The primary trading venue for SWISE is a UniSwap V3 pool paired vs sETH2. Given the liquidity and token supply of sETH2 is expected to diminish as stakers transition over to the V3 ecosystem, it is important to revise the liquidity for SWISE in time for the launch of StakeWise V3.
SWISE has been actively trading on the secondary market for over 2 years and this experience gives StakeWise DAO the opportunity to reflect and identify avenues for improvement. The TVL of the SWISE-sETH2 pool has been consistently strong, ranging between $5M-$7M on average, but slippage has often plagued traders of SWISE primarily due to routing issues. When trading SWISE on traditional aggregators against any asset other than sETH2, a high level of slippage is encountered. See the comparison below between trading from 100 ETH to SWISE directly on UniSwap (left) compared to 1Inch (right):
This routing issue impedes investment into SWISE, impacts trading volumes, and should be resolved as the highest priority. The routing issue is expected to be because SWISE is paired vs sETH2, rather than ETH. With this in mind, we propose the first departure from the existing approach to SWISE liquidity.
The change we are proposing is that the new liquidity pool for SWISE should be paired against ETH. This will help avoid issues with routing, making the token more liquid and desirable by market participants. osETH-SWISE pairings can be explored further down the line once osETH liquidity is sufficient and the DAO can be confident any routing problems are resolved.
Another factor impacting slippage is how efficiently capital is deployed within the liquidity pool. Currently, SWISE liquidity is distributed across the full price range, rather than concentrated around the market price of SWISE. This leaves a lot of liquidity dormant, contributing to higher slippage and lower trading revenues for Liquidity Providers (LPs).
StakeWise DAO actively encourages full-range deployment with the current incentives regime, providing maximum rewards to full-range liquidity. Seeing that it’s not the optimal way to ensure we minimize slippage for SWISE, we suggest a departure from the existing approach.
Moving forward, we believe LPs should instead be rewarded for simply having liquidity in-range, whether it is full-range or concentrated. This gives LPs greater freedom in how they deploy their capital: those seeking more trading fees can concentrate liquidity in the narrower range, while those not comfortable choosing a narrow range can continue utilizing a wide range, even as wide as full range liquidity.
Any position that is in-range would be earning the same amount of incentives, based on the volume of liquidity provided, and trading fees would scale higher the more concentrated one’s position is. Distributing incentives to any active range ensures StakeWise only rewards LPs who are actively contributing to the pool’s liquidity, while not forcing them into taking more risk than they’re comfortable with.
Decentralized liquidity should continue to form the cornerstone liquidity for SWISE, with UniSwap V3 as the primary trading venue. UniSwap V3 is the most battle-tested DEX and consistently attracts the highest trading volumes. The capital efficiency of UniSwap is also multiples higher than other DEXs given the ability to allocate liquidity to specific price ranges and offers a route for SWISE to trade in a sustainable manner. A SWISE-ETH pool already exists on UniV3 with a 1% fee tier, however, a new pool should be created with a 0.3% fee tier to help improve trading efficiency.
The high degree of freedom that UniSwap V3 provides does, however, increase the complexity of liquidity deployment. The simplest route for LPs is to continue deploying capital full-range or choose wide price ranges, removing the need to actively manage liquidity positions. For LPs who wish to deploy their capital in a more efficient manner, guides will be created to help them understand the risks and rewards. The Charm Finance team has also offered to launch and optimise a SWISE liquidity strategy using their Alpha Vault technology. Alpha Vaults are an automated liquidity management solution for UniV3 and will help LPs who wish to combine capital efficiency with ease of deployment. Historical testing of a SWISE Alpha Vault has shown positive results, with around 10x improvement of capital efficiency vs full-range liquidity and double-digit returns for LPs even after considering impermanent loss and Charm’s fees. This technology is experimental, however, and the risks must be displayed to potential users.
StakeWise DAO will still be reliant on incentives to bootstrap SWISE liquidity to start with. For LPs who provide liquidity directly to UniV3, SWISE incentives can be claimed via the StakeWise V3 UI, similar to the V2 Farms page. If an Alpha Vault is deployed, its users will be required to stake their Alpha Vault shares into an incentives contract in order to be eligible for the SWISE rewards.
All rewards will be calculated and distributed by the proposed Liquidity Committee according to that month’s SWISE allocation. Just like with the proposed osETH liquidity, StakeWise DAO should take a data-driven approach to the liquidity and incentives of SWISE, with analytics in place to allow the Liquidity Committee to allocate capital in the most efficient manner.
It is imperative that SWISE liquidity is migrated to the new pool in a timely and orderly manner. The 500k of SWISE allocated as rewards for the current SWISE-sETH2 liquidity pool is due to end on Monday 18th September. It is proposed that 250k SWISE be used to bootstrap liquidity in the new SWISE-ETH pool whilst incentives are still present in the SWISE-sETH2 pool. After a 1-2 week period, incentives in the new pool will be increased to 100% (500k SWISE), with all incentives to cease in the old sETH2 pool.
The Core team cannot publicly discuss the details of the SWISE listing plan due to legal agreements in place. What we can say, however, is that we are in discussions with several T1 and T2 exchanges and are looking to partner with a leading market marker to facilitate listings. More information on this partnership will be shared in due course.
Listing SWISE on quality exchanges will not only help with the liquidity for SWISE, but bring exposure to StakeWise and help foster the image of a mature, quality project within the space.
This proposal aims to provide a smooth transition of the SWISE liquidity throughout the launch of StakeWise V3 alongside improving the experience for SWISE traders. The SWISE liquidity strategy will evolve over time, with various discussions already ongoing regarding a tokenomics revamp and potential deployment of SWISE liquidity on Balancer. Any Balancer liquidity as part of a tokenomics revamp would be complimentary to the above UniV3 liquidity. As always, feedback from the community is highly valuable and will help finalize the SWISE liquidity strategy before being put to a formal DAO vote.
Following feedback from the community, the following revision is made to the osETH liquidity strategy:
» StakeWise/SLC to actively explore an osETH and/or osETH-BB-a-WETH pairing as soon as possible with the aim to fully migrate incentivised SWISE liquidity away from the SWISE-ETH pool. The caveats here are:
- this can only be feasible once osETH liquidity is sufficient and
- the routing issue is mitigated, for example via the use of a SWISE <> osETH-BB-a-WETH pairing. Consequently, there will likely be a situation where StakeWise has both a SWISE-ETH pool and a SWISE-osETH(osETH-BB-a-WETH) incentivised in parallel to test the new pool and to safely facilitate the migration of liquidity.