The staking rewards token, rETH2, is a key component of the DAO’s tokenomics. The StakeWise development team wants to introduce staking functionality for the rETH2 token, in order to incentivize protocol’s adoption and avoid a discount on rETH2 in the marketplace.
There are two key challenges facing the StakeWise DAO with regards to its product:
- The competitive landscape of Eth2 staking is tough - several protocols are competing for a place under the sun.
- In the existing setting, the reward token rETH2 might trade at a discount on the secondary market. The discount would reflect the opportunity cost of holding it until Phase 1.5.
To achieve rapid market share growth and avoid the discount for rETH2, we believe the StakeWise DAO must consider adding incentives to use the protocol that are tied to rETH2 token.
We propose to kill two birds with one stone by enabling rETH2 staking functionality. The idea is to reward users with $SWISE for staking rETH2. Here’s how we foresee this mechanism working:
- Create a staking contract for rETH2
- Allocate 0.04-0.05% of $SWISE supply (400,000-500,000 $SWISE) every week to stakers in the contract
- Allow to deposit (stake) rETH2 into the contract
- Distribute $SWISE proportionately among the stakers of rETH2 in the contract
The net effect from this mechanism is the following:
- Native staking yield is augmented with $SWISE rewards
- rETH2 becomes a yielding asset because $SWISE can be earned with rETH2
- This creates demand for rETH2 on the secondary market, removing the discount for the token
- Users of StakeWise can opt to regularly stake their rETH2 tokens to boost their yield with $SWISE or sell rETH2 to achieve a compounding effect
Gas costs. The current state of affairs makes frequent staking of rETH2 expensive and out of reach for many users. The solution to this problem is the creation of vaults that aggregate users’ rETH2 and split the gas costs between everyone using the vault. rETH2 staking vault can be combined with other vaults to automate many things for the end users.
Alternatively, it might happen that the users who are not willing to stake rETH2 can still benefit from this idea. In our modeling we discovered that through an allocation of 0.04-0.05% of the $SWISE supply per week to this mechanism, we can achieve sufficient APY to not only close the discount, but achieve a premium on rETH2 vs ETH. One important implication of this is that the users whose deposit is too small to consistently stake rETH2 without spending a lot of gas could capture the APY from $SWISE rewards by selling their rETH2 at a premium to ETH, and potentially re-staking the proceeds.
As always, we look forward to your feedback on this idea