Detailed plan to grow TVL

[habs4lyfe]

Summary

• Stakewise needs to grow TVL
• The most efficient way to increase TVL is to target institutions/whales
• Onboarding potential customers by making them investors is a well-trodden go-to-market strategy
• Stakewise could sell royalty tokens to potential institutional customers as a yield-bearing asset
• Benefits to Stakewise:
  • Raise Stakewise awareness via promotable partnership
  • Gain a brand ambassador within the institutional investment community
  • Onboard potential customer(s) who hold large amounts of ETH
  • USDC (or other stablecoin) added to treasury
  • No dilution to SWISE or selling of treasury assets

Motivation and scope

When @kiriyha suggested revenue get distributed to $SWISE stakers in his proposal last September, he touched on whether or not distributions to stakers was the best of use funds. Many comments left by community members on that post suggested revenue should be used to raise awareness of Stakewise in order to grow TVL instead. In fact, this question about how to use revenue remains an area of contention in this forum and across DeFi: @0xSami released a blog post on Sunday in which he pushes back on the concept of DAOs paying out their revenue to staked token holders for a lot of the same reasons.

This proposal outlines a strategy to temporarily allocate ~0.5% to 1% of the Stakewise fees to grow TVL by targeting B2B customers.

Why growing TVL is important

The reason TVL growth is important is because TVL determines revenue. Higher TVL results in higher revenue.

The less obvious reasons TVL growth is critical are the benefits of scale. There are huge advantages to Stakewise reaching critical scale: network effects, brand recognition, talent attraction, partnership attraction, and profitability. Reaching critical scale is difficult, but the benefits far outweigh the costs.

Focusing on B2B to accelerate TVL

One of the fastest ways to grow TVL is to onboard institutional capital to Stakewise. A few large players can drastically improve TVL. Institutions are also much stickier because they have a mandate to deploy capital and they invest for the long-term.

The problem is that institutional investors are difficult to access: identifying the right institutions, getting access to them, and convincing them to trust Stakewise is a difficult and lengthy process.

Partnership opportunity: Cinch

We are putting forward our platform, Cinch, as the intermediary to connect Stakewise to the right institutional capital.

Cinch helps protocols create and distribute ERC-20 royalty tokens. Royalty tokens are simply custom duration and transferable revenue-share tokens. For example, a protocol can create revenue-share tokens that receive [10]% of monthly revenue up to a maximum of $[50,000] (after which they are burned).

Our long-term vision is to be the marketplace where royalty tokens are actively traded. As a result, we are in contact with dozens of institutional funds that are looking to deploy capital into yield-bearing opportunities like royalty tokens. Some of the investors we are in contact with currently include LedgerPrime, CMCC, Plutus21, Stablecorp, and StrixLeviathan, to name a few.

Royalty tokens give projects a way to leverage the token playbook without the hyper volatility and speculation embedded in the native token. We propose creating a strategic partnership between Stakewise and yield-seeking investors working with Cinch via a royalty token sale.

Partnering with institutional yield-seeking investors via a royalty token sale addresses the three problem areas in getting through to institutional capital:

• Identifying 🗸
• Accessing 🗸
• Establishing trust 🗸

Benefits & risks

Benefits to Stakewise

1. Raising capital from an institutional investor sends a strong signal that a new institutional partner believes in the protocol

   • This can be actively promoted by Stakewise

2. The institutional partner becomes a brand ambassador among institutional investors

   • Investor partner is incentivized to promote Stakewise because a revenue increase leads to faster repayment
   • Other institutional investors will notice when evaluating Stakewise

3. The institutional partner could become a long-term customer

   • Stakewise’s product offering is extremely well aligned with the needs of institutional investors in the space who are comfortable holding ETH

4. This kind of partnership does not require any assets to be sold from the treasury or SWISE tokens to be issued. In fact, the treasury will receive sale proceeds.

Benefits to institutional partner

1. Sustainable yield bearing opportunity
2. Opportunity to evaluate growing ETH staking platform as an insider
3. Incentive to promote Stakewise product to drive faster repayment via revenue-share
4. Easier to trust DeFi project when introduced via intermediary (Cinch)

Benefits to Cinch

1. 3% fee [conditional on there being a transaction]
2. Further demonstrate the usefulness of royalty tokens

Risks

• Unable to find an investor that is willing to acquire Stakewise’s royalty tokens
• Capital is raised from investors at a lower price than anticipated
• Revenue generated by Stakewise during revenue-share period is lower than anticipated, thus extending the time it takes for repayment to be complete
• The investor partner does not become a customer or brand ambassador

Mitigants

Issuing native tokens to investors and/or customers is a popular go-to-market strategy in DeFi that carries very little downside risk. Royalty tokens will work exactly the same way. The only difference is that royalty tokens will attract a different kind of investor than the SWISE token, thus broadening Stakewise’s partner base.

Next steps

Cinch is currently in talks with institutional managers looking to deploy capital into DeFi.

We submit to the community that a royalty token transaction can be done with small amounts as a first step to build trust among all parties involved (~10-20 ETH).

Subject to the community’s feedback on this post we will draft a phase-2 proposal.

Please provide any feedback or comments below!

[habs4lyfe]

Tagging key forum contributors

@dreth @brianchilders @ottodv @mohikander @cryptochrome @jonathanstrange @rustedpopcorn @rduubs @pnut @Steel.Key

[ottodv]

Is the proposal to introduce a new token, a royalty token?

[StrangetoshiNakamanl]

No USDC added to the treasury! (With its blacklist functions USDC is Cefi/TradFi not Defi) Any “Defi” company/service/dao that has Usdc in its treasury is now controlled by US sanctions and the maniacs that pull those levers and press those buttons. (See the ongoing Tornado Cash related developments.

No new tokens. Swise hasn’t even been utilized to its full potential yet (possible collateral for stakers like RPL etc) So I say no to introducing a new token.

I think this is a key time in the Ethereum space- will people/dao’s/companies chase “number go up” at the expense of privacy and freedom? If so they should be shunned as they are just creating big banking 2.0 which will be controlled in the end by US policy.

It was Stakewise’s dedication to decentralization, security and permissionless-ness that brought me here + the awesome UI

With the specific mention of USDC this feels like a Trojan horse post I don’t want US based policy decisions f*cking up my defi!

[Sid]

I agree with @StrangetoshiNakamanly that SWISE has not been utilised to it’s full protentional other than a pure governance token. The suggestion to (in my opinion) complicate our tokenomics (some already need to wrap their head around seperation of concerns for the tokens as it is). I believe that royalty tokens, could simply be SWISE.

My argument for not using another token is that, you’ll be offering a separate incentive to whale and retail investors, of which won’t be offered to other customers. Using SWISE as such would benefit everyone invested into StakeWise, bag holders and all. (which you can see that we have mostly been trading off for number go up people)

Data i’m basing this on:
Images from IntoTheBlock

[Sid]

[habs4lyfe]

Thanks @ottodv, @strangetoshinakamanl, and @sid for your feedback and engagement! I really appreciate it. Awesome stuff.

Two minor clarifying items on the idea:

1. The proposal is not launch a second token. I simply used the term “token” to make it familiar, my apologies if it mixed things up.

2. I mentioned USDC as an example of a sought-after currency. Point taken about US government scrutiny!

Overall, the proposal is to attract potential whale customers by having them invest in Stakewise via a revenue royalty. This can be done entirely without tokens and the proceeds can be received in whatever currency Stakewise prefers.

@Sid

I agree with @StrangetoshiNakamanly that SWISE has not been utilised to it’s full protentional other than a pure governance token. The suggestion to (in my opinion) complicate our tokenomics (some already need to wrap their head around seperation of concerns for the tokens as it is). I believe that royalty tokens, could simply be SWISE.

My argument for not using another token is that, you’ll be offering a separate incentive to whale and retail investors, of which won’t be offered to other customers. Using SWISE as such would benefit everyone invested into StakeWise, bag holders and all. (which you can see that we have mostly been trading off for number go up people)

Good point here @Sid! Implementing a revenue-share to SWISE token holders could be useful (and this has clearly become a popular model across DeFi with “ve” tokens).

In my mind, using a temporary revenue royalty as a customer acquisition / TVL growth tool has two important advantages:

1. It does not dilute existing SWISE holders or risk putting any sell pressure on the token

2. It has a defined term (i.e., it can be thought of as a customer acquisition tool vs. a permanent capital allocation decision).

[pnut]

Thanks for sharing this proposal with the community! I believe the ability for DAOs to raise capital through means other than native token selling is key to maturing the ecosystem. On that note, Cinch certainly looks like an interesting protocol and I feel it is worth exploring this idea further.

To add a couple of caveats: 1) I echo the sentiment of @Sid and @StrangetoshiNakamanl that SWISE has significant untapped potential. The SWISE tokenomics are ‘old’ and are likely in need of a revamp. 2) Your proposal touches upon DAO funding/treasury management which is a very complex topic. Should the DAO decide to proceed with a solution such as Cinch, it would be one small piece in a large jigsaw, and as such, I do not think the DAO is able to commit to any long-term fee sharing without further clarity on the other pieces of the puzzle (veSWISE for example).

That said, I do see the value in exploring agreements that could act as an incentives program for stakers with sizable capital to use StakeWise. My initial questions are detailed below, but it would be good to hop on a call to discuss this further. If you want to message me a calendly link then I can pop some time in your calendar for next week.

My questions (in no particular order):

• You have focused on institutions specifically, but your royalty token solution seems like it could be applicable to anyone who might want to use StakeWise, whether it is an institution, DAO, or even a solo staker. Is there scope to sell these tokens to ‘anyone’?
• Do you have examples of any other protocols utilising Cinch currently?
• Is there an ability to distribute extra tokens (i.e. SWISE) to royalty token holders, on top of distributing protocol fees?
• I read that Cinch expects there to be liquidity for such tokens, which implies you need a large circulating supply of fungible tokens. What incentivises this liquidity and does it rule out creating bespoke (non-fungible) tokens for specific entities?
• These tokens will allow the DAO to access its future earnings in advance, where the initial token price determines the ‘discount’ for this privilege (and consequently the returns of the entity investing). How much flexibility is there for setting the token price? For example, if we wanted to offer a DAO a reduced fee for staking with us, could we set up a royalty token where they pay nothing in advance? i.e. I view a royalty token as a technological solution to reducing our protocol fee in certain cases.

[rduubs]

I’m not clear on what a royalty token’s benefits would be? Is it just another token that is then sold for better returns without diluting SWISE?

Second, I’m skeptical that a royalty token would be what attracts more “institutional investors” or large whales. Two of the largest SETH2 LPs are powerstake.eth and analytico.eth, so whales and institutions are roughly the same kind of audience to attract in my mind.

To that end, I think general marketing and awareness of the benefits of SETH2 as a liquid staking derivative are the most impactful. Everyone looking for staking knows of stETH and Lido, but fewer know about Stakewise.

[habs4lyfe]

Thank you @pnut and @rduubs for your thoughtful questions!

@pnut

You have focused on institutions specifically, but your royalty token solution seems like it could be applicable to anyone who might want to use StakeWise, whether it is an institution, DAO, or even a solo staker. Is there scope to sell these tokens to ‘anyone’?

Absolutely. We view the institutions use case as the strongest value proposition for DAOs, but you are 100% correct that this is a broadly applicable product. We would love to hear your thoughts on where you think it could be most valuable!

@pnut

Do you have examples of any other protocols utilising Cinch currently?

No examples we can make public yet but soon

@pnut

Is there an ability to distribute extra tokens (i.e. SWISE) to royalty token holders, on top of distributing protocol fees?

Not in the current v1 iteration of the product but eventually that is absolutely something we could include.

@pnut

I read that Cinch expects there to be liquidity for such tokens, which implies you need a large circulating supply of fungible tokens. What incentivises this liquidity and does it rule out creating bespoke (non-fungible) tokens for specific entities?

We are currently finalizing the system design for the secondary market, which will likely not exist in our initial product release (v1) but more information will be available in the near-term.

@pnut

These tokens will allow the DAO to access its future earnings in advance, where the initial token price determines the ‘discount’ for this privilege (and consequently the returns of the entity investing). How much flexibility is there for setting the token price? For example, if we wanted to offer a DAO a reduced fee for staking with us, could we set up a royalty token where they pay nothing in advance? i.e. I view a royalty token as a technological solution to reducing our protocol fee in certain cases.

DAOs would have 100% flexibility in the price at which they choose to sell the revenue-share tokens. That would definitely be possible.

@rduubs

I’m not clear on what a royalty token’s benefits would be? Is it just another token that is then sold for better returns without diluting SWISE?

Temporary and transferrable revenue-share tokens can be used instead of SWISE whenever it’s inconvenient /damaging/impossible to use SWISE.

The two primary use cases are (i) protocol growth without dilution or sell pressure and (ii) outright replacing a portion of native token emissions to reduce sell pressure on the token.

Related to item (i), our proposal is to use the revenue-share token to attract investors that seek yield without the volatility embedded in native tokens

@rduubs

Second, I’m skeptical that a royalty token would be what attracts more “institutional investors” or large whales. Two of the largest SETH2 LPs are powerstake.eth and analytico.eth, so whales and institutions are roughly the same kind of audience to attract in my mind.

Fair enough! I would point out 2 minor things:

1. There hasn’t been a product that allowed yield investors to participate in Stakewise yet (only the SWISE token)

2. The rationale we are suggesting is very similar to why Stakewise chose to have Blockdaemon as an early VC investor: immediate industry credibility + potential customer/partner

@rduubs

To that end, I think general marketing and awareness of the benefits of SETH2 as a liquid staking derivative are the most impactful. Everyone looking for staking knows of stETH and Lido, but fewer know about Stakewise.

We agree!