Part of the function of the treasury is to provide access to future ecosystem growth, and one of the ways we can capture the value we create through the platform is via the Treasury Mint. Not just through the issuance of the ENDR governance token, but directly from the yield token, END, as well.
On an annual basis, the treasury will have the ability to mint a certain amount of END tokens into the Ender DAO treasury, on a fixed-rate basis, through the following schedule:
For each year, the mint rate will decrease by 1% until zero, starting at 15%, plus an additional 1% in perpetuity.
Year 1 - 16%
Year 2 - 15%
Year 3 - 14%
Year 15 - 2%
Year 16 - 1%
Year 17 - 1%
For each year, there will be 3 cliffs, or unlocks, which allows for a third of the mint rate to be optionally minted, until the end of the year, where the full amount left is minted automatically. The cliffs are 3, 6, and 9 months.
This means for the first year, for example, after 3 months, 5.333% of the total supply of END tokens at that particular time can be minted to the treasury. After 6 months, another 5.333% can be minted. After 9 months, the full 16% can be minted.
Upon each particular mint, the minted tokens are additionally vested linearly for another 6 months.
The key thing to note is that because the END tokens are issued directly through the bonds and rebasing rewards, there is no supply cap. And the amount minted is based on the amount of LSTs deposited and the yield from them. This is why the treasury has this minting function on a rolling-basis, as to create a minting schedule based on a dynamic supply inflation rate.
This means that, strategically, it is best for the treasury to mint the full annual mint rate at the very end of the year, where the supply is at its maximum each year. So ideally, the treasury should allow the automatic mint to occur to maximize the supply minted. However, the cliffs act as an optional unlock for the treasury to mint at that particular time, if needed.
Governance Control and Income
This minting can be thought of as similar to a fee being collected by the protocol or protocol fee from all the staking yields of the LST deposits. These tokens are fully controlled and owned by the Ender DAO stakeholders, which can vote on the usage of these tokens. This gives the governance tokens additional value coming through as income from the protocol.
You might wonder what this means in effecting the backing of the END tokens. Aren't the END tokens supposed to be fully-backed by the LST yields coming from the bond deposits?
Yes. However, the backing rebasing algorithm calculates the rebase value based on the yield coming only from the deposit assets and those yields which includes the strategy yields. But once that value is accrued to become part of the END token backing, it now becomes part of the treasury assets, in which continues to generate compounding yield.
This means, that the END tokens are slowly becoming over-backed, like a 'flatcoin' that accrues real yield, slowly appreciating in value. Thus, through the treasury mint, we are able to capture a portion of that compounding value, owned by the Ender DAO.
If you consider that the END token issuance is continuously increasing its supply based directly on the bond deposits, and further compounding after becoming part of the treasury backing, it means that this mint rate on an annual basis is also continuously being diluted against the overall supply, and that is why the minting schedule is so long.
Over time, the overall supply minted through the treasury mint will become a very small percentage of the total supply of END tokens, but provides a continuous income for the treasury in addition to the governance token emissions.