduces several valuable ideas worth considering.

Regarding the current revenue forecasts, the way 2026 will ultimately unfold remains uncertain. Given this uncertainty, I would personally prioritize a cautious and conservative approach at this stage.

While I remain optimistic about 2026—especially with two significant Cardano governance initiatives on the horizon (50M ADA for DeFi liquidity and 70M ADA for critical infrastructure)—I believe it would be prudent to wait until Liqwid is operating under more favorable financial conditions before bringing such a proposal on-chain.

Rest assured, I would be among the first to support programmatic distributions to LQ stakers. However, timing is critical, and in my view, the current moment is not yet the right one to advance this proposal.