SWISE Staking Proposal – xSWISE / rSWISE

Ideas
1

Introduction

This proposal outlines a plan for updated tokenomics for StakeWise (SWISE) that will kickstart a revenue share for the protocol and reduce the volatility of SWISE governance token through consistent buying demand via SWISE buybacks. The goal of this proposal is to introduce for discussion an approach that we believe best positions StakeWise for long-term growth. We feel these suggestions are in the long-term interests of the StakeWise community and can be pursued along with the v3 protocol upgrade.

Following the teams recent plan for StakeWise v3 – we have updated our previous forum posts here & here and we suggest you read them if you have not done so already. We will speak generally, while v3 is finalized, as the exact fee amounts are subject to change.

xSWISE

We propose a new taxonomy – xSWISE (your SWISE principle staking representation). We suggest that 80% of current DAO revenue (in ETH) be distributed to users who stake SWISE (creating xSWISE) constituting Distributed Protocol Revenue. xSWISE acts 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.

xSWISE would be a similar approach to the xMPL Model (for Maple Finance). With MPL, 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 stakers. The MPL approach has led to 47.3% of outstanding circulating supply being staked (supply sink) while creating a consistent bid in the open market for MPL (which stabilizes pricing) which is then redistributed to xMPL stakers at arguably undervalued levels.

For SWISE - the benefit of this approach is that staking yields will correlate inversely with the price of SWISE:ETH with a higher amount of SWISE repurchased & distributed to xSWISE stakers the more discounted SWISE is in the open market.

rSWISE

We also propose that rewards accumulate in a separate token rSWISE. There is flexibility in tailoring the tokenomic structure (could simply accrue revenue into xSWISE), but we feel there are benefits to having revenue distributions solely disbursed into rSWISE.

We believe it is a cleaner functionality to stake and have revenue distribution segregated. Having a separate staking and revenue distribution token also allows the protocol to place some control / limits on users who unstake before their staking period ends. The protocol could burn these rSWISE in this event or feed them back into the treasury. This would create a “soft lock” design to negate any negative perception of users SWISE being indefinitely staked “locked up”. rSWISE would give users the additional benefit of having more simple tax reporting on distributed revenue.

rSWISE rewards will continue to accrue and will be available to claim after 3 months. For, example if Steve stakes 100 xSWISE – rSWISE staking rewards accrue in real time (based on DAO Revenue & SWISE:ETH ratio). After 4 months, rewards from the 1st months he staked are available, after 5 months rewards from both the first and second months are cumulatively available. Steve is free to unstake xSWISE at any time, but would essentially forfeits the last 3 months of staking rewards (which are subsequently burned/retired from circulation).

We believe that an accrued “soft locked” rSWISE mechanism will allow the DAO to be much more aggressive with our marketing through rSWISE incentives. This approach structurally ensures certain ROI benchmarks are hit and reduces certain tail risks highlighted in the forum previously (ex. StakeWise Referral Program).

We are not endorsing any specific marketing initiatives with this proposal but only endorse the rSWISE mechanism to give us another tool in our tokenomic toolkit for whatever initiatives the DAO/team does decide on in the future.

Other Revenue – Modest Buy/Back Burn & DAO Governance Fund

Out of the remaining 20% DAO Revenue – we suggest that 10% goes towards a SWISE buyback and burn mechanism (similar to Apple’s share buyback) which will modestly reduce the total supply of SWISE over time and compound returns for the token price as more SWISE is burned/retired the more discounted the price of SWISE:ETH (as we are seeing now).

We propose that the remaining 10% of protocol revenue fees go to the DAO Governance Fund, we suggest reviewing a budget in conjunction with the SWISE/SWAT team, 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. Priorities here could include:

  • Appointing a marketing arm to help support/decide on allocations involving direct-to-consumer community building, sponsor podcasts (ex. RocketPool & Bankless)
  • Exploring a Balancer pool for a SWISE:sETH2 pair (& SWISE:osETH when v3 launches) that leverages the staked xSWISE in staking pool for additional protocol yield
  • Various Grant Programs (Dune Analytics, Twitter Bot updates for sETH/osETH deposits, etc.)
  • Treasury Diversification (ex. whether or not to buy CVX to incentivize sETH/osETH:ETH gauge weights can be voted on)
  • Exploring opportunities to expand StakeWise liquid staking across additional POS chains

@kiriyha @brianchilders @Woody0x @dreth @remche

2 Likes
2

Excellent post from @Steel.Key. Really and awesome outline for both a potential tokenomics revision as well as an outline of priorities going forward.

In regards to tokenomics, I think a 3 month lock up is a little long but willing to defer to other user opinions. I definitely agree its a great incentivie to holding, particularly for larger stakers …effectively reducing token volatility and supply.

If rewards are going to be staked in a soft lock for as long as 3 months, it would be nice to have an option to LP for additional revenue or an eth SSS option for a minimum threshold of rewards to generate additional revenue would be ideal.

The reason for this is that 3 months is a long time for eth to just sit and accrue. This is capitally inefficient, esp for large staked positions. Being able to restake rewards in the v3 platform would permit the eth to earn yield while unable to be touched. Perhaps a free or discounted mint for an osETH liquidity token at the end of the 3 months if the user wished to withdraw could be considered.
If this is of too great a complexity, I would suggest a 60 day (2month) rather than a 90 day soft lock to improve capital efficiency of rewards.

I think we should also discuss the creation of a tapering emissions schedule for the SWISE token itself to work toward the eventual goal of zero or low emissions since revenue for staking is being paid in ETH. POL liquidity managers, or a uni v3 pool with POL could be used to remove the need for LP emissions…thus greatly incentivizing the value prop of the protocol. Unused emissions could go into a “rainy day” fund which could be severance controlled for only specific growth initiatives like Mergers/Acquisitions or Partnerships. This would effectively cap the circulating supply while not limiting the treasury growth if a token swap or other opportunities presented itself in the future.

Lastly, all of the marketing arm/value prop priorities listed are amazing. VERY excited for these to take place. Consider a bounty board on dework or SPECT to list these and pay out with no need to use additional resources for creation of a separate grant page like Synthetix or Curve have.

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Am I reading correctly that what’s being proposed is to leverage 80% of liquid staked ETH supply as collateral for proposed swiseX token? If so, doesn’t this proposal threaten to overburden large individual stakers / node operators?

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Thanks for the response @afirebrand - so the proposal is actually to have DAO Revenue (earned in the form of ETH as % of staking yields) converted into SWISE via open market purchased and have that distributed to SWISE stakers. So ETH wouldn’t be just sitting in the account as accrued rewards - but would be purchasing SWISE in open market and that would be converted to rSWISE that then sits in the staking contract. See xMPL. Beauty of this is allows stakers to take advantage of sell offs as the more dislocated SWISE:ETH ratio is (i.e. cheaper SWISE is), the more SWISE is repurchased/distributed during that period.

I do think you raise an interesting point on capital efficiency though - think it would be interesting SWAT initiative to look into ways to enable the xSWISE in staking pools (& maybe rSWISE) to also have the ability to be LP’s in say a SWISE:ETH Balancer (have seen something similiar with Notional) or perhaps UniSwap pool as well.

Have thought about Protocol Owned Liquidity (POL) alot as well and do think think at a minimum it makes sense to own some of the sETH2:ETH Uni v3 liquidity outright (as a liquidity floor but also to reduce required SWISE emissions) Had imagined that SWAT would spear head this initiative & the DAO governance fund could go towards acquiring positions once we nail down exactly what liquidity we think the protocol should own long term post v3 but definitely put out a proposal if interested in spearheading.

5

No so this is completely separate discussion on revenue share that the DAO is currently earning (5% of staking rewards though I understand there is some tweaks under v3) Not taking any deposits from sETH2 or osETH depositors pools, etc. Just deciding what we do with the ETH earnings/fees that are pilling up on our balance sheet.

1 Like
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Thanks for updating this @Steel.Key . I don’t know if anyone mentioned this, but I did some back of the napkin math:

The protocol earns about ~4.5 ETH/day according to this chart (the data is kind of outdated, but let’s assume it is 4.5 ETH). 50% goes to Treasury (~2.25 ETH), of which 80% you are proposing to use (~1.8 ETH). In a single month, we will be buying 54 ETH worth of SWISE in the open market.

Currently, the pool has 15M SWISE, which is worth about ~1000 ETH in today prices. We would essentially have enough liquidity for 2 years, holding everything else equal. @Steel.Key do you feel this could be an issue?

Please someone double-check my math as well :slight_smile:

1 Like
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Good question - so haven’t checked you math but all else equal , could be an issue over time but really only for anyone short SWISE haha. Price of SWISE will obviously need to increase relative to ETH (thus less SWISE repo’s per ETH over time) That said when price does increase - rational market forces will then sell at certain levels and more SWISE will return to the SWISE:sETH2 pool. 2 years is adequate though - might be worried if < 1 year.

“All else equal” is a good qualifier though - with this tokenomic change/SWISE repo’s - would be offsetting any negative sell pressure from using the SWISE token in future incentive marketing campaigns to increase TVL/deposits (ideally in rSWISE and laser focused on incentive spend where Avg Life Time Customer Rev >>> CAC).

Also would expect more SWISE liquidity via other venues such as CEX’s as a natural evolution that also increases StakeWise’s brand presence with the general public/potential future depositors/VLT operators.

So in summary - don’t see it being an issue - though something to monitor as we don’t want to see crazy pumps/dumps. If SWISE is steadily marching to $1 - should definitely use those SWISE valuations to continue pressing on smart/focused marketing spend to keep the flywheel going.

1 Like
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To keep the ball rolling - think it makes sense to do a poll to gauge general temperature for this proposal. Looking forward to seeing the results.

  • For Proposal
  • Against Proposal
  • Undecided

0 voters

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I’m putting my comments here for visibility as I am conscious that I only responded to this proposal on Discord.

My TL;DR is that it is too soon to decide upon any updates to SWISE tokenomics whilst we are still developing V3. I like the idea of some form of fee distribution providing it helps drive protocol adoption, but we are not at the stage where we can distribute protocol fees just because ‘we feel like it’/‘want to do something different to other staking protocols’. And 80% fee distribution as suggested in this proposal… that is quite frankly absurd/concerning. We’re still in the ‘start-up’ phase without critical mass, this is purely an attempt to extract short term value from the protocol. Zero cares for the long-term health of the protocol.

  • We need to make sure any SWISE tokenomics/protocol fee distribution is tailored towards V3 and helps drive TVL growth alongside sustainable SWISE price growth. If we can also improve SWISE liquidity at the same time then it is a win all around. There is nothing V3 specific here and no steps towards improving liquidity (in fact, it will fragment it given the new tokens/reduced SWISE supply towards liquidity).

  • On the topic of SWISE buy-backs, I’m personally not a fan of this. StakeWise is naturally super-long SWISE and building up non-SWISE assets in the tsy is important (and opens lots of doors for the protocol). Revenues are a great way to do this. If the concern is increasing SWISE circulating supply, then we should look to reduce emissions. StakeWise runs like a start-up and we can’t use Apple share buybacks as a relevant example, imo

  • We are in a fortunate position where we currently have a rudimentary model for SWISE tokenomics which is easy to implement/build on top of. On the flip side however, it means that we do need to be extra careful with whatever tokenomics changes we do introduce as reverting/iterating further could be very difficult. For example, after implementing a ve model it would be a nightmare to wind down that model in favour of another in the future.

  • There are lots of balls in the air at the moment. V3 is not only changing how we earn revenues as a protocol, but the DAO will need to implement a brand new liquidity strategy for the new osETH token. Liquidity is a really important topic to solve… it’s expensive, the landscape is constantly evolving (L2s etc…) and it will play a key role in SWISE emissions and how we should utilise protocol revenues. Until we have clarity on the long-term plan for osETH liquidity (currently being worked on) it is impossible to say what should be done with protocol revenues and the SWISE treasury in general.

  • In the long-term, we need the protocol revenues to cover all DAO expenses (operational, team, liquidity, SWAT etc…), else we’ll never be self sufficient without inflationary tokenomics. The remainder of revenues is then free for distribution to SWISE holders/market buy-backs to help support SWISE price. I’m not against implementing some revenue distribution now, but it needs to be done in a way which can be iterated on in the future, because 100% we will need to change/adapt it at some point.

  • We cannot afford 80% fee distribution, period. We are not yet profitable as a protocol (liquidity costs are too high) and we are also not think in a position where we can distribute fees to SWISE holders unless it can help drive protocol adoption in some way (i.e. grow TVL). The opportunity cost for distributing those revenues would just be too high, when they could be going towards marketing/funding accelerated development (i.e. hiring/SWAT)/protocol owned liquidity.

2 Likes
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Appreciate the detailed response @pnut . Have been trying to keep the ball rolling here so we don’t see this simply fall by the wayside like previous initiatives around tokenomics.

Know there are a lot of moving parts with the rollout of v3. Can put a pin in this then unless you have confidence that some level of rev distribution is appropriate (5%/10%?) though I completely understand if its still too early.

Blockquote * We cannot afford 80% fee distribution, period. We are not yet profitable as a protocol (liquidity costs are too high) and we are also not think in a position where we can distribute fees to SWISE holders unless it can help drive protocol adoption in some way (i.e. grow TVL). The opportunity cost for distributing those revenues would just be too high, when they could be going towards marketing/funding accelerated development (i.e. hiring/SWAT)/protocol owned liquidity.

Definitely agree your liquidity costs are too high for SWISE emissions on v3 pools and while a more consistent SWISE/ETH valuation would help, protocol owned liquidity likely an good option as well. Had some ideas on that that I had tabled for after xSWISE/rSWISE but what are your thoughts on moving a portion of the existing sETH2 DAO earnings into a uniV3 ETH/sETH2 LP position so we can reduce emissions there (& don’t imagine it would hurt liquidity profile if need to remove it in the future) I’m in the pool myself with my available ETH so shooting myself in the foot a bit but IMO definitely in the long term interest of the protocol.

11

Besides some other issues already mentioned by others, let’s not needlessly complicate things.

We could just set up a mechanism whereby some protocol fee is distributed to Swise token holders in the same manner as staking rewards are currently rewarded to sETH2 token holders. Daily, and claimable.

However we should be careful, because all operational costs and even future development should be financed from that fee. And also I think we need a security fund, that would kick in to cover any slashing incident first.

Maybe we could try with something between 20% and 40% of the protocol fee?

Problem is this doesn’t help grow TVL, which is really our number one issue.

It could though increase the value of Swise, as it will become a token generating some income, and thus reduce the amount needed for future farming rewards.