SWISE Locking Merits Discussion

Hey took it upon myself to kickstart this / pull it all together @kiriyha - not able to add / tag anyone else for some reason.

  1. Discussing the merits of locking SWISE in exchange for some benefits

Arguments For

  • veSWISE gauge pool would be directed towards node operators. 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%.
  • Currently you could argue there is no point in holding the token. This gives people a reason to hold/stake it but you are not being diluted if you simply want to hold it either.
  • veSWISE as vehicle to opening potential to ramp up veSWISE emissions for marketing/node operator incentive flywheel (without creating incremental sell pressure). 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.
  • Such a mechanism will offer considerable value to the DAO, coming from the increased voting power earned by its more committed members and the additional engagement in governance discussions generated by the incentive to lock $SWISE.
  • Incentive design would be even stronger if we would also implement a boost on LP rewards by locking SWISE (more people would lock-up for longer and become also longer-term LPs) boost making it harder for small and new community members to earn a significant portion of the tokens, these boosts could be implemented on a limited timescale, potentially slowly fading out over time. Now it’s essential to create a flywheel of token-price and TVL by smart incentives, (content) marketing as well as culture/community building
  • Different people have different time-preferences of liquidity and would therefore stake for different timeframes. They would not be “stupid” for staking for a shorter period of time if it fits their preferences better.
  • With drying up circulating supply and constant demand prices have to go up. Locking the token and in return receive a) boosting governance voting power, b) staking fee rewards on top of your own staking rewards are two good and logically sound reasons to hold SWISE long-term.
  • The concept of disproportionately rewarding longer term stakers (as their earnings are discounted) even at the expense (small earnings/ voting power dilution) which is fine as we all have different discount rates. This approach is helpful to drive more utility to SWISE while giving any holder a choice to pick his own duration and be rewarded accordingly relatively to the choice he is making.
  • Its not an all or nothing for stakers who may need NT liquidity – individual can choose to stake a portion of their SWISE long term to maximize returns & keep the other portion unstaked for NT liquidity as needed. Or they can choose to lock all of their SWISE for an intermediate amount of time.

Arguments Against

  • Adds absolutely nothing. It forces people to choose between locking for a long time and selling, because there is no point in keeping tokens if you do not lock them. Locking does not magically increase yield, that yield needs to come from somewhere. Usually with locking that somewhere is from people who forget to lock, or cannot for some reason, so they get screwed out of their fair share. But the number of victims is likely rather small, so there will be little benefit from taking their fair share to redistribute to those who do lock. Additionally locked tokens cannot easily be used in other DeFi projects, for instance as collateral.
  • Proposal does not increase overall profit for holding Swise, it just redistributes between long term stakers and non-stakers. It does not make any sense for anyone to stake for any other period than the maximum, as staking less or not all simply means that you let your benefits go to others. The only way to gain, is if a significant number of people are so stupid to hold or buy Swise and not stake for the maximum time. Exploiting other people’s stupidity is a business model that I generally frown upon. e gain nothing extra, we just lost our freedom to do with our Swise as we please. We cannot use them in other DeFi projects, for instance as collateral, or provide liquidity in a pool.
  • The proposed system is merely a redistribution of voting power with actually very little upside for those who do stake, compared to the current situation, but a huge downside for those who do not. Not to mention the huge downside for those who do stake in terms of having their swise locked up for a very long time.
  • Having to either hold for a long time or sell, will lead to more selling pressure on very low liquidity AMMs due to drying up supply. A combination that could really tank the price. So, we need a counter pressure to make the price go up, a minimum required investment could do that.
  • Locking and later unlocking and claiming costs gas, which at times can be quite high, the smaller your holdings the more those fees impact you, while for whales the fees barely matter. So, on the contrary this proposal is likely to shift more power to whales at the expense of small token holders.
  • Given our treasury is largely in SWISE itself - a big decline in price lowers our runway in $ terms. 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
3 Likes

Arguments for a Locking Mechanism in Future Tokenomics @kiriyha @ottodv

I can understand the hesitation that some people have on potential locking dynamics based on examples they have seen previously. But to essentially dismiss the topic entirely I feel is to an extent, intellectually dishonest. Locking mechanisms can be anything we want them to be as we are the DAO that votes them into existence.

We all want StakeWise to succeed, and I think there are several benefits of incorporating a potential locking mechanism, while there are several middle ground compromises that exist as well.

I introduce a new taxonomy – xSWISE (your SWISE principle staking representation) & rSWISE (the SWISE rewards accrual) in which below, I hopefully remove some stigma and show the flexibility we have tailoring own tokenomic structure however we want. In the hypothetical below - I see rSWISE distributed at various rates based on a designation of staking time length (ex. 3mo, 6mo, 12mo) when initially staking SWISE to xSWISE. If a portion of the xSWISE is unstaked prior to that designated length, then the accompanying rSWISE is forfeighted back to the DAO treasury.

Potential Benefits of xSWISE staking with time locked rSWISE rewards

  • Direction of rewards towards long-term holders of which I think we are all a part
  • rSWISE as a token mechanism to increase marketing spend/TVL without creating immediate sell pressure
    • We have large opportunity to utilize our treasury to incentivize TVL. While this comes with the normal risks of having those incentives immediately sold, distributions in rSWISE that vest over a certain period of time would not
  • Limiting sell pressure on SWISE/xSWISE token more generally, as marginal xSWISE stakers are incentivized to remain staked so they don’t lose accrued rSWISE rewards (keeping them from emotionally selling when fearful)

Historical Critiques of Locked Staking Mechanisms

  • Concept of being forced to sell if not staking
    • Don’t think this is the case. Many protocols have staking mechanisms but many individuals who don’t stake still hold it for a variety of reasons.
    • From a valuation perspective – only current cash flows are being directed to stakers, with the future cash flows (& the bulk of the valuation) still accruing to all token holders as they can join staking at any time
  • Illiquidity for Stakers
    • Generally, feel like the rev distribution is your payment for this illiquidity. But there are also ways to structure the locking where you can remove your principle (xSWISE) but forgo your accrued rewards (rSWISE)
  • Merely a redistribution of voting power
    • Can just take out voting power (or people can temporary convert in/out of xSWISE for voting) – we can make this work however we want
  • Majority of Rewards directed to those who choose max lock option
    • People can choose any area in the middle – locking half for 12mo max while keeping other half their position not staked. It’s doesn’t have to be an all or nothing thing
    • We can also choose to have a portion (ex. 1%) to burn SWISE as well which benefits stakers & non stakers equally
  • Rewards benefit biggest holders more than little guys
    • Never really got this argument – the biggest stakers have the largest claim on assets – so any sort of staking will often mirror that same ownership %

What’s intellectually dishonest is to pretend it’s being dismissed for no good reason.

I’ve listed many many reasons why locking sucks, in several posts in this forum.

Sorry, but I am tired of this discussion being raked up again and again. I don’t want to spend my time discussing locking every few months, while we have important things to deal with that will actually make a real difference:

  1. if, and how we do protocol fee distribution.
  2. the referral program(s).

In my opinion we should focus on the two issues above and not get distracted with something for which there is no consensus anyway.

I listed a fair amount of yours & others critiques along with my counter arguments.

I’m not trying to shift focus away from those very important topics but actually trying to kill two birds with one stone. Introducing a time locking rewards mechanism into the way we distribute protocol fee revenue (rSWISE) can also be the mechanism we use to distribute referral rewards, etc. (in rSWISE) reducing many of the smartly feared risks of potential gaming of the system mentioned in Stakewise Referral Program

If partners don’t hit their milestones for 10K in ETH referrals - boom rSWISE does not unlock yet. Or for specific individual referral links, rSWISE could unlock to SWISE ratably over a 12mo period of time as long as they hold the sETH2 in their wallet. If they immediately sell sETH2 to game the system, then no rSWISE unlocks.

We are all on the same team here Otto. Clearly you have a strong opinion but don’t want the loudest voices to dominate. (myself included) Would be great to hear from others so I’m going to create a pool to gauge temperature but others please feel free to add comments. (either for or against)

  • Open to veSWISE Concept (principle & reward time locks)
  • Open to xSWISE/rSWISE (reward time locks only)
  • Against All Locking In Tokenomics (Stop Beating a Dead Horse Steel.Key)

0 voters

I have seen ve in other projects, you have to constantly reset the lock period to max to maintain your max reward. Really great (sarc) for small holders when the network fees are high!

If this veSwise ever happens, those of us who don’t like it should set up a new contract to which we can send our Swise. The contract locks it to the max, and renews the lock period regularly to max to maintain max profits. Secondly the contract issues the same amount in lSwise (locked Swise) to the depositor. lSwise is then freely tradable and represents your claim on the shared pool of locked Swise. You get the max reward, plus the freedom to trade your lswise (effectively your swise) whenever you like.

Doesn’t sound like a terrible idea - you are describing Convex’s relationship to Curve in a nutshell which has been a overall positive to the Curve protocol and endorsed by the team there. Liquidity in cvxCRV isn’t infinite but is good for smaller players.