Executive summary
This is a repeat proposal to provide the StakeWise Liquidity Committee (SLC) with 7,762,640 SWISE towards new liquidity incentives across our osETH pools on Balancer, Curve, and Uniswap.
Motivation
In the course of our usual business, the StakeWise Liquidity Committee periodically requests a SWISE budget from the StakeWise DAO that goes towards incentivizing the various osETH liquidity pools.
Unfortunately, the last such proposal did not reach the votes quorum from the community. We partially take the blame for that - we could have done a better job advertising the vote across our channels. However, we would also like to use this repeat proposal to reiterate the importance of liquidity incentives for StakeWise, and why the SLC requests what it does from the DAO.
Let’s start with the importance of liquidity. It is the driving force for everything happening in the financial markets - the more of it is available, the more activity can be expected (around the instrument and more broadly).
Why is it so? Having more liquidity comes down to reducing the opportunity cost of engaging with an asset - measured in terms of slippage given a certain trade size. With more liquidity, the number of participants willing and able to engage with an asset increases, making it the go-to for new entrants drawn to more popular instruments.
This relationship is often reflexive, as more liquidity is often brought to service the demand from more and ever larger players. Long story short, liquidity sets the tone for the success of an asset, and the market in general.
Coming specifically to DeFi and liquid staking protocols, liquidity for an LST is highly important for both the existing and potential new users, but also for the protocol itself. Crucial integrations like Aave, Compound, Maker, and others rely on the amount of liquidity available for an LST as an indicator of its relative safety as collateral asset in their protocols. Will the creditors who accept the LST as collateral be forced to sell it at a significant discount in case of default, or will they receive its full value? The answer depends on the amount of liquidity available to the LST in question (provided the market conditions are normal), and so more liquidity = safer asset = more integrations.
As more DeFi legos are built on top of these protocols (e.g. InstaDapp for leveraged staking, on top of Aave), the relationship becomes similarly reflexive, bringing more people into the protocol as the number of integrations increases, enabling yet more integrations in the future. This has an effect on anything from the user numbers, to protocol revenue, to token price. The conclusion is that good liquidity is paramount for LSTs and liquid staking protocols on Ethereum, and we are no exception.
With this backdrop, let’s address the achievements for osETH to date as well as things in the pipeline:
- Huge Arbitrum grant received
- Aave, Gravita, Morpho integrations secured
- Compound, Spark (Maker) integrations in the works
- Multiple DAOs considering adding osETH to their Treasury
- Several critical partner integrations underway
All of this traction is built upon the success of our liquidity strategy, and the StakeWise DAO support for the incentives requests made by the SLC. The SLC has been very diligent in finding the cheapest way to source liquidity, optimizing between bribes and direct rewards in order to keep expenditure to a minimum. We invite you to review the monthly reports provided by the Committee to confirm this statement. The latest report can be found here.
Request
This brings us to the current moment.
We ask the StakeWise DAO members to back the SLC in its request for another round of incentives in order for the broader StakeWise team to continue executing on its targets - like bringing integration partners onboard, pushing osETH deeper into the DeFi ecosystem, and working with DAOs and whales to diversify their LST holdings towards osETH.
Here’s the breakdown of the budget request for your reference:
Proposed budget for Month 8
| Budget | |
|---|---|
| SWISE liquidity pool | 860,000 SWISE |
| osETH liquidity pools | 6,720,000 SWISE |
| SLC compensation | 182,640 SWISE |
| Total | 7,762,640 SWISE |
SWISE liquidity pool
The aim is to maintain current liquidity, requiring 860k SWISE per month at current market prices.
osETH liquidity pools
The current liquidity depth is strong vs the overall TVL of StakeWise V3 and should be maintained. The expected cost for doing so is around 6.7M SWISE per month at current market prices.
SLC compensation
$5k in SWISE @ 0.02738 USD per SWISE (30d avg) => SWISE 182,640 (as approved by the DAO during the implementation of the SLC).
Discussion
Our existing liquidity profile for osETH is really strong, but is highly sensitive to the amount of incentives we offer as a DAO. Our failure to maintain the current level of liquidity may have a strongly negative effect on the future and longevity of osETH, which is something we are collectively determined to avoid.
SWISE token has been trading near historic lows, which increases the amount of SWISE we must emit in order to keep the current level of liquidity intact. However, the price of SWISE is not something that our DAO can control, and cannot be an input into the liquidity discussions at this stage.
What we do control is StakeWise’s roadmap and push towards the previously untapped opportunities. Without divulging too many details ahead of time, the summer is poised to be a very busy period for our DAO, and we need all hands on deck for the support of crucial initiatives being brought forward by our members.
Hence, we ask once again for your support in granting the SLC the requested budget, and urge you to continue participating in StakeWise’s governance - we need every single one of you to be successful.
Link to the Snapshot: Snapshot