StakeWise tokens, sETH2 and rETH2, were created to enable seamless entry and exit from staking before Phase 1.5. Our DAO has always relied on the idea that liquidity pools will facilitate swaps of StakeWise tokens into ETH and back. As we approach the creation of liquidity pools for sETH2/ETH & rETH2/ETH pairs, the team would like to put forward an idea to incentivize liquidity provision in these pools with $SWISE.
One of the selling points of the StakeWise protocol is its tokenomics. However, the tokens start to work their magic and draw people into staking only when sufficiently deep liquidity pools for sETH2/ETH and rETH2/ETH pairs exist. Having deep liquidity in these pools is fundamental to the inclusion into lending protocols and other places where sETH2 and rETH2 tokens can change hands as synthetic ETH assets.
Considering that capital allocators in DeFi are constantly searching for the best yields, one sure way to achieve deep liquidity for the tokens would be to incentivize liquidity provision for them. The team believes that $SWISE incentives could be offered to the providers of ETH and sETH2/rETH2 capital in the pools in order to achieve this goal.
As an initial idea, we propose the following:
- Allocate 0.6% of the $SWISE supply (6,000,000 $SWISE) per month towards sETH2/ETH liquidity pool
- Allocate 0.2% of the $SWISE supply (2,000,000 $SWISE) per month towards rETH2/ETH liquidity pool
The choice of $SWISE allocations is driven by the relative importance of having liquidity in two tokens.
- Having abundant liquidity in the sETH2/ETH pool would serve as a springboard for achieving widespread adoption of sETH2 in the DeFi ecosystem. In the team’s opinion, this justifies allocating a 0.6% weight to the sETH2/ETH pool, which is a much higher weight than for its rewards counterpart.
- The incentives attached to the rETH2/ETH pool need to compensate for the opportunity cost of staking rETH2 or selling it to achieve compounding. Our internal models show that for a large set of scenarios, a weight of 0.2% meets this criterion.
For each liquidity pool, a special gauge contract would be created for the collection of farming rewards. Any $SWISE and other rewards earned by Liquidity Providers (e.g. $BAL tokens, rETH2 earned by sETH2 tokens in the liquidity pool etc.) would be collected in this gauge contract. The StakeWise DAO would commit to allocating $SWISE into the gauge contract for users to claim according to their share of the liquidity pool (based on the number of their LP tokens). Users might need to stake their LP tokens in the gauge contract to have continued access to these rewards. In this respect, the team aims to achieve as simple a claim process as possible.
The farming process should be simplified for the end users - from the number of steps they need to take to the interface through which they can engage in the process. The StakeWise team would be responsible for achieving this.
Potential complexity of the process. Users need to have a simple interface to engage in liquidity provision and collect their rewards, and should spend as little gas as possible on such transactions. The StakeWise team has already started working on achieving this. In addition to the ongoing efforts, the farming of $SWISE could be automated with vaults - the team plans to add them in the medium term.
What are your thoughts on this, fellow DAO members?