Leviathan Updates

SQUID DAO: Revenue Allocation & Lender Recovery Framework

Gerrit Hall

— 3 min read
SQUID DAO: Revenue Allocation & Lender Recovery Framework

Overview

The SQUID DAO governing Leviathan News requires a formalized structure to manage incoming proceeds held under custody of the DAO. 

This proposal establishes a transparent framework that addresses ~$80K outstanding bad debt affecting lenders in the Fraxtal Llama Lend v1 pool while ensuring the protocol retains incoming capital for future growth.

The recovery framework has three pillars: 

  1. A Curve pool on Fraxtal containing the Llama Lend v1 vault lending token so affected lenders may flexibly exit at market rates.
  2. A 50/50 revenue split on DAO-generated income with proceeds (in WETH) directly deposited into the pool.
  3. A dedicated Lender Recovery category in the monthly SQUID emissions vote to deposit SQUID directly into the pool.

This proposal also asks voters to ratify the concept of deprecating SQUID on Fraxtal and relaunching SQUID on Ethereum mainnet, which would expand the token's reach and liquidity.  Specific details of any migration would be voted on separately.

1. Recovery Framework

Following ratification of this proposal, the team will launch a TriCrypto pool onto Fraxtal containing the following tokens:

This pool will allow lenders to flexibly exit lending positions to ETH or SQUID at market rates.

1.1 WETH Support

To support recovery, starting with the April 2026 SQUID cycle (covering March activity), all revenues generated from DAO auctions and treasury activities will be allocated as follows:

  • 50% Lender Recovery Pool:
    • The DAO will commit ETH proceeds from auctions into this pool, providing lenders with liquidity to exit their positions
    • The recovery target is the actual crvUSD amount lent, not the current value of the liquidated SQUID collateral — lenders may experience some slippage on exit, but the DAO will continue to seed the pool until the debt is addressed
  • 50% DAO Growth & Staking:
    • Funds to be streamed to SQUID stakers once the staking architecture is finalized
    • In the interim, these proceeds will be held in the DAO treasury and not spent without the explicit authorization of a DAO vote

1.2 SQUID Support

A new Lender Recovery category will be added to the monthly SQUID Snapshot vote, alongside existing categories (News, Moderation, Social, DAO, etc.).

  • DAO members may allocate a portion of their voting power to direct monthly SQUID emissions toward the recovery pool or directly to affected lenders
  • This provides lenders with SQUID exposure in addition to ETH-based recovery, accelerating their path to being made whole

The SQUID will be deposited directly and not streamed as incentives. The pool is not intended to be attractive to yield farmers, but rather the DAO will deposit and hold liquidity for the purpose of allowing lenders an exit.

2. Mainnet Relaunch

This proposal asks voters to ratify the concept of relaunching SQUID on Ethereum mainnet. A mainnet presence would significantly expand the token's accessibility and liquidity. Details of the migration mechanics will be covered in a follow-up proposal.

Instead of submitting it as a separate proposal, we bundle this signal vote with the recovery proposal because the economics of this solution are only rational from the DAO’s perspective if coupled with such a migration.

3. Strategic Rationale

  • Urgency: The 6-month repayment window previously promised to lenders has passed. This framework provides lenders with an official commitment and a clear path to recovery.
  • Sustainability: Dedicating half of revenue to the recovery pool provides ongoing relief to lenders.
  • Dual recovery channels: ETH earned from auctions seeds the exit pool directly, while SQUID deposits give lenders an alternate exit path with upside tied to the protocol's growth.
  • Growth: A mainnet relaunch positions SQUID for broader adoption and deeper liquidity.

4. Implementation

  • Discussion period: This framework is open for community feedback before formal submission
  • Proposal submission: Following discussion, the framework will be submitted for a DAO Snapshot vote
  • Execution: Upon a successful vote, the 50/50 revenue split begins with the April SQUID cycle (covering March activity), the Lender Recovery emissions category is added to the next monthly Snapshot vote, and work begins on the Curve recovery pool seeded using 50% of prior auction earnings + SQUID reserves
  • Transparency: Monthly revenue, pool deposits, and distributions will be published in the Leviathan newsletter

Discussion Thread: https://leviathannews.xyz/216022

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