This proposal outlines a plan for tokenomics for Stakewise (SWISE). The goal of this proposal is to introduce for discussion an approach that we believe best positions Stakewise for long-term growth.
Currently 10% of ETH staking rewards occurring through Stakewise are taken as a fee with 5% going to node operators/validators and the other 5% directed to the Stakewise DAO as protocol revenue. We use this current state as a basis for the revenue share proposal below.
• We propose a similar approach to the xMPL Model. With MPL, revenue, in the form of new loan origination fees (in USDC or ETH) is used to buy MPL on the open market. The MPL that is acquired is then distributed to stakers. The MPL approach has led to 43.6% of outstanding circulating supply being staked (supply sink) while creating a consistent bid in the open market (stabilize pricing) for the purchase/redistribution of MPL to stakers at arguably undervalued market prices.
• Of the 5% fees currently going to the DAO, we suggest 3% goes to buying back $SWISE on the open market & distributing it to stakers, through “veSWISE”. We understand this may create short-term sell-pressure in the Uniswap pool for rETH2 (until the Shanghai fork were ETH withdraws are enabled) but have been told by the team that this shouldn’t be an issue.
• Out of this 3% that is bought back & distributed to SWISE stakers, we suggest implementing a vote lock mechanism “veSWISE”. If a staker locks for a longer period of time – say one year, six months, three months, they would be entitled to a higher yield to compensate for that illiquidity. This would ensure that stakers that are more committed to the longer-term success of $SWISE are relatively rewarded and it would benefit the $SWISE community by incentivizing participants to reduce the amount of marketable circulating supply of $SWISE.
• Out of the remaining 2% earned fees – we suggest another 1% is used to repurchase SWISE on the open market (bringing the buyback to 4% in total) to be put in a “SWISE Gauge Pool“ and the other 1% goes to a DAO Governance Fund (in the form rETH2) that the DAO will vote on distributing for various growth initiatives, etc.
• We also propose that vote locking veSWISE be required for DAO governance votes. While deciding how the “DAO governance fund” is distributed – we also propose implementing a monthly vote on how the “SWISE Gauge Pool” is distributed (as veSWISE) between various SWISE node operators – creating a governance incentive for node operators to own/lock up veSWISE to affect these distributions. (down the line, how the 5% node operator fee pool itself is treated could potentially be voted on periodically on as well) Until a formal process to allocate amongst node operator is established, worth discussing burning these tokens as the initial default until sufficient governance demand by node operators is established (instead of letting them build up)
• For the 1% of fees that go to the DAO Governance Fund, we suggest reviewing a budget in conjunction with the SWISE team, across things that are long-term accretive to the $SWISE community with the goal of elevating StakeWise to be mentioned in the same breath as Rocketpool and Lido. Priorities here could include:
o Appointing a marketing arm to help support/decide on allocations involving direct-to-consumer community building, sponsor podcasts (ex. RocketPool & Bankless)
o Various Grant Programs (Dune Analytics, Twitter Bot updates for sETH2 deposits, etc.)
o Treasury Diversification (ex. whether or not to buy CVX to incentivize sETH2:ETH gauge weights can be voted on)
o Evaluating whether it makes sense for Stakewise stakers be first-loss slashing insurance coverage – vs. paying Nexus mutual
o While we think it’s best to walk then run with governance, once there is a well-functioning organizational structure – strategic decisions for the entire DAO Treasury could eventually incorporated into the DAO Governance Fund voting process
To summarize – We a proposing that of the 10% fee, 5% goes to node operators/validators, as is the case today. The change would be for the 5% staking fee that currently goes to the DAO (in form of rETH2) – 3% goes to buybacks/veSWISE staking, 1% goes in the SWISE Gauge Pool, and 1% goes to the DAO Governance Fund.