sETH2/ETH Liquidity Pool on Balancer v2

Greetings, everyone!

I would like to kick off the discussion about the creation of liquidity pools for the StakeWise tokens. In this post, I will talk about the elephant in the room - a liquidity pool for sETH2/ETH pair - and propose to set it up on Balancer v2 as a stable pool.


Creating a liquidity pool for sETH2/ETH pair will allow seamless entry and exit from staking before and after Phase 1.5. It is a requirement for inclusion into lending protocols (so that borrowers or liquidators could exit their position) and a core pillar of our tokenomics. The choice of a pool type (stable vs usual) will determine how successfully this goal is achieved.

We have seen countless examples of staked ETH tokens quickly losing their peg with ETH when listed in permissionless DEXs like Uniswap. The reason is simple: the bonding curve of a traditional AMM (e.g. Uniswap v2 and its forks) is not fit for conducting transactions in otherwise pegged assets. As the weights of two assets in the liquidity pool oscillate around 50%, the price fluctuates too wildly due to the x*y=z curve being very steep in the middle.

The result: even the smallest shift in weights in favour of one of the assets results in a price move that discourages further trades in the pool. In case of staked ETH tokens, it is more often than not that the smallest a reduction of ETH weight in the LP results in a 3-4% discount for the staked ETH token, making exit from staking unattractive.

Stable pools exist to fix this problem for pegged assets. They utilize a different bonding curve that is much flatter in the center, resulting in low price variability even when the weights of two assets substantially deviate from the 50%.

For this reason, stable pools are the preferred choice for pegged assets like sETH2 and ETH - with small variability in price, swaps of staked ETH tokens into ETH do not result in a substantial discount for the token even at large volume. This preserves the purpose of having liquidity pools for any-time entry and exit from staking.


After considering the alternatives, the team believes that Balancer v2 is the best place for listing the sETH2/ETH pair.

Created over the past year, the new version of the Balancer protocol boasts highly gas-efficient contracts, utilizes stale capital in lending to generate more income for the LPs and offers permissionless stable pools. This will allow StakeWise users to benefit from liquidity pools with low gas fees and minimized discounts on exit from staking, on top of generating a higher income for LPs. There is an excellent article that goes into the details about Balancer v2, and we highly encourage everyone to read it.

The StakeWise team has signed up for becoming a launch partner for v2, examining the code well in advance of launch. We are very pleased with what we have seen and are bullish on Balancer after the release of v2. We think it would be a great place to list liquidity for sETH2/ETH pair.


Time. Until recently, the Balancer team has publicly indicated that the launch shall happen around late March/early April. Initially, this put the ETA on sETH2/ETH liquidity pool around Balancer v2 launch, which was acceptable in the team’s opinion. However, it seems that the audits and front-end work for v2 were pushed back a couple of weeks to implement last-minute changes that will reinforce the protocol’s competitiveness. This has obvious implications for the ETA on sETH2/ETH liquidity pool - its creation would be delayed until Balancer v2 launch if we were to wait for the release. This pool is a crucial component for StakeWise tokenomics and has been widely awaited by the community and the development team alike, so longer delays are tough to justify.


Create a temporary sETH2/ETH liquidity pool on SushiSwap or SnowSwap and migrate to Balancer once v2 has been launched and audited.

The development team is looking forward to hearing your thoughts on the subject.


As I posted on the corresponding idea for the rETH2/ETH pair, I think the best thing to have is a deadline, set ahead of time, for how long we will await Balancer v2 before putting in a SushiSwap pool as a temporary (or semi-permanent?) measure.


I really like the idea of going with Balancer V2, and I think that will have a lot of advantages going forward. Would also be cool to be able to promote StakeWise as one of the first (only?) major staking solutions to base their liquidity pools on the new tech offered by Balancer. Could eventually even have the liquidity pool include WETH as well, to make it even easier to extend sETH2 liquidity across DeFi. And at that point if the liquidity was high enough you could set that pool to have low fees and I believe that the added volume from swaps being routed by aggregators through ETH-WETH in that pool could then help maintain the stability of sETH2 - if I understand the tech correctly.

That being said, if Balancer V2 is going to be delayed enough to make it an issue for the community, I think that we should really look into a partnership with SnowSwap. I believe their partnership with SharedStake worked very well for all involved, and that means there is already a community of users built around SnowSwap that is highly invested in ETH staking and providing liquidity to farm governance tokens in ETH-GovToken pools. That could be a nice synergy to draft off of.


I think getting a temporary pool set up on Sushiswap or Snowswap is crucial. This way the people who deposited solely for the airdrop to dump after receiving it will get their nonsense out of the way as soon as possible. We let the dumpers hand their sacred $SWISE over to more responsible hands so that when Balancer V2 is ready, the only holders that will be left will be those in it for the long run.


I quite honestly don’t understand a lot about liquidity pools, but I think we should not rush anything. Rushing stuff is often detrimental. If Balancer v2 offers the stability we need to keep the peg to ETH stable, that’s the route we should take.

The worst thing that could happen is that sETH2 loses its value against ETH.


I think that a temporary liquidity pool will confuse people (some may save a link to the temporary lp in they browsers for example). If the wait is only 3 weeks, then I prefer to wait. How many time are we gaining? Do we win someting else implementing a temporary lp? We already knows that staking imply a long term block of our ETH.

If a ‘temporary’ liquidity pool is implemented, then i think that it should be semi permanent and alternative to the (future) main liquidity pool on Balancer v2. If in the feature (maybe only 2 weeks after the ‘temporary’ lp is implemented) the ‘temporary’ lp becomes useless, then it should be removed.

My 2 cents that may be worth only 0.5 :slight_smile:


I agree with this ^

I think that waiting is honestly fine for the time being, in the end there should theoretically be no hurry to exit the pool, this should be a long term investment

As cryptochrome said, losing the peg would be horrible.

However, incentivizing those pools will keep liquidity coming into them rather than out of them, so how to properly incentivize them should be more important than when to set up the pool. IMO


Create a temporary sETH2/ETH liquidity pool on SushiSwap or SnowSwap and migrate to Balancer once v2 has been launched and audited.

Why SushiSwap/SnowSwap over Uniswap in the case of a temporary listing?


Lots of great comments here.

I believe the Navy Seals have a saying “Slow is smooth, smooth is fast.”

As much as I’d like the short-term holders to be on their way, and out of the chat rooms complaining, I don’t think we need to appease them. Our decisions should focus on the best interests of long-term stakers and DAO participants. If that means a few more weeks before the best option is available… I’m okay with that. And I’m happy to help out in the chat rooms.


Based on what I have read, I believe the new features of Balancer are worth the wait!

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