xSILO Tokenomics and Revenue Distribution Proposal

Proposal Discussion
1

TL;DR

  • Deploy xSILO tokenomics to enhance the Silo Protocol’s ecosystem.
  • Activate a revenue-sharing mechanism for xSILO holders.
  • Distribute 50% of Silo DAO’s monthly revenue to xSILO holders via the Buy-and-Distribute model.

Background

The Silo Protocol has demonstrated its strength through the success of Silo v2 and Managed Vaults on the Sonic platform, establishing itself as a leading lending protocol. With annualized revenues of approximately $2.8 million and a price-to-sales (P/S) ratio of 18.6, Silo stands out as one of the most fundamentally robust lending markets in DeFi. However, a gap exists between the protocol’s strong financial metrics and the market’s perception of the $SILO token. To address this and sustain growth, acquiring liquidity and enhancing token incentives are critical. The introduction of xSILO aims to bridge this gap by aligning the interests of token holders, the Silo DAO, and users of the lending markets, fostering long-term engagement and protocol growth.

xSILO Tokenomics

xSILO is an upgraded tokenomics model designed to enhance the value proposition of the $SILO token while incentivizing long-term participation in the Silo Protocol. It builds on the original xSILO proposal (refer to the xSILO Proposal for details) but introduces refinements to better align with the protocol’s goals. xSILO serves as both a governance token and a revenue-sharing mechanism, rewarding committed stakeholders while penalizing short-term profit-seeking behavior.

The xSILO system operates as follows:

  • Staking: Users lock their $SILO tokens to receive xSILO, which is a vault token compliant with the ERC-4626 standard.

1227×218 8.85 KB

1600×897 103 KB

  • Value Appreciation: The value of xSILO increases through two mechanisms:

    • Revenue distribution from the Silo DAO.
    • Fees collected from early redemption of xSILO, which are redistributed to all xSILO holders.

  • Redemption: Users can redeem xSILO back to $SILO by vesting their tokens for six months. During this vesting period, users do not earn additional emissions or rewards.

  • Early Redemption: Users may redeem xSILO earlier than six months, incurring a fee that ranges from 50% (for instant redemption) to 0% (at the end of the six-month vesting period). These fees are distributed to xSILO holders, further increasing the token’s value.

  • Governance: xSILO holders can vote on proposals concerning the Silo DAO and its protocols, giving them a direct role in shaping our ecosystem.

  • Incentives for Long-Term Holders: The system rewards long-term participants by distributing early redemption fees and revenue to xSILO holders, while penalizing short-term exits through the fee structure.

This structure ensures that xSILO aligns the interests of token holders, the DAO, and lending market users, creating a sustainable and incentivized ecosystem.

Revenue Distribution Mechanism

The Silo DAO currently generates approximately $200,000 in monthly revenue, with expectations of growth as the protocol expands. To align the interests of the DAO and its token holders, we propose distributing 50% of the DAO’s monthly revenue to xSILO holders through a Buy-and-Distribute model. This approach ensures that the protocol’s growth directly benefits xSILO holders, enhancing the token’s value and attractiveness.

The Buy-and-Distribute model operates as follows:

  • Buybacks: The Silo DAO conducts daily buybacks of $SILO tokens from the open market, using 50% of the previous month’s revenue.
  • Distribution: The purchased $SILO tokens are streamed to xSILO holders, proportionally increasing the value of their holdings.
  • Automatic Appreciation: xSILO holders benefit from automatic value appreciation, eliminating the need to claim emissions and simplifying the user experience.

This mechanism not only rewards xSILO holders but also supports the $SILO token’s market liquidity and price stability, reinforcing the protocol’s long-term viability.

Next steps

  • Deliberate on the proposal.
  • Put it forth for voting.
  • Deploy xSILO tokenomics
  • Begin revenue sharing.
3 Likes
2

GM,

as already posted in the other thread a few suggestions to improve the gov proposal:

1.) Change the fixed lockup period to variable lockup tiers

Instead of a fixed 6 months lockup period for xSILO, variable lockup tiers would make it more flexible & interesting for token holders:

  • Implement multiple lock-up tiers (e.g., 1, 3, 6, 9, 12 months) with increasing rewards and voting power multipliers
  • This would provide more flexibility while still incentivizing long-term holding

In addition:

  • Allow users to extend their lock-up period for additional benefits
  • Similar to Curve’s vote-escrow model for compounding influence

2.) Gamify Delegation and Voting

To prevent “set and forget” voting and to encourage active governance, it would make sense to implement a requirement for voters to reconfirm votes periodically and/or gamify governance participation by introducing additional rewards for active voters or delegators.

3.) Introduce a Buyback-and-Burn Mechanism

While staking reduces circulating supply temporarily, there’s no mechanism to permanently reduce supply and create deflationary pressure. Allocate a portion of protocol fees (e.g., 10%) to buy back $SILO tokens from the open market and burn them or build protocol-owned liquidity pairs - besides the distribution to xSILO holders.

br Mike

1 Like
3

Hey there!

Thank you for the feedback - we did indeed look at it in the first proposal and you’ll see that your 1st and 3rd points are reflected in this new version.

Unstaking is Dynamic, so users can choose to unlock in any span of time between Instantly and 6 months. We will also be using 50% of revenues to buyback and distribute back to xSILO holders - our research found that burning was incredibly useless as opposed to a model that would either keep said SILO in the treasury or distribute it to stakers which we decided to go with. Distributing to stakers creates an additional layer of incentive and diminishes rewards for users that hold and do not stake who tend to be transient or at times mercenary in behavior.

1 Like