FIP#52 - Stake idle ETH into stETH

Governance
1

Summary

This proposal calls to stake the idle ETH in Floor DAOs treasury to earn additional yield for the DAO along with providing boosted sweeping power for each Gauge War. This should be done by swapping the ETH and WETH into Lido stETH which is an extremely liquid, safe, lindy LSD post the Shanghai upgrade.

Motivation

One of Floor DAOs main goals is to use the treasury effectively to generate yield to be used in productive manners like sweeps and buybacks via the Gauge War process.

Currently, the treasury has 320.8679 ETH ($638,427.61 @ $1,989.69) and 205.583 WETH ($409,046.40 @ $1,989.69) totalling 641.7358 ETH ($1,276,855.303902 @ $1,989.69). This roughly 642 ETH in the treasury has been sitting idle for the past few months since the sale of the Apes and should be put to better use.

At the moment this ETH is only used to pay out team salaries but it’s very plausible it gets used in other more creative ways in the future like new NFT-ETH LP pairs, buybacks, or anything else. Therefore if the DAO were to stake this ETH it should be done through a LSD, rather than its own validator, to provide the DAO with flexibility and the ability to swap back to standard ETH at any time. Whenever the DAO needs to use ETH in its regular form or to buy a different token, it can simply swap the appropriate amount via an aggregator due to the insane amount of stETH liquidity.

This proposal calls to stake this ETH by swapping (or directly depositing) to Lido’s stETH. Lido stETH has over 7.7 million ETH and a MC of nearly $15.4 billion. It is an incredibly safe, easy, and lindy LSD. Now that the Ethereum Shanghai upgrade has happened the DAO can also use the Withdrawal functions (Withdrawals | Lido) to redeem the stETH in 1-3 days at 1:1 if it does not want to swap on the market. Further, stETH has over 600m in liquidity in the Curve stETH-ETH pool and many additional pools across Uni and Balancer.

This calls to use stETH rather than wstETH as it will make it easier to calculate the yield generated per Gauge Epoch since the stETH token itself rebases. Ie. At Gauge Start the DAO has 420 stETH, at Gauge End it has 421 stETH → the DAO can clearly see it has 1 additional ETH to use in the sweep.

What yield can the DAO expect?

At current prices and APY of roughly 4%, the DAO can expect its 641.7358 ETH to generate 25.6 additional ETH per year. Given Gauge Wars are currently done every 2 weeks this translates to nearly 1 additional ETH in sweep power per epoch. In GW3 assets yielded 6.9E and in GW4 7.42E, the yield from the DAOs stETH would provide nearly a 14% boost in sweep power by utilizing idle tokens in an extremely safe manner!

This will be even more critical in V2 when the DAO will be using 10E per week for sweeps and needs to generate as much of that without selling any assets.

Proposal

On the passing of FIP#52 the following tasks should be enacted by the DAO’s elected Treasury Manager:

  • Swap all ETH/WETH in the treasury (~641.7358) to stETH via an aggregator such as Matcha or by directly depositing on Lido (https://stake.lido.fi/) whatever gives a better execution. This should be done within 48 hours of passing.
  • Add earned stETH yield to Gauge War sweep power

Proposal Period

This FIP#52 Forum post will be left here for 24 hours before proceeding to snapshot on July 15th, 2023.

Poll

The snapshot vote will have the following options:

  • Stake idle ETH
  • Amend
  • Stake idle ETH
  • Amend
0 voters
1 Like
2

Thanks for putting this together @zon, I have a couple of thoughts on this:

  • Smart contract/multi-sig/de-peg risk is not zero and as we saw with Euler we can get unexpectedly burnt from heavily audited protocols.
  • The ETH in reserves will begin flowing into the Floor Wars each week post-V2, which limits the lifetime of the staked yield and will require more operational overhead.

Personally I’m a little indifferent but would lean slightly towards the status quo because the upside isn’t huge for the perceived risk if the position needs to begin unwinding in the near future.

3

gm

Agree, there is always some risk. I’d say the DAO has much more risk though with the rest of the treasury in NFTX positions and Uni though and any strategy it takes would involve risks. Otherwise it would just be holding all raw tokens/nfts. The risk on the largest LSD is pretty minimal, IMO, and de-peg risk is negligible given redemptions post shanghai are live!

There is insurance the DAO could buy on stETH if you want but it does not seem needed.

  • v2 is still 3-4 months out before it actually comes, plenty of yield to capture before then.
  • In v2 outflows can happen starting in stETH no problem. It is incredibly liquid and you can swap to any token you want with an aggregator swap, or to ETH first, or even a chunk to ETH in advance.
  • 1 swap, or the use of an aggregator, of extra operational overhead is no problem because we have a salaried 50 hour a week treasury manager for this.
  • v2 should be able to handle this no problem. It is expected to actualize yield from other tokens and this is why we have worked for 6 months to build a robust system. Having stETH shouldn’t break that.

This can be done instantly there’s more than 600m of liq or you can wait 1-3 days on the unstaking queue. This is not anything fancy, it is the bare minimum.

Appreciate the feedback and concerns though ser.

1 Like
4

Could you elaborate on the rationale around these two being much more risky than Lido?

6

It is just an argument to say there is risk in everything. Our NFTX positions have multiple layers of smart contract risk with NFT → tokenization → LPs → Vaults, etc. In my opinion both Lido and NFTX are very safe. There is a reason more than 15 Billion dollars worth of ETH is staked with them.

7

Original post could not be edited however a simple disclaimer:

The treasury manager retains ability to unstake stETH as seen fit.

In V1 there’s no need to leave any ETH unstaked. In V2 it also does not seem likely however if there is need for bunches of raw ETH the treasury manager can simply swap a chunk to raw ETH as needed.