SWISE Tokenomics Proposal – xSWISE
This proposal outlines a plan for updated tokenomics for StakeWise (SWISE). As long-time believers in and active members of the Stakewise community, we care deeply about the growth of our collective ecosystem and feel these suggestions are in everyone’s long-term interest.
The goal of this proposal is to introduce for discussion a tokenomics approach that complements the v3 protocol upgrade. We believe the key to growing share within an increasingly competitive liquid staking marketplace is to make the SWISE token relatively compelling for investors. We believe differentiating through this approach best positions StakeWise for long-term community growth.
Following the teams recent plan for StakeWise v3, we updated our previous forum posts here & here. While the exact details for v3 are yet to finalized and the exact fee amounts are subject to change, based on current information, our current expectations are that DAO Gross Revenue will be 5% of staking rewards from circulating supply of osETH. (in ETH) We welcome comments on what % is needed by the team for day-day/hiring/growth but assuming 20% for ongoing team spend, 80% would be Distributable DAO Net Revenue. We will use that as a baseline for now.
Below we outline a plan to kickstart the token’s use as social signaling/insurance in StakeWise v3’s new vault staking system in exchange for revenue share from the DAO protocol fees (and potentially rewards/incentives from the individual vaults themselves).
xSWISE – [50% Distributable DAO Net Revenue]
We propose a new taxonomy – xSWISE (your SWISE principle-staking representation) which can be delegated across various vaults under Stakewise v3 as a form of insurance collateral staked both by the vault operators directly to improve their vault scores or by individual SWISE stakers based on various vault operator incentive agreements (ex. validator % fee split, vault operator governance tokens etc.)
We suggest that 50% of current Distributable DAO Net Revenue be returned to users who stake SWISE (creating xSWISE) via SWISE buybacks similar to the xMPL Model (for Maple Finance). With Maple, 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 xMPL stakers. The MPL approach led to consistently high staking rates (supply sink) while creating a consistent bid in the open market for MPL when the protocol receives revenue, both stabilizing MPL pricing and redistributing it to xMPL stakers at arguably undervalued levels.
For SWISE DAO Revenue distribution, the benefit of this buyback approach is that staking yields will correlate inversely with the ratio of SWISE:ETH with a higher amount of SWISE repurchased & distributed to xSWISE stakers the more discounted SWISE is in the open market. This allows xSWISE stakers to passively grow their ownership % of a growing LT ETH generating machine. Note that this does not preclude potential additional vault operator incentives for xSWISE stakers to their vaults to be distributed in other forms (ex. ETH or specific vault governance tokens) depending on their vault operator agreements.
xSWISE will act as a 1-1 claim on SWISE, allowing stakers to continue to vote in governance of the protocol, thus not changing any dynamics to the current governance framework.
Modest Buy/Back Burn – [10% Distributable DAO Net Revenue]
Out of the remaining 50% of Distributable DAO Net Revenue – we suggest that 10% goes towards a SWISE buyback and burn mechanism. This will create a deflationary dynamic similar to ETH itself, ensuring the relative attractiveness of holding SWISE outright given its potential as an increasingly growing long term ETH generating machine.
StakeWise Ecosystem Fund – [40% Distributable DAO Net Revenue]
We propose that the remaining 40% of Distributable DAO Net Revenue go to the StakeWise Ecosystem Fund, we suggest reviewing a budget in conjunction with the SWISE/SWAT/interested community members, 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 and start kickstarting TVL growth. Priorities here could include:
- Incentivizing new protocol integrations to increase utility/liquidity of osETH across Defi (ex. Maker, AAVE, Curve, Aura, Pendle, unshETH,etc.)
- Appointing a marketing arm to help support/decide on allocations involving direct-to-consumer community building, sponsor podcasts (ex. RocketPool & Bankless)
- Community Building (ex. incentives for Telegram/Discord Moderators & grassroots StakeWise educational materials/meme competitions)
- Exploring a Balancer pool for a SWISE:osETH pair that leverages the staked xSWISE in staking pool for additional protocol yield
- Various Grant Programs (Dune Analytics, Eigenlayer Proof of Concept, StakeWise Intern Twitter Bot updates, etc.)
- Growing protocol owned liquidity & Treasury Diversification
- Buying gov tokens to increase osETH pool rewards (ex CVX to incentivize osETH:ETH gauge weights or USH for LSDfi bribing)
- Developing an AMO operation for acquiring osETH should it ever reach discounted levels TBD (but for example at 0.98 osETH/ETH) similar to FRAX’s AMO as both (1) a way to support osETH peg and (2) to enable the DAO to profit internally on any arbitrage opportunities now that withdraws are enabled
- Exploring opportunities to expand osETH to ETH L2 chains and potentially even become an OFT through LayerZero
We strongly believe that for Stakewise to succeed – the SWISE token itself must have utility so that efforts to drive new ETH deposits using SWISE incentives are effective (ex. w/ extra SWISE rewards on Aura liquidity pools or directly to new ETH depositors, etc.) Once the market’s view of being a SWISE token holder has been established, driving new ETH depositors/TVL through various incentive mechanisms will have higher ROI.
Now that withdrawals have been enabled post Shanghai – we are seeing a landgrab for new ETH staking. We applaud the team for the work being done on v3 and hope that will put us in a competitive position technically. With this new tokenomics framework we hope to kick start the economic and community building incentives (that are often just as important) so StakeWise can capitalize on the large opportunity set ahead of it.