Let’s kickstart a discussion on creating a liquidity pool for SWISE on Uni V3.
Motivation
Currently the SWISE market is quite illiquid, with trades on 1inch representing a large slippage and with not enough liquidity (to the point where large trades move the price quite meaningfully).
Setting up a pool on Uni V3 for SWISE would have several benefits:
Inherent benefits of Uni V3 vs 1inch in terms of new AMM tech, like pooling liquidity in ranges.
More ideal pairing with SWISE, one that would encourage more users to pool their SWISE.
If incentives were to be allocated to SWISE liquidity, it would be easier from a backend perspective, as there’s already incentives in place for other Uni V3 pools.
A more liquid market in a DEX that gets a lot more use than 1inch.
All the other pools are on Uni V3, therefore it would make it a lot easier for users to use the same DEX for all pairs.
Not a frequently mentioned reason, but as a staking protocol, we want to preserve the values of Ethereum, and we know that Uniswap is more akin to those values than any other DEX out there.
There’s several options for pairs, each one with its pros and cons:
SWISE/ETH: universal pairing for dexes on ethereum, allows for easier/quicker and cheaper swapping.
SWISE/sETH2: quite good as it forces trades through the sETH2/ETH pool first if anyone wants to buy with a different token, helps incentivize trades in that pool and makes a lot of sense if incentives were to be placed, as it would create a very high yield pair with yield from sETH2, possible protocol fee distribution (discussion), and possibly future incentives (if the DAO votes on it).
SWISE/Stablecoin: more stable, but also riskier, as with liquidity ranges on V3 one can be fully converted into stablecoins (or SWISE) if there’s significant price appreciation or depreciation, which may be undesirable.
Specification
The most profitable pools often attract the deepest liquidity, which is what we need for SWISE, especially with the current situation where there’s no incentive to pool liquidity for many reasons, but the main two:
No rewards allocated
Very expensive entry and exit of liquidity positions (more than Uniswap)
Requirement of exposure to 1INCH, which users would have to buy and may not want to
My proposal is to deploy & incentivize an sETH2/SWISE pool. There’s multiple reason why we’d want to use sETH2 over any other asset when pooling with SWISE:
majority of StakeWise users already have sETH2, so the capital requirement for them to provide liquidity is lower
it showcases the beauty of using sETH2 in DeFi - it replaces Ether with its interest-bearing version, and when you can continue earning staking rewards WHILE you LP, why wouldn’t you pair your asset with sETH2 instead of ETH? this is an excellent first use case for our staked Ether token that creates precedent for a wider adoption of sETH2 in DeFi as the base asset in pairs with other great alts and coins
it benefits the sETH2/ETH pool trading fees, since the Uniswap routing mechanism will tap into it if a user wants to buy SWISE with ETH, for example.
Risks
in terms of risks, there is a correlation risk - ie if sETH2 suffers from de-pegging, it will take the price of SWISE down with it. it would make farming programs more expensive.
Discussion
I’d like to hear your thoughts on this, we’ve been waiting for this for quite a while!
Special thanks to @kiriyha for his thoughts on the initial writeup and more content for the post \o/
ha I am biased here but I support the intention and the specifics of the idea. thanks for taking the time to write it @dreth - this is an awesome contribution!
I would also like to shout out Mr @cardboard and Mr @mbaneca1 - top blokes from our Discord that were right to point out that we need to move faster with another pool. keep moving us forward folks, together we’ll go far.
I like it a lot, but we need to incentive SWISE LPs as we do for other LPs at least at the begining and clarify the fee distribuition topic. For example are SWISE LPs going to be eligiable for fees? In my opinion they should not be as they cannot vote and they should in teory already get rewards as incentive but this have to be clarified
Agreed that this is the best pool to create. Besides the good reasons you already mentioned, both sETH2 and Swise will be tokens that earn rewards (currently under discussion for Swise, but I am assuming we will get there). This means that when a trade is done, as a LP you will receive one reward generating token for another reward generating token. You don’t have to hold more non-reward generating ETH or Stablecoins for this pool. It really does optimize your LP investment.
Of course this only flies if the Swise in a LP is rewarded, just as the sETH2 is now in the current UNI-v3 pools.
Count me in! Also, is there a possibility to further incentivize LPs and reward it with (additional) rETH2 that comes from protocol treasury? That would be a killer feature in my opinion as users could earn more than from simply staking. Just my 2 cents But even without this feature, I will be happy to LP in this pool. Cheers!
I would love to see it. I’m long ETH, and Long Stakewise. The only thing that concerns me, is out of my hands. Any of these swaps, at the current gas price end up eating a decent chunk of our investments. But all in all, since I’m long, and want to StakeWise be a big part of ETH2.0, I think this would be a good idea. Can you further explain the de-pegging, and how that would make things more expensive?
Like the idea and would love to have a SWISE/sETH2 pool. Only thing that would discourage me, is that most of my SWISE is in the 1Inch pool and moving it would be a loss. I plan to get more SWISE anyway, but I won’t touch the 1Inch pool. The sETH2 approach would be a better incentive since you won’t need to add another token or change half of your SWISE for another token. But I don’t think that many will migrate from 1Inch and we only split the already thin Liquidity over two pools.
I believe a sETH2/SWISE pool is an urgent need. The lack of SWISE liquidity might be scaring away people from investing as the price swings are enormous. Giving sETH2 additional pairing exposure is also a plus. If some incentives are cut form the sETH2/ETH pools they should be put to work here. The DAO could get a big boost for no extra SWISE incentive very easily. The more we wait the longer SWISE will remain undervalued.
Great proposal, would be happy to put my swise back to work. However, i will pay close attention to fees/incentives -LPing with 1inch was a bit too expensive learning experience.
But even without this feature, I will be happy to LP in this pool. Cheers!