Executive summary
In this proposal, we seek DAO approval for the transfer of 400 osETH from the StakeWise DAO Treasury into the Liquidity Committee wallet to allow manual deployment of liquidity into the osETH-ETH / wstETH Vault on Fluid protocol.
If approved, this proposal will enable StakeWise DAO to create approximately 4K ETH of liquidity for osETH at the cost of ca 3.3 ETH per month, and allow the Liquidity Committee to propose further actions like expanding osETH liquidity, establishing SWISE liquidity, and initiating SWISE buyback.
Motivation
Following on from the temp check post about the deployment of DAO funds into Fluid, we are moving the proposal to the Snapshot stage. For more details, please see here.
There is one important change from the original proposal to flag: unfortunately, recently poor performance of the wstETH-ETH DEX pool on Fluid has been causing losses to one of the flagship Fluid Vaults, forcing its team to reconsider allowing StakeWise to deploy a wstETH-ETH smart debt Vault. Instead, Fluid team has asked us to switch to pure wstETH borrowing.
This means that StakeWise DAO can no longer expect wstETH-ETH trading fees to subsidize a part of the borrowing cost, making liquidity provision more expensive than originally forecasted.
On the flipside, Fluid team has also committed to changing the interest rate curve on wstETH borrowing, leading to a lower expected wstETH borrow cost going forward.
As a result, we have revised our scenarios for the cost of liquidity deployment on Fluid. Our current prognosis suggests a cost of 3-6 ETH per month, down 50-75% from the cost we formerly experienced on Balancer, but strictly higher than previously expected. The calculations can be found here in the ‘wstETH borrowing’ tab: Fluid calculus - Google Sheets.
Looking at these changes collectively, we still believe this is the best possible deal for getting deep osETH liquidity, and are seeking community’s approval for executing on this proposal. We are excited about the prospect of freeing up funds for other crucial initiatives, including the SWISE buyback, so the sooner we get this proposal done, the better.
Specification
Transfer 400 osETH from the StakeWise DAO Treasury to the Liquidity Committee wallet (0x2685C0e39EEAAd383fB71ec3F493991d532A87ae). Once liquidity is established, the NFT reflecting DAO’s position will be sent back to the DAO Treasury address for self-custody.
Considerations
In a slight deviation from the previous proposal, we expect to purchase as many osETH tokens from the market as possible to return the token to peg in the process of establishing the looped position.
Mechanically, this means going directly to the market for osETH purchases for as long as it makes sense (i.e. purchase price is below or just equals the fair exchange rate of osETH).
This should guarantee that the DAO establishes new liquidity with the token trading at fair value, and pockets the arbitrage profit when unwinding this liquidity in the future via redemptions.
Discussion & voting
Please vote for this proposal on Snapshot: Snapshot
If any questions or concerns arise, do not hesitate to drop them in this thread.