First of all, thanks for posting your thoughts G - I have circulated this thread with the community, so looking forward to their contributions to this!
My personal thoughts are that stopping the allocation of SWISE rewards altogether is a draconian measure given the premise of liquid staking protocols is offering liquidity for staked ETH assets. While I dislike the current situation where many folks have been moved out of range based on outflows from sETH2, this is one of the risks of providing liquidity for our token. This risk doesn’t go away for the whale that took the price lower, because in emergency situations their ETH liquidity in the new range could get used up in basically the same way, so they’re also taking the same risk. They are earning a huge APR for it though, but again, the size of rewards they make is driven by them being one of only a few parties LPing in that range, meaning they take most of the downside risk. With ETH liquidity being of paramount importance to the protocol, I think their liquidity is a worthy contribution. Besides, since the APR is still so high, we will likely see others contributing to earn some outsized rewards, so their individual role will be reduced.
With regards to the incentive to acquire sETH2, I am personally not supportive of the idea because the discount should be enough incentive to acquire the token. The extra motivation through SWISE would likely help close the discount sooner but let’s not forget the reason for its emergence in the first place - it was stETH’s discount that started driving our price lower and forced LPs to pull liquidity because people were arbing the difference. In a situation where stETH doesn’t recover closer to 1 and yet we introduce incentives to restore our peg, we would essentially be paying people to go buy stETH as soon as our prices improves enough to make the arb lucrative again.
I respect the concern about being out of range and I sympathise because I am in the same boat. But I think it’s only a matter of time we get back into it, because a discount on an attractive asset like staked ETH is not going to last long. It should be driven by the recovery in stETH price, however, so there may be a month or two that we need to wait for it. Still better than diluting SWISE holders (including ourselves) to incentivize Lido’s peg restoration.
What I would personally support is a reduction in incentives issued to the sETH2/ETH pool, in order not to fix the price in a lower than ideal range, and limit the protocol’s spend during the bear market. What do you think?
