Allow staking $SWISE as means of boosting the voting power of long-term token holders
The tokenomics can make or break a project’s adoption, and StakeWise is no different. While Kirill & Dmitri have previously published the idea about staking $SWISE for insurance purposes, the ETH2 insurance market landscape has since changed along with altcoin values. In light of new developments, I would like to propose another idea to the DAO related to $SWISE staking - one that utilizes the time-locking mechanism (similar to Curve) in order to boost the voting power of long-term holders.
The supply and demand dynamics of governance tokens are volatile, often driven by the short-termism of farming campaign participants. They have various reasons for not holding the token for long, ranging from the disillusionment about their capacity to influence the DAO decisions to the simple considerations about profit. Nearly every community considers such actions undesirable for the health of the project, and thus DAOs have looked for ways to discourage them.
Apart from the fundamentally important effort to improve the public’s perception of the token value, one relatively effective way to encourage long-term token ownership is assigning more voting power and incentives to those who commit to hodling. Technically, this is done via staking the token in a contract on the specific terms offered by the DAO, whereby stakers receive the higher boosts to the voting power and incentives the longer the duration of their staking commitment. The redemption terms are also clarified upfront in order to give the token holders all the necessary information for choosing the optimal holding strategy.
Looking at the experience of other projects, I believe that the StakeWise DAO could implement its own measures to encourage holding $SWISE long-term. Whereas previously it considered that staking $SWISE as insurance would be the way forward, I think the recent collapse in altcoin values (relative to the price of ETH) suggests that it could not become an effective solution for insurance. In addition, the open market for ETH2 insurance products is likely to heat up considering the opportunity space, which means that the DAO could benefit from more effective and cheaper solutions than using $SWISE as the float.
Therefore, I suggest we consider other possible incentives for the long-term ownership of $SWISE. We can draw inspiration from the extraordinary activity of the DAO members with even the smallest stacks, pay attention to their concerns about the centralization of protocol ownership by the whales, and look for examples of successful staking implementations by other projects. In my opinion, the best approach to $SWISE staking is that it must:
- Give $SWISE holders a range of choices about the duration of staking their tokens
- Significantly amplify the voting power of those who commit to holding the tokens for longer
- Offer additional incentives on top of the voting power boost
- Penalize $SWISE stakers who renege on their chosen commitment and reward those who stick to their commitment
Hence, I want to propose a mechanism for the time-locking of $SWISE in the staking contract, where depending on the chosen staking duration, DAO members would:
- Receive up to 5x boost to the voting power possessed by their locked $SWISE balance
- Receive a portion of the ETH proceeds from the DAO Treasury, similarly boosted up to 5x depending on the chosen duration for staking
- Be subject to slashing of their staked $SWISE balance if they decide to unlock before the end of their staking commitment
- Be rewarded with additional $SWISE rewards if they continue staking when others renege on their commitment
I think that having such a mechanism will offer considerable value to the DAO, coming from the increased voting power earned by its more committed members and the additional engagement in governance discussions generated by the incentive to lock $SWISE. I have also spoken with Dmitri about the possibility of implementing such a structure and (surprise surprise) he confirmed the team could write it.
- The DAO would create the $SWISE staking contract and the interface
- The DAO would offer several options for the duration of staking it is willing to incentivize.
- Each duration would have its own boost to the voting power and ETH incentives, where longer duration = higher boost. I propose the following structure:
a. 1 month - 1.03x boost
b. 3 months - 1.10x boost
c. 6 months - 1.30x boost
d. 1 year - 2.00x boost
e. 3 years - 5.00x boost
- Unlocking the tokens early would result in the slashing of staked $SWISE balance that is linearly proportional to the remaining duration e.g. locking for 3 years and unlocking after 1.5 years would result in 50% of the balance being slashed
- The slashing penalties in form of $SWISE would be distributed between those who continue keeping their $SWISE locked
- Both ETH and the $SWISE penalties collected from renegades accrue and can be claimed daily
- The size of the boost to incentives would be updated every time the rewards are claimed to reflect the remaining staking duration e.g. locking $SWISE for 12 months and claiming the incentives in 6 months would result in maintaining a 2.00x boost until the moment of claiming and 2.00x/2 until the next claim, and so forth
- Prolonging the lock duration would be possible whenever the rewards are claimed or more $SWISE is locked
The StakeWise DAO must discuss the parameters involved in the mechanism if it wants to implement it. This mainly involves the choice of duration options and the size of the boosts.
I encourage everyone to weigh in on this proposal as it likely can affect every StakeWise user, so don’t be shy to share your thoughts.