Proposal: Periodic SWISE Buyback

Proposals
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Executive summary

In this proposal, we outline a plan for establishing periodic SWISE buybacks using the DAO Treasury funds, in order to offer structural support to the token.

The goal is to direct up to 100% of the protocol revenue towards buybacks, to be used for liquidity incentives or other purposes.

We foresee up to 35 ETH worth of SWISE purchasing every month, with the exact figure depending on the DAO fee generation level.

Motivation

It was only 6 months ago that the StakeWise DAO was using SWISE emissions to incentivize token liquidity.

A surge in DAO revenue has allowed us to reduce such emissions by 90% since April, distributing osETH tokens earned from DAO fees as rewards to liquidity providers in the various StakeWise pools.

We now believe that the DAO can take the next step and further improve the way we reward LPs, helping the SWISE token in the process.

With the current budget of ca 25 osETH per month (20 osETH, and 1,060,000 SWISE), StakeWise has been able to maintain deep liquidity for osETH on both mainnet and Arbitrum. Rewards are distributed as a mix of osETH and SWISE, giving LPs a combination of ETH and StakeWise upside.

We find that the time is now right to switch back to exclusively SWISE-denominated incentives, which would be sourced from the market via periodic buybacks.

Instead of distributing 20 osETH and emitting 1M SWISE per month, we suggest deploying up to 35 osETH per month towards SWISE buybacks, to be carefully distributed towards incentives, as well as used for other purposes like burning and insurance (to be discussed at a later stage).

This switch would create structural demand for SWISE worth up to $2M per year at current prices, which is significant against our $11M mcap. It would also allow LPs to benefit from the upside created by future tokenomics changes, as well as new product launches. In short, we view this is a win-win for both StakeWise and its liquidity providers.

Considerations

There are several important factors that must be taken into account.

The most obvious is the behaviour of LPs in response to a switch back to exclusively SWISE-denominated incentives. It is possible that either our liquidity levels will decline, or that distributed SWISE will be dumped on the market, or both, in response to the switch.

We believe that the risk of this is moderate, and realistically can only be mitigated by further improving the attractiveness of the token and our protocol in the eyes of the market.

Hence, we believe that the DAO must accept these risks, but stay ready to reverse course if the response is overly negative. We welcome comments and questions from osETH and SWISE LPs below to help illuminate the discussion.

Another consideration is the extent of buybacks. Current DAO revenue generation level is ca 20 osETH per month, down from the 35 osETH per month at its peak in late July (i.e. before the rate volatility on Aave has begun, and a significant number of Boost positions were unwound).

The minimum proposed monthly buyback is 20 osETH, which is what is currently being distributed to LPs monthly, and corresponds to 100% of DAO’s earnings. This level would allow the DAO to maintain the reserves of osETH in the Treasury intact (ca 370 osETH), and keep the value of LP incentives unchanged.

The maximum proposed buyback is 100% of DAO’s monthly earnings, meaning that if (when) DAO’s earnings start climbing again (driven by improvements to Boost and continued work to bring new stake into the protocol), more osETH would be directed towards buybacks. After deducting for 20 osETH each month (the necessary amount to be spent on incentives), the remainder of purchased SWISE could be directed towards burning or other purposes (e.g. insurance).

Finally, more liquidity for SWISE is required for buybacks and tokenomics changes to have an effect on people’s perception of SWISE. In connection to this, we have launched a separate proposal to deploy a new SWISE-osETH pool, with the goal of switching incentives to it away from the legacy SWISE-ETH pool. You can check out the proposal and leave your thoughts in the relevant thread.

Specification

Should this proposal pass, the team will submit periodic requests for funding as it currently does for liquidity, using the funds received from the DAO to execute SWISE buybacks via CowSwap, and distributing repurchased SWISE to LPs via the usual mechanisms.

Discussion

We are not initiating the Snapshot vote for this proposal straight away, and instead are looking for community feedback first before submitting a formal proposal. We expect the discussion stage to last 14 days.

Please leave your comments, questions, and feedback in this thread!

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Hello everyone, I’m an active delegate from Ekubo.

First of all, I support linking Stakewise protocol revenue directly to SWISE through buybacks. From what I’ve observed with Ekubo, this mechanism has had a clear positive impact on price dynamics (see EKUBO price action as a reference). More importantly, it helps attract long-term holders, those invested in the growth and success of Stakewise.

I would also recommend replacing Stakewise’s current buyback process on Cowswap with a time-weighted automated market maker (TWAMM) solution via the Ekubo protocol.

Buybacks executed through TWAMM are fully permissionless, automated, and passive. Once a TWAMM order is set via smart contract, it requires no ongoing management or manual intervention.

To strengthen collaboration with Stakewise and build a more comprehensive partnership, I intend to propose to the Ekubo DAO that it deploy its ETH holdings (~288 ETH, ≈ $1.3M) as POL in ETH/OSETH.

In summary:

From Stakewise:
• Deploy SWISE-OSETH liquidity on Ekubo Ethereum, DCA-enabled pools to support the SWISE buyback process.
• Prioritize liquidity incentive programs for SWISE on Ekubo (where applicable).

From Ekubo:
• Support from Moody (Ekubo founder) to specify and implement a buyback process aligned with Stakewise’s objectives.
• Ekubo DAO to deploy ~288 ETH (≈ $1.3M) as POL in ETH/OSETH.

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thanks for the proposal @0x_TEU - this certainly deserves consideration by our folks.

it would be helpful if you could share the links to audits and documentation for Ekubo. once members understand the risks involved and the opportunity better, they’ll be able to opine on this

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I am for this proposal

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For those unfamiliar with Ekubo, it is currently the #3 AMM on Ethereum by trading volume and the cheapest AMM implementation on mainnet. It’s built on the same fundamentals as Uniswap v4.

In addition to the Uni v4 core design, Ekubo adds unique improvements, e.g.; withdrawal fees, contracts hyper-optimized for gas and capital efficiency (ticks 100× smaller and gas costs 20–60% lower than other AMMs).

Moody (Ekubo Founder) was an engineering lead at Uniswap. He wrote much of the early Uniswap interface, created token lists, built the first routing algorithm for V2/V3, contributed ~50% of the V3 codebase, and led the design of V4.

Ekubo public docs: [link]

On audits, the relevant contracts for SWISE buybacks are Ekubo Core & TWAMM. Both have been audited by ABDK and Plainshift, two long-standing, reputable firms in Solidity and AMM security. Ekubo’s Ethereum contracts are immutable, and the core has been verified on Etherscan.

Ekubo public audit reports: [link]

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Thanks, Kiriyha and team! I think this year’s proposals are both timely and thoughtfully structured.

I’ve always supported initiatives that compensate boost users, strengthen teams, reward LP providers, as well as support SWISE holders this time. It’s encouraging to see StakeWise continue moving steadily in such a positive direction.

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Hello, I’m the founder of Ekubo, Inc. and I would add that we would be happy to directly support the implementation of SWISE buybacks via Ekubo’s TWAMM extension. The Ekubo DAO has been doing buybacks with many different revenue tokens on Starknet [link] for a year now without any issues. We also have written a buybacks contract for Ethereum that we plan to put into production soon [link]. This contract is designed to be extended by others in order to trivially implement permissionless, continuous buybacks using protocol revenue.

Happy to connect and answer any technical questions on telegram: @sendmoodz

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Hello, I’m the founder of Tknomics.com and a $SWISE holder.

I support having token buybacks from the revenue. However, the usage of the tokens should be reworked.

  1. No burns of tokens. It’s outdated design and buyback and hold or buyback and redistribute is always better than buyback and burn. Good article on the topic Stop Burning Tokens – Buyback and Make Instead — Placeholder
  2. I’m against adding LP incentives for a $SWISE dex liquidity. i believe that the $SWISE token is heavily undervalued and the fair price should be much higher. Deeper liquidity on this levels will allow more people to get into cheaper prices and will take more buy pressure to move price higher. I would recommend to re-consider adding LP incentives on the specific price milestone, for example, 0.1$.
  3. Insurance fund should be out-of-scope of this proposal.
  4. I would recommend to have a separate budget for tokens buyback on lower levels, if LP will dump SWISE tokens. It could be estimated and it will be a soft warranty for a price floor.
  5. As the part of the proposal, I would like to know the exact process of how team or MM will execute the buybacks. Will it be public announcements that are visible to potential sandwichers or not?

Note. It’s my community member comment, not related to my company.

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hey @rdchk welcome to the forum and thanks for a thorough reply!

to your points:

  1. agreed burns don’t necessarily contribute any value to the token. our stance is quite firm on using the bigger portion of the bought back SWISE to distribute as LP incentives simply because it helps avoid further SWISE emissions while osETH liquidity must be maintained, but on other uses (e.g. insurance fund, burn) our thinking is less developed. so this article is a great reference point and worthy of consideration imo
  2. I see your point and I personally don’t mind making an attempt at launching buybacks without deeper SWISE liquidity to allow them to have a bigger effect on the price. However, I must warn that we’d be potentially reducing the buyer pool since experiencing large slippage on every purchase is far from an ideal way to attract new owners. What do the others think?
  3. Agreed, and it is.
  4. Would you mind elaborating on your thinking here?
  5. It’s TBD but we’d be looking to minimize the predictability of buybacks while maintaining transparency into them. How exactly this could be implemented is still up for discussion.
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The 4th point means that Stakewise could reserve some part of revenue or treasury funds to create a price floor for a token.
For example, if we know that current LPs will dump tokens after LP program end, 120 osETH could be allocated from treasury for a buyback on a levels lower than 0.012$. It will create a warranty that 5% of supply will be absorbed with predictable risk for new investors.
I don’t know all internals to fine tune numbers, but that’s the idea of what can be done, if you stop rewards for LPs and expect a price dump

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Perhaps it would be best to start off with what @rdchk suggested and observe the influence it has on the price. Slippage tolerance increases with FOMO and hopefully we can get a decent amount of FOMO when the price starts rising.
Regardless of which path is chosen to go forward, I’d advise to execute within weeks not months. Alt season is coming…
For 2, I’d rather stick with simple buyback/burn approach. This is pretty much in line with the above. I’d follow Hyperliquid’s playbook.
Has this buyback-and-make model been used in practice?