This week, I will go over the impact of the planned tokenomics changes and Sagittarius Engine.
Key Points
These changes will have a significant negative impact on short-term MKR1 holders and American holders(who are restricted from using the Sagittarius Engine).
These changes will have a significant positive impact on long term holders who do not live in the USA. They are likely to receive 60%-100% of the protocol profits.
Planned changes
There are 2 major changes.
9% of the MKR supply will be emitted as yield farming rewards each year.
30% of protocol yield2 will be directed toward participants in the Sagittarius Engine(SE), which is a way to stake MKR to earn yield. Users will pay a 15% fee to unlock their tokens and cannot access this from the US.
The other 70% of yield will be used to buy up MKR/DAI LP tokens, which effectively distributes this yield evenly among MKR holders.
How This Impacts Yield Distribution
Under this system, SE participants are likely to receive somewhere between 50-100% of the protocols net income, depending on protocol revenue and MKR market cap.
As a simple example: if the protocol nets 10% of MKR’s market cap annually, then 3% is directed towards SE participants and the remaining 7% evenly shared among MKR holders. Subtracting out the 9% MKR dilution, that nets a -2% return for non-SE holders. SE holder yield is more complex as it depends heavily on the participation rate. If 1/3rd of the MKR is staked in the engine, their yield would be 7%.
The breakeven points for non-SE holders is 13% annual yield. Variable for SE holders, but with 1/3rd participation it would be roughly 5.7%.
There are additional factors. If MKR holders are regularly jumping in and out of the SE that will burn considerable MKR that benefits all holders, but if they are mostly long-term holders the math above should hold. And with the ability to borrow DAI against MKR, participants are incentivized to hold.
Additional reading
https://forum.makerdao.com/t/the-5-phases-of-endgame/20830
Technically, this will all be in NewGovTokens, which are convertible from MKR tokens. For simplicity, I will just refer to this as MKR tokens.
Specifically, 30% of DAI profits and some amount of subDAO tokens. SE participants are likely to earn more, with the specific amount depending on the value of subDAO tokens.
9% of the MKR supply will be emitted as yield farming rewards each year.
May I ask how the 9% was calculated? The cumulative issuance rate mentioned in the original Endgame text for each Subdao does not add up to this amount.