StakeWise Tokenomics Proposal (veSWISE)

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.


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Great proposal! Hope this gets implemented.

Think this is really well thought out and will add alot of value to the protocol and current / future Swiser’s if implemented.

First of all, appreciate you starting the conversation again @Steel.Key - the tokenomics of SWISE is currently in its infancy and sooner or later needs to be upgraded. Now here are my thoughts on the merits of the proposal:

  • The buy-back mechanism is something that’s new for me to think about - in principle I see the benefit of reducing the circulating supply and a key question I’d have is how much could be removed in a year, for example. Based on my napkin math, we’d be able to remove only ±1.8% of the circulating supply per year (assuming a 10% all-in staking yield post-Merge, where the run-rate for DAO revenue is ±317 ETH = ± $600,000 per year (63,369 ETH * 10% * 5% * $1,900 = ±$600,000) and 80% of which is $480,000 vs $27.1M market cap). I doubt this would significantly stabilize the price.
    However, assuming not everyone locks their SWISE i.e. the acquired tokens are distributed across a smaller pool of capital than the market cap, the yield on veSWISE would be somewhat better than 1.8%. In a hypothetical scenario where we use MPL’s numbers (43.6% of circulating staked), the yield would rise to 3% which is comparable to veCRV / veBAL style yields but is not the pinnacle of expectations for cost of capital. IMO this needs to be supplemented with systems similar to Curve / Balancer bribes, for which I have an idea I would like to formalize a bit later.
    For now, let’s say that I personally wouldn’t mind exploring a buyback mechanism given the desired effects discussed above but would work to amplify the yield component as means to bolster the case for this model.

  • veSWISE gauge pool is something I didn’t completely understand - who is the proposed recipient for this veSWISE? If it is reserved for the node operators, what is the reason to incentivize them beyond the 5% fee they receive? If distributed between veSWISE lockers, it could boost their yield by 33% which I think is serious. Let me know if I missed something here.

  • DAO Governance Fund is an interesting idea that I’d like to see combined with the SWAT initiative. Not sure how effective a token-based insurance pool would be but other potential areas of spending look appropriate to me.

So overall I’m excited to see how this discussion will continue and what others weigh in on buy-back vs revenue sharing, for example.

I’d love to see other DAO members contribute their thoughts on this topic, especially the usual suspects that drive DAO discussions forward @dreth @brianchilders @ottodv @mohikander @halp1120 @bZ1 @cryptochrome @jonathanstrange @rustedpopcorn @rduubs @Jstar and others.

We already had a discussion about locking Swise some time ago. I am still strongly against it, as it adds absolutely nothing. It forces people to chose between locking for a long time and selling, because there is no point in keeping tokens if you don’t lock them.

Locking doesn’t magically increase yield, that yield needs to come from somewhere. Usually with locking that somewhere is from people who forget to lock, or can’t for some reason, so they get screwed out of their fair share. But the number of victims is likely rather small, so there will be little benefit from taking their fair share to redistribute to those who do lock.

Additionally locked tokens can’t easily be used in other DeFi projects, for instance as collateral.

As a result those who lock won’t get anything more than they do now. But they do lose availability of their tokens for no significant gain whatsoever.

Regarding buyback of Swise for distribution. We already have a distribution mechanism of rETH2, given that the rewards collected by the protecol are in rETH2, it’s simple to just use that same distribution mechanism. Every Swise holder is then free to do with their rETH2 rewards as they please. Which would be my preference.

If we do want a buyback system, the bought Swise should be either burned (or alternatively added to the treasury for future projects). Burning is economically identical to distribution to Swise holders, except that it doesn’t incur any distribution costs, or claim costs. Your tokens just become worth more due to there being less in circulation.

I am not sure that the gauge pool suggestion is all about.

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I’m also suspicious about a locking mechanism- I watched an erc20 from Thorswap use this locking mechanism and tank the token and it has never recovered- just seems like some flashy number go up scheme that doesn’t consider the long term/residual effects.

If people locked their swise they probably wouldn’t be able to participate in the swise/seth2 LP which would reduce potential liquidity in an already liquidity starved pool.

The swise/seth2 pool and the other stakewise pool’s are some of the most attractive reasons to be in the stakewise ecosystem imo.

I’m against this veSwise proposal.

*Also I’ve never seen the OP’s username in the discord or the rando user2256 that joined 3 days ago- seems like astroturfing too me.


I would say I’m generally against locks as a mechanism unless it is going to add something to the flywheel, which I’m not sure that is the case here (other than lockers getting more of any protocol revenue).

I do think thinking through whether tokens eventually get a portion of DAO profits is a useful exercise. Whether a buy back and burn, or straight distribution is better could come up a later time if it’s decided that SWISE holders should get some of the profits.

I think most tokens have a bit of an identity crisis, and so it’s helpful for community to decide what they are trying to get with tokens. For example, I’m not sure what the long term expectations are for SWISE voting would be. Should there be meaningful power in holding SWISE tokens once staking is fully in production and unlocks are live? For the record, I’m not really clear what other LSD gov tokens like LDO or RPL will actually do either.

May make sense to decide on those mechanisms first and then move on to things like locking vs staking, etc.

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Agree that currently it would have a marginal impact on stabilizing price but that is still more than simply distributing rETH2 as rewards. Using your math and isolating for simply the buyback mechanism/Treasury spend, it would allow the Treasury to sell 1.8% of circuiting SWISE supply a year (for marketing spend, etc. to increase TVL/deposits which is the #1 goal) without putting incremental sell pressure into the open market (which is currently what happens)

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So I understand where you are coming from on cost of capital for yields but from an investor perspective, this is still a venture play with what we see as significant potential upside if we are able to carve out a #3 position in liquid staking. If we believe that SWISE can be a $1BN-$5BN EV protocol over the next few years (that 1.8% is actually 18% yield if we see 10x returns) Also as the example wiht MPL - their yield is only 3% (was 1% prev) and are still seeing significant participation largely for the reasons above (we are also a xMPL staker as well)

Definitely interested in hearing the teams thoughts on increasing SWISE staking rewards though (also thank you again for the thoughtful responses). Are you thinking of increasing the SWISE emission rate (from Treasury) to supplement the yield? If so - I would caution against that as it really is just taking from one hand, to pay the other. (while creating incremental sell pressure on the token in the open mk) CRV/BAL have interesting tokenomics - but large part of the reasons for those emissions is to attract LP’s to create liquidity for their DEX which isn’t the case with SWISE staking. (Although - it could be interesting to perhaps direct emissions towards new sETH2 stakers if it is in a vote locked veSWISE form so as to prevent consistent sell pressure/attract stakers interested in SWISE long term)

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So I agree with you that lock up mechanism can often go awry (especially if the team using as way to reduce sell pressure before large investor/team unlocks) But I wouldn’t throw the baby out for the bath water. My personal reason for thinking lock mechanism makes sense is first off it allows for direct rewards to go towards long term believers in the protocol (as opposed to fast money/mercenary capital)

Additionally for SWISE, it opens up options for future emissions (ideally toward incentivizing new sETH2 stakers/increase TVL) without putting additional sell pressure on the SWISE token. One example being we could run an sETH2 staking promotion where stakers get certain amount of SWISE per sETH2 deposit. If that was just regular way SWISE, we could see alot of this supply immediately sold on the open market (pressuring SWISE price/lowering $ value of remaining SWISE in treasury) While if its in veSWISE, it wouldn’t be and ideally converts sETH2 depositors into long term SWISE holders/proponents of the protocol. Long story short, its my view that a vote lock mechanism would allow us to get a lot more creative/flexibile in how we can use veSWISE as incentive to growth new deposits/the protocol (without the usual risk of creating significant selling pressure on the open market)

Take a look at STG - great protocol but the STG they are emittign is consistently being sold to open market. This reduces the value of the entire treasury of their native tokens which for SWISE we want to be strong so we can spend $ on growth initiatives while also reducing the STG yields themselves as the token value declines.

Also - I’m also Idea Generator in the discord btw.

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So yes the veSWISE gauge pool would be directed towards node operators. It was just a thought that could potentially be a flywheel for the token to have governance power in deciding fee levels for specific node operators. Initially it would likely just be a kiss - node operator buys SWISE & votes for themselves to get to 6% yield. But down the line, could potentially put some or all of the 5% node operator fee up for a vote - and have node operators compete against each other based on their contribution to the protocol (by submitting reports to the DAO on uptimes/MEV rebates, etc.) & some node operators get 7%, others get 4%.

Understand your concern ottodv - with some highly inflationary token emissions protocols - that yield is coming from treasury (& you are essentially getting diluted by not staking). With this proposal - my focus is more on revenue redistibution.
Currently you could argue there is no point in holding the token either no? This gives people a reason to hold/stake it but you are not being diluted if you simply want to hold it either.

These are two separate issues, that shouldn’t be conflated. No-one needs a locked token for protocol revenue distribution.

The subject of revenue distribution has been discussed quite a few times already. It just needs to move forward.

How so? Governance token holders all together are already the owners of the treasury and the revenue stream.

Agree with you - locked token not needed for rev distribution. Can simply do the xMPL model which I’m not totally opposed to. See my points above on veSWISE as vehicle to opening up potential to ramp up veSWISE emissions for marketing/node operator incentive flywheel (without creating incremental sell pressure). If we are trying to tweak tokenomics to incorporate that flexibility, thought its the cleanest/fairest way to incorporate rev distribution as well. Not fair to have node ops/new stakers locked up in a quasi locked token with fractured liquidity across DeFi if SWISE stakers aren’t as well.
I think there is alot more on bone here for tokenomics we can do than a simply a rev distribution plan. But if that’s all we want to focus on - agree, no need for locking mechanism.

No you are right though in crypto, I think there are nuances around circular loop of the treasury that need to be considered. Total side bar but I view crypto as liquid venture capital with obvious startup needs of having to spend to grow (marketing/paying devs, etc.) and still sizable risk to achieving our potential. Given our treasury is largely in SWISE itself - a big decline in price actually lowers our runway in $ terms. In normal equity markets, stock price shouldn’t affect the underlying business prospects but in crypto in often can. So yes, you own governance token with right to treasury but if that gov token declines by 50%, so does the treasury while the risks associated with that future revenue stream increase as well as your runway in $ terms declines. So long story short, no reason to hold a gov token besides speculation on future potential. Ultimate goal with tokenomics is hopefully to give token additional value on top of that.

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What’s your point? I don’t get it.

Every company or startup investment has risk. There is always risk. Every company/startup can issue more shares. Shares are valued based on expected future revenue. There’s nothing fundamentally different here.

Most start ups have large amount of USD$ in bank account from raise so runway doesn’t fluctuate. Crypto start ups have large amount of native tokens which can fluctuate in $ terms.

I don’t know my point besides pointing out the reflexivity of Gov Token = Treasury Claim + Future Cash Flows (both positive & negative) and that good tokenomics can position protocol for positive reflexivity. (ex. reduce required emissions on sETH2:ETH pools, etc.)

Hate to break it to you, but so do crypto startups. By far the most start by raising capital. Investors then get tokens (instead of shares) for their investment. Stakewise was not different.

Interesting discussion here @ottodv @Steel.Key. Feel like this is a very broad topic that is tough to advance on but let’s try and move forward.

Without taking either side, just a suggestion - let’s split the topic at hand into 2 portions:

  1. discussing the merits of locking SWISE in exchange for some benefits
  2. protocol fee distribution. and revisit the earlier discussion about locking SWISE

For (1) someone could compile a summary of the key arguments on each side from this thread and the earlier thread on SWISE locking:

For (2) we could revisit the thread we had before & collect arguments from this thread for a summary as well:

Then the community could discuss the summary and vote. I suggest we start with the locking topic because it seems to invite the most contention and matters the most for the protocol in terms of $ value at play.

What do you guys think?