StakeWise Tokenomics Proposal (veSWISE)

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?

Tried to pull all together and summarize


And here:

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I don’t really want to rehash all the reasons locking sucks yet again. For now I suggest we freeze that topic and instead discuss protocol fee/profits distribution.

Protocol fee/profits distribution is what is really going to add value to the Swise token, I also think we need this sorted before we move on a number of other topics, including the referral rewards proposal(s).

Hey everyone,

Like some others on here I am against token locks. I don’t think a locking mechanism places any actual buy pressure on SWISE itself, as removing supply would just make SWISE less liquid, amplifying volatility on both the upside and downside. It also increases the risk of large sell-offs around mass-unlock events. I am also against implementing a gauge system with emissions, as doing so would introduce a source of perpetual sell-pressure from people farming SWISE rewards.

I am very much in favor of some sort of revenue share with holders, and I think the best way to do so would be via sETH2/rETH distributions. This would not only provide holders with an attractive ETH yield, but would also help encourage the use of StakeWise’s product by getting sETH2/rETH into the hands of more people.

I think this would significantly improve the value proposition of SWISE by more closely tying its value to the growth of the protocol (which is in the DAO’s interest as the treasury primarily consists of SWISE). Given that revenues should grow considerably post-merge, were this implemented, I think StakeWise would have among the strongest tokenomics in all of DeFi.


Shifting the concept of locking to the ideas section SWISE Locking Merits Discussion

Would love to hear everyone’s opinion so I created a poll to gauge temperature as well.

I applaud you for the detailed proposal @Steel.Key!

There is a lot to unpack here, so bare with me as I try to understand.

Few questions here:

  1. Would the specification be that the StakeWise team would create a new contract like in @vlad’s proposal that @kiriyha linked or are you suggesting we outsource this to another protocol (could even be a great SWAT proposal)?
  2. Have you done any analysis on what kind of price impact this proposal can have?
  3. What is the cost of this? (i.e. extra gas fees if another layer, dev resources, SWISE incentives)

I think this is an interesting idea to implement, although I am trying to think if this is really necessary right now given the main priority is growing TVL.

I am slowly warming up to this idea of marketing, but we would to set this up correctly to maximize ROI. Any suggestions on how to approach a marketing campaign for StakeWise?

Hi @bZ1 - good questions.

  1. So I think it could be either though likely a decision for the team based on their internal resources whether it makes sense to build out internally vs outsource. Don’t think we’d outsource to a separate protocol to manage the staking interface itself per se (if that is what you are referring to) though definitely could outsource the code development. Definitely could be a good SWAT initiative to spearhead an RFP process there.

  2. So this is a tough exercise to be exact about with alot of moving pieces (ETH/SWISE price ratio, % staked, etc.) but most definitely a positive impact vs status quo. I think of the price impact in two parts really (a) the market perceptive of fair value of SWISE (which would very likely increase once rev share is in place) & (b) the change in token supply/demand equilibrium.

For (a) we are in process of tweaking this proposal towards an xSWISE/rSWISE Model introduced in SWISE Locking Merits Discussion which we plan repost later this week. That will have some more analysis in it but at current ETH/SWISE ratios, staking yields could be as high as 8% with 20% circ supply staked resulting in incremental buying demand (given the yield) & a supply sink (via staked xSWISE) which would both have positive impacts on price. Additionally would note a stabilization in price as well, as declines in SWISE/ETH ratio during sell offs like we are see now, those yields would actually increase, incentivizing more people to buy/stake SWISE during sell offs which would reduce volatility.
For (b) I think the supply sink mentioned previously would be largest impact though there is also a consistent buy pressure from SWISE buybacks. Current DAO Rev run rate of 317 ETH per @kiriyha is about $475K/year (@ $1.5KETH). While small vs current daily run rate trading volume of about $273M (365x $750K), that’s not too dissimilar to BTC havenings vs BTC trading volumes and similarly would expect positive impact to be felt over 3-6mo time frame after implementation (all else equal). Putting any exact price level to this though would really be a finger in the air type exercise.

  1. Cost would largely be dev resources which as discussed wouldn’t be a bad thing for SWAT to RFP. Would be some gas costs but likely minimal as you could execute the SWISE buybacks/distributions at times when ETH gas is low. (could maybe be written into smart contract to execute when gas 1 standard deviation below 7day avg potentially, etc. or just programmed to be done on the weekend at 1am UTC) No SWISE incentives (apart from maybe payment to devs) as its really just redistribution of current revenue.

Appreciate the questions. Let me know if I was clear on the above points or if you need any clarification.

100% agree on the need to focus on ROI and accurately tracking of mkt spend to new deposits is key. (through referral code/link, etc.) In my head I think we should be throwing as much marketing spend as possible into channels that brings in new TVL where CAC (customer acquisition costs) < 1 year est. customer revenue. So we start making profit on that deposit if it stays >1year which likely given Shaghai withdrawn timeline/general stickiness of these deposits. Also we are a start up and in process of growing network effects of available sETH2 liquidity across DeFi though AAVE, Maker, etc.

Marketing spend would likely have to be paid in SWISE which would potentially create sell pressure on the token though. That’s why I think an accrued rSWISE mechanism that we could implement in Staking is so attractive in that it can easily be leveraged for marketing as well. Can use rSWISE much more liberally for marketing given the functionality to have specific tie in’s to the associated revenue it brings in.

Rough math - we make about $3.75-$7.50 in DAO rev/year per ETH deposit (ETH @ $1,500 x 5%-10% avg yield x 5% fee= $3.75-$7.50) but spot me.

Think it makes all the sense in the world to be giving out 20 rSWISE (or ~$2 @ $0.10 SWISE) to every new sETH2 depositor if that rSWISE accrues over a 12mo time period.

Or for Bankless I heard that it cost RPL ~$75K/mo so we could look into setting up a simliar sized contract for 1mo locked rSWISE that only unlocks once they bring in >20K ETH deposits (20K x $3.75 DAO Rev/year per ETH = $75K)

Ramping up the marketing arm to take advantage of the merge narrative makes alot of sense now as there is significant amount of ETH looking to be staked over the next 3-12months.

Love where your head is at. Happy to talk off line as well.