Calamari to Colossal Squid — the journey from SQUID to veSQUID

Not financial advice. Please do your own research. Locking SQUID is a step that cannot be undone for the period of the lock-up.

SquidDAO has been innovating since Day 1 with our stealth fair launch combining an NFT revenue stream with OHMonomics. We take yet another step on the path of innovation with the launch of veSQUID. What is this new species of SQUID? What does it mean for SquidDAO? How can you evaluate whether it makes sense for your portfolio?

Animal Planet’s Guide to Squid

Before we can properly evaluate veSQUID and its potential ramifications, let’s first understand what veSQUID is. The easiest way to break this down is to understand the various tokens that get you from SQUID to veSQUID.

SQUID: The fundamental SquidDAO token that can be purchased on the open market on Ethereum Mainnet. SQUID represents an ownership interest in SquidDAO. With treasury backing like OHM, except 1 SQUID is backed by a minimum of 1 ETH, though currently backed by 100+ ETH as you can see on our Dune dashboard.

sSQUID: Staked SQUID, which allows SQUID that you bought on the open market to benefit from the automatic rebasing that takes place every 2,096 blocks (approximately every 8 hrs). For as long as there is more ETH in the treasury than there are SQUID tokens, the protocol will continue to print SQUID to distribute to all sSQUID holders in the form of more sSQUID. This is why numba go up on the Stake page.

wsSQUID: Wrapped Staked Squid, while sSQUID is great and all, it presents major challenges from a technical standpoint if we actually want to use sSQUID in other DeFI applications, for example as collateral for a loan. wsSQUID allows users to benefit from staking their SQUID while still interacting with DeFi apps and protocols. Now, you could theoretically borrow against your SQUID while retaining all the benefits of being in sSQUID. wsSQUID is also the species of SQUID that’s available for sale on AVAX (and other sidechains / L2s in the future).

Calculating wsSQUID: wsSQUID does not convert directly 1:1 into sSQUID; instead it is based on snapshots in time and is thus converted to and from sSQUID using the current index (you can find this on the SquidDAO dashboard.

Example: If the current index is 2, if you convert 1 sSQUID to wsSQUID you divide sSQUID (1) / current index (2) = wsSQUID (0.5). To convert wsSQUID to sSQUID you merely do the opposite by multiplying wsSQUID (0.5) * current index (2) = sSQUID (1).

veSQUID: Vote-Escrowed wrapped staked Squid, the new squid on the block! veSQUID represents the next step in SQUID evolution and follows similar mechanics to veCRV (the Vote-Escrowed version of CRV token from Curve Finance). In exchange for locking your sSQUID for a set period, you will receive a set ratio of veSQUID in return. veSQUID gives you the right to vote on SquidDAO initiatives — currently only NFT holders can do so — and the right to receive a share of bonding fees from the protocol. Most importantly, veSQUID is non-transferable and cannot currently be bought or sold.

Voting? Bonding Fees? Plz explain, ser.

Voting: Like any DAO, we want our community to have a say in the governance of the DAO. Currently, this is enabled through snapshot votes where each NFT = 1 vote. However, that doesn’t take into consideration a huge number of our shoal — the SQUID holders. By implementing veSQUID, you will receive a vote for the amount of veSQUID you own pro rata to the entire voting pool. For purposes of voting only, NFTs count as 1 veSQUID, thus the total voting pool is all the NFTs in existence plus all veSQUID.

Example: If there are 90 NFTs in existence and enough SQUID locked to equal 40 veSQUID, there would be votes equivalent to 130 veSQUID (90 veSQUID of voting power deriving from NFTs + 40 veSQUID) in existence. DAO initiatives are the key way that we govern ourselves and our growing treasury of over 15,000 ETH.

Bonding Fees: Bonding fees are paid when anyone purchases a bond at SquidDAO. Right now, for every 1 SQUID purchased through bonds, this will generate 0.025 SQUID to be paid out pro rata to veSQUID holders and 0.025 SQUID to be paid out pro rata to NFT holders.

Example: Assume SQUID costs 200 ETH, and you purchase 200 WETH of SQUID Bonds. This means you’re entitled to 1 SQUID that will be available to be claimed incrementally over the next five days. Since you purchased 1 SQUID through bonds, the protocol will create an extra 0.1 SQUID, and that 0.1 SQUID is split 50–50 as bonding fees (split yet again 50–50 between all veSQUID holders in one group and all NFT holders in the other group — so each group receives 0.05 SQUID to be split pro rata among themselves) and development fees (for community contributors including the dev team).

Note: According to this passed snapshot, the amount of bonding fees is going up 4x to 0.25 SQUID per 1 SQUID purchased through bonds, but the timeline for the release of the new bonding contract is TBD. After this goes into effect, veSQUID holders will receive pro rata 0.10 SQUID per 1 SQUID purchased through bonds and NFT holders will receive pro rata 0.10 SQUID per 1 SQUID purchased through bonds.

All bonding fees are paid out in wsSQUID and will be paid on a pre-determined schedule. Since it is paid out in wsSQUID, these amounts will be unlocked.

What about all the bonding that’s taken place up to now? What happened to that SQUID?

We didn’t forget about that! SquidDAO has been tracking all bonding fees from the outset. If you lock your sSQUID before 5:00 AM UTC on December 20, 2021, you will be eligible to receive retroactive bonding fees. These fees represent all bonding fees up to 5:00 AM UTC, December 20, 2021, calculated using the current construct of a 10% bonding fee, of which 25% goes to veSQUID holders (pro rata) and the other 25% goes to NFT holders (pro rata).

Why did SquidDAO release veSQUID?

You’re participating in DeFI and the future of France, why would you not expect innovation! For SquidDAO, releasing veSQUID aligns the interests of long term holders of SQUID (locked SQUID cannot be dumped) with that of the overall DAO. We want to reward people that have a long-term vision for the DAO and are willing to work in support of it. But nothing in life is free, in exchange, veSQUID holders receive voting and bonding fees to compensate for taking on the risk of a locked investment in the volatile world of crypto.

Got it, so how do I get some?

You can lock your sSQUID here. The amount of veSQUID you receive is proportionate to the period of your lock-up. Currently, that means if you lock up 1 sSQUID for 1 year, you receive 25% equivalent in veSQUID (after taking into account the index), and this goes up proportionately up to a maximum lock-up period of 4 years, where you receive 100% equivalent in veSQUID (after taking into account the index).

Example: Assuming the current index is 2:

If you lock 1 sSQUID for 1 year, you receive 0.125 veSQUID

(1 sSQUID / 2 = 0.5 wsSQUID * 25% (1 year lock) = 0.125 veSQUID)

If you lock the same 1 sSQUID for 4 years instead, you would receive 0.5 veSQUID

(1 sSQUID / 2 = 0.5 wsSQUID * 100% (4 year lock) = 0.5 veSQUID)

All veSQUID is subject to linear decay.

veSQUID cavities? Wut?

veSQUID will decay over time. This means your ability to receive bonding fees and voting power will reduce linearly. And unlike tooth decay, there’s nothing you can do about it. What this means is that your 0.25 veSQUID or 1 veSQUID in the examples above will drop to 0 over the period of the lock-up. If you want to retain the maximum economic and governance value of veSQUID, you need to relock during your lock period and the decision to relock can be taken at any time (remember: gas fees!).

Example: You have 0.125 veSQUID from your 1 sSQUID that you locked for 1 year (assuming index of 2). 6 months into the lock-up, you have 0.0625 veSQUID (50% has decayed away since half your lock-up period has passed). You can either relock your 1 sSQUID for a full year, and get back up to 0.125 veSQUID (assuming index still at 2), or you let this veSQUID number continue to decay to 0 at the end of the lock-up period.

How do I get my sSQUID back?

Only at the end of the lock-up period, you will be able to unlock your sSQUID (this would be whatever amount you put in at the beginning plus all rebases since the lockup).

Does veSQUID make sense for me?

That is really up to you to decide, but some questions you ought to consider before locking are:

1. Do you believe in the SquidDAO mission such that the length of the lock-up period makes sense? Remember, you cannot sell during this period.
2. Given decay, are you open to the idea of re-locking to retain maximum governance and protocol fee rights?
3. What do you think the bonding fees will be going forward and how do you think your share in these fees will change?
4. Do you believe the fee ratios (soon to be 25% bonding fees, of which 40% distributed to veSQUID holders, the other 40% goes to NFT holders) will stay the same or change? If so, do you want to be able to vote on that direction?
5. How many others are going to ape in? veSQUID holds governance and fee protocol value and the fewer people that lock up their SQUID, the more such value is concentrated in the hands of veSQUID holders.