Sounds really interesting. But there needs to be clarity on the incentives. Sovryn just did something similar but the community started getting upset when the rewards were very thin and the community was locked in.
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I’m in. Where do I sign?
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Effective and interesting. As the value of $SWISE is coming from staking of ETH, this kind of rigit approach should be appropriate compared from other methods.
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Amazing proposal! I have just shared an article about the topic of long-term alignment arguing in favor of mechanisms like this! https://twitter.com/felix_macht/status/1410667588405899268?s=20
I think the incentive design would be even stronger if we would also implement a boost on LP rewards by locking SWISE (more people would lock-up for longer and become also longer-term LPs imo -> read the article.^^).
As there is a valid counterargument of these boost making it harder for small and new community members to earn a significant portion of the tokens, these boosts could be implemented on a limited time-scale, potentially slowly fading out over time. But I think now it’s essential to create a fly-wheel of token-price and TVL by smart incentives, (content) marketing as well as culture/community building (with a focus on security and decentralization given recent exploits and the probably too heavy reliance on Lido)!
I sense we have a bright future ahead for Stakewise! 
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This entire proposal is lightyears over my head I still haven’t even figured out how to stake $swise… however; this shit sounds smart af and I’m happy I’m here.
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As far as I understand it this proposal does not increase overall profit for holding Swise, it just redistributes between long term stakers and non-stakers. It doesn’t make any sense for anyone to stake for any other period than the maximum, as staking less or not all simply means that you let your benefits go to others.
At this point (from a game theoretical perspective), there are only 2 options that make logical sense:
- Stake all your Swise for 3 years getting the maximum return.
- Sell your Swise.
For a buyer the same game theory leads to the following two choices:
- Buy and stake for 3 years.
- Don’t buy.
Now if everyone stakes for 3 years, there will be no gain for anyone as the total distribution of rewards does not change.
The only way to gain, is if a significant number of people are so stupid to hold or buy Swise and not stake for the maximum time. Exploiting other people’s stupidity is a business model that I generally frown upon.
For now I am going to assume there will be no stupid players, and everyone either stakes for 3 years or sells (or doesn’t buy).
In that case not only do we gain nothing extra, we just lost our freedom to do with our Swise as we please. We can’t use them in other DeFi projects, for instance as collateral, or provide liquidity in a pool.
Lower liquidity in pools, will make the price of Swise more volatile, and the long lock up periods, that are essentially required so as not to lose out, are going to make it a far less attractive investment.
Incedentelly history is littered with examples of countries trying to shore up the value of their currencies by restricting/punishing exchanging them to other currencies. The only result has ever been that people did not buy those currencies and instead tried to find ways to exchange as much of it into better currencies without restrictions.
So sorry to poor cold water on this idea, but I fail to see any benefits that it could bring to current Swise holders.
Let me add an example.
To make it easy let’s say we have 100 Swise “shares”. Each has 1 vote. So each sharee represents 1% of the total votes.
These “shareholders” can stake their Swise share for 3 years and receive 5x more votes it is said.
Now most make the wise choice, so 95 of the 100 shareholders stake their swise share and now have 5 votes per swise share. The other 5 are either dead or don’t pay attention.
We now have:
95 swise shares with 5 votes each. For a total of 475 votes.
5 swise shares with 1 vote each. For a total of 5 votes.
Bringing the grand total of votes to 480.
Each staked swise share now has 5 votes out of 480, representing 1.04% of the total (so a mere 4% more).
Each unstaked swise share now has 1 vote out of 480, representing 0.2% of the total (so an 80% loss).
What this show is that the proposed system is merely a redistribution of voting power with actually very little upside for those who do stake, compared to the current situation, but a huge downside for those who don’t. Not to mention the huge downside for those who do stake in terms of having their swise locked up for a very long time.
Thanks for your well-written criticism! We need people in our community challenging our assumptions in order to stress-test ideas and proposals!
I think though that different people have different time-preferences of liquidity and would therefore stake for different time-frames. They would not be “stupid” for staking for a shorter period of time if it fits their preferences better. E.g. consider two potential personas of Swise holders that could imo both be considered “rational” given their preferences and viewpoints.
Swise holder A might be willing to stake for a max. of 1 year, while at the same time being very bullish about the project and the token. He might base his buy & hold decision to a large extent on his view that the token is currently unvervalued, while seeing catalysts that will impact the price within the next year (while still wanting maximize rewards by staking for his preferred holding period of 1 year).
Swise holder B might be willing to stake for the full 3 years because his planning time horizon for early stage projects goes even beyond that time-frame (knowing that bootstrapping a successful platform and community takes time and comes with ups-and-downs he is willing to dive through).
Yes you are in deed correct that there is no additional total voting power or rewards available to the overall community and the proposal is “merely” a re-distribution.
However, the power specifically lies in this strategic re-distribution of voting power and rewards towards the most long-term aligned community members, which should steer Stakewise to optimize for becoming a leading player over the mid- to long-term as opposed to playing short-term games. I firmly believe that the credo “play long-term games with long-term people” ultimately leads to sustainable success.
1 Like
Generally, I highly agree with Felix’s idea of short-term and long-term oriented people. Also my strong belief is that early and loyal community members (which stakes SWISE) should be rewarded to grow ownership and bias towards long-termism as you’ll see in the points below.
When we’re talking about locking/buying/selling SWISE tokens I believe it’s good to summarize it’s value first. And as a disclaimer, the following summary is highly subjective, but definitely adds more color to the discussion.
Value and potential value for holding SWISE (ordered subjectively by perceived value)
- SWISE price exposure (I think SWISE is highly undervalued)
- Huge potential: Receiving proportional ETH fees from the 10% staking fee. Right now the 10% is going to the DAO treasury. You can think of it as staking dividends on top of your own staking rewards as long as you hold SWISE.
- Potential: Staking SWISE to commit long-term (similar to joining a startup and having vested equity). Time is acting as a proxy for community involvement/incentive alignment here (choosing deliberately against other opportunities). I believe next to vote boosting, staked SWISE should allow higher staking dividend rewards.
- Using SWISE as LP and gain farming rewards (subsidized by treasury)
- Participate in governance (small token holder here), however I believe writing proposals and criticizing others is much more effective (holding a few tokens) than voting with tokens.
Please let me know what you think.
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If the objective is to make people hold more Swise for the long term, then there should be a minimum holding of say 1 million Swise (25k eur). That would motivate people to buy more Swise and really show who truly believes in the project. Such risk taking by making a real investment might be worth an extra reward at the expense of other token holders.
I still believe it would be counter productive and eventually detrimental to the price of Swise, as liquidity tends to be good for prices. However with a minimum investment requirement of 1m swise that damage may be limited.
Your statement rephrased: A minimum holding threshold for SWISE (e.g. 1 million SWISE) would incentivize people to hold SWISE long-term.
Let’s think that through: If I hold 1 million SWISE why would I stick holding it long-term other than the reasons of holding SWISE in the first place (without that constraint)?
In your argument you’re saying “such risk taking shows who truly believes in that project”. A counter example: I buy one million SWISE (the entry ticket) and dump it the next day. And another example why it’s a bad idea systemically: You’re pricing out the long-tail of investors forming a centralized governance comittee of whales ruling over anybody staking at Stakewise.
With drying up circulating supply and constant demand prices have to go up. Locking the token and in return receive a) boosting governance voting power, b) staking fee rewards on top of your own staking rewards are two good and logically sound reasons to hold SWISE long-term.
2 Likes
Nope. Never said that. The next part of my post (which you even quoted), explains it. It motivates people to buy more swise, which makes ths price go up. Which may compensate for the negative effects of this proposal.
Having to either hold for a long time or sell, will lead to more selling pressure on very low liquidity AMMs due to drying up supply. A combination that could really tank the price. So we need a counter pressure to make the price go up, a minimum required investment could do that.
Please take a look at my example calculation above again. There will be no voting power boost of any significance, nor any staking fee reward increase of any significance, if the vast majority of swise holders act rationaly, by either staking long term or selling if they don’t want to stake. And frankly a non-staked swise will loose nearly all voting power and rewards so there’s really no good reason to hold on to them unstaked.
So please let’s not pretend anyone is going to get any significant voting or reward boost from this. This is just a proposal to lock up your swise for nothing much in return.
I don’t agree with the way you calculate optimal outcomes/strategies as it does not take into account factors like opportunity cost of capital, liquidity premiums and crypto market sentiment/cyclicality.
Each of these is individual to each SWISE holder and shapes the optimal duration each person is willing to stake/lock SWISE for. There is thus no universal discount rate you can apply here for all holders.
I can speak for myself, i will never lock any asset in crypto for longer than 2 years because a) its’ hard to predict the market on a timeframe of 2+ years, b) i value liquidity (put a discount on illiquidity) and c) i interact a lot in DeFi searching for new yield opportunities (higher opportunity cost).
I believe im not alone in taking these things into account when choosing to stake and thus expect the stake duration distribution resemble normal distribution more or less.
Longer term stakers take an outsized bet on SWISE despite the factors i brought up above and thus should be rewarded with an outsized higher voting power and/or higher claim on the protocol earnings in the future.
Putting a barrier to entry in place with min stake required does very little for buy pressure as not all will be staking for the longest term (as argued above) and thus will just disincentivize/exclude smaller holders and community to stake.
“show who really believes in the project” by the means of having to buy a significant “bag” is not a valid approach, as if smaller holders cant believe as strongly in the project as the larger ones.
Im thus for the concept of disproportionately rewarding longer term stakers (as their earnings are discounted) even at the expense (small earnings/ voting power dilution) of holders like myself who will not lock for the max duration, which is fine as we all have different discount rates. I believe this approach is helpful to drive more utility to SWISE while giving any holder a choice to pick his own duration and be rewarded accordingly relatively to the choice he is making.
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What’s wrong with the math?
All you present is some fantasy scenarios without hard numbers to show the effects.
While no-one invests in crypto with the idea that exactly 1 year or 2 years from today I am going to sell. These markets are far to volatile for any planning like that. People either buy for the (very) short term to play the market or the long term, maybe waiting for an unpredictable rally to cash out. If you’re going to lock up for say 2 years, you might as well do 3 or even 5. It would be stupid to lock up for 1 year and renew each year for instance, if that’s your intention then go for the max from the start to get the max reward.
There are therefore only two rational strategies, either lock up for the max reward, or sell.
But let’s entertain the idea for a minute that say 25% of holders play irrationally and don’t sell, don’t lock up for 3 years, but for 1.
For simplicity let’s have 100 swise “shareholders” that currently each have 1 vote.
75 shareholders stake for 3 years. Each of their shares now has 5 votes (together they have 375 votes).
25 shareholders stake for 1 year. Each of their shares now has 2 votes (together they have 50 votes).
So we now have a total of 425 votes for 100 swise “shareholders”.
This makes a 3 years staked swise share now have 1.17% of the vote (a 17% gain),
while a 1 year staked swise share will now have 0.47% of the vote (a 53% loss).
I am pretty sure we can all agree that the promise of 5x more voting power (and rewards) is a gross misrepresentation of the facts. This simply will never happen. Not even close.
Anyone who has the intention to stake for less than the maximum 3 years, is going to loose out a lot. They’d all earn a lot more by keeping things as they are now.
The current lock in proposal is a barrier to entry in itself, so clearly the problem isn’t a barrier to entry. Regarding the minimum stake, small holdings simply do not carry enough weight to influence prices (a let’s remember that the purpose is to get the price up), however anyone willing to invest a significant amount more will influence the price positively.
Now let’s also not forget that there are people who are not reading and following every proposal here, some may find out later that they had to stake in order not to be screwed out of their rewards. If you think that the majority voting in favor of such a change justifies stripping a minority of their rights (to votes and rewards), then the majority can also vote to raise the minimum required stake. This is how majoritarianism works (basically democracy without safeguards where every person/share is treated equally).
Personally I think that every swise should be treated equally, with equal voting rights and equal reward rights, that can not be taken away even by a majority decision. But if this principle is out the window (as this proposal would do), then I think any other proposal with similar effects on another group of swise holders is equally fair game.
Now as it happens large holders will always have more votes, so I suggest everyone be very careful with throwing this principle out the window.
Aren’t votes tied to shares of SWISE (not individual shareholders)?
This proposal seems to help level the field so that a smaller investor who believes in the project could potentially match the voting power of a whale, who values liquidity and is less likely to lock up their SWISE for an extended duration.
I support the idea of tiered lockup durations. Some of us have different time horizons and risk profiles for investing. There’s no guarantee Stakewise will be solvent in 1, 2, or 3 years… If rewards were flat, there’s no reason for me to lock up for 3 years when I can justrenew every year and lower my risk.
1 Like
Why would a whale not lock up their swise? Losing even a fraction of the reward would be serious money for whales. Whales also tend to not need to sell, as they tend to have lots of other investments too, they are the group for whom it’s easiest to lock up.
It’s smaller investors, who might need the money on a rainy day who are less likely to want to lock up swise for a long time.
Also staking and later unstaking and claiming costs gas, which at times can be quite high, the smaller your holdings the more those fees impact you, while for whales the fees barely matter.
So on the contrary this proposal is likely to shift more power to whales at the expense of small token holders.
I want to revive this discussion!
How would it be if staked SWISE was the portion of SWISE that actually got the distribution of fees from the protocol?
https://forum.stakewise.io/t/distribute-stakewise-protocol-fees-to-holders-of-swise/432/28
paging @vlad @kiriyha @cryptochrome @remche @ottodv
Nothing changed, all my objections still stand.
It’s exactly the same as what I described here: Allow staking $SWISE as means of boosting the voting power of long-term token holders - #16 by ottodv except with rewards instead of votes. End result a few who don’t pay attention get royally screwed, and the rest gains next to nothing while saddling themselves with a huge restriction.