ETHFI DAO Proposal: ETHFI Buyback and Liquidity Pool Seeding

Proposal Summary

This proposal suggests initiating the purchase of ETHFI with up to 50% of protocol revenue. Initially 5% of monthly revenue will be used, with future increases to be put to a community vote. The revenue comes from Staking and Liquid vaults. Any revenue of future products to be used for this purpose will be addressed in a subsequent vote. The purchased ETHFI will be used to build the treasury and seed a liquidity pool on Curve to increase TVL on-chain for ETHFI.

Rationale

The objective of this proposal is to enhance the liquidity of ETHFI in order to support the ecosystem by:

  1. Increasing the treasury holdings of ETHFI.

  2. Providing liquidity on Curve, thus improving market dynamics for ETHFI.

Details

Revenue Allocation

  • Initial Allocation: 5% of protocol monthly revenue.

Sources of Revenue:

  • Staking rewards.

  • Liquid vault revenues.

  • Review Period: This allocation percentage will be reviewed and potentially adjusted based on performance and community feedback.

Buyback Mechanism

  • Market Purchases: ETHFI will be bought on the open market using the allocated revenue.

  • Treasury Allocation: Acquired ETHFI will be added to the DAO treasury to bolster holdings.

Liquidity Pool Seeding

  • Curve Pool Seeding: Part of the acquired ETHFI will be used to seed a liquidity pool on Curve.

  • Objective: Increase TVL and liquidity for ETHFI, facilitating better trading conditions and user engagement.

Conclusion

This proposal aims to strategically utilize protocol revenue to enhance the liquidity of ETHFI. By purchasing ETHFI on the open market and seeding the liquidity pool, we can strengthen the ecosystem and increase TVL on-chain.

Voting

Voting to be done through snapshot: Snapshot

  • For: Approve the ETHFI Buyback and Liquidity Pool Seeding Proposal.

  • Against: Do not approve the proposal.

We look forward to your support in strengthening the ETHFI ecosystem.

48 Likes

Thanks for the proposal.

I support buyback and POL.

Not sure about the amount though, but this stepwise approach seems a sensible way.

1 question: why a pool on Curve?
Has it been discussed somewhere?

Uniswap, Balancer and co all have their merits, no?

5 Likes

Buying back is a nice move, especially from the open market ,I do not know why crv is the choice here though, nothing wrong with that and I hope community continue to remain in support of you guys

3 Likes

I support buyback and liquidity pool.

1 Like

+1 Approve the ETHFI Buyback
Also wondering, if any plans for burning mechanism? I think it’s benefit for long term use case! Thank you!

2 Likes

I agree with you about the redemption and liquidity pool.
Thanks for the great suggestion.

1 Like

Given the relatively small initial allocation, having one place to concentrate liquidity was the most advantageous. As this position will also not initially be actively managed, it was the preferred approach. As the DAO grows and future contributors take form, the methods of building liquidity on chain for ETHFI will evolve and take on more advanced strategies. It is agreed that the other dexes mentioned have merits and can be discussed for future increases.

4 Likes

You should really consider other liquidity venues that offer far more capital efficiency and are just outright better than Curve, such as Maverick. They have just launched their v2 and have many advantages over Curve or even Uniswap.

Choosing Curve as a liquidity venue becuase its hands off its not only a waste of time in the long run, it is a waste of resources and delays the inevitable which is leaving Curve for more efficent trading venues.

3 Likes

We appreciate this proposal coming forward and the clear desire of the foundation, or whoever may be representing the EtherFi admin account, to create a mechanism to support the liquidity of the ETHFI token. We have spent plenty of time analyzing the liquidity and utilization of not only weETH, but other LRTs, and we understand its importance in depth. However, we have some material concerns and open questions with this proposal before we make our decision.

Concerns with the Buyback:

  1. DAO Treasury Allocation:

    • The DAO Treasury is already allocated 27.24% of the ETHFI supply.
    • Diversifying the treasury into ETH, eETH, and stablecoins is smart. Rather than needing to sell ETHFI in a time of desperation, build a position in less volatile assets that are not deeply tied to your protocol.
  2. Revenue Allocation:

    • The proposal starts at only 5% of ether.fi revenue, but it sets a precedent for token holders to increase it to 50% much faster than necessary.
  3. Inflation:

    • ETHFI will see significant inflation over the coming months and years. Why not wait until the majority of the supply is circulating before starting buybacks?
  4. Liquidity Incentives:

    • Incentivizing liquidity in ETH or stables may be more effective in attracting liquidity providers. If ETHFI is used for liquidity incentives, it could be sold back into the market quickly anyway.

Questions and Concerns about Curve:

  1. Current Liquidity Landscape:

    • There are already two Uniswap V3 Pools for ETHFI/WETH with $1.53m+ in liquidity.
    • The largest LPs for the most liquid ETHFI pool are notable entities with significant holdings and activities.
  2. Paired Assets:

    • It is unclear whether the paired asset will be weETH, ETH, USDC, or USDT. Further details will help make a more informed decision.
  3. Execution Details:

    • The execution of the open market buyback lacks details. We recommend using CowSwap to prevent MEV and provide the best order execution via its aggregator.
    • It’s also important that the purchase isn’t routed through the protocol’s own liquidity pool.

Further Considerations:

  1. Reinvesting Protocol Revenue:

    • Reinvesting protocol revenue into buying back a token that has yet to emit 88.48% of its supply over the next four years might be shortsighted.
    • For historical reference, Lido’s treasury saw a 92% drawdown during a bear market after large unlocks, reducing its value from $1.5bn to $117m in one year.
  2. Impact of Large Unlocks:

    • Large unlocks impact price significantly. Implementing a buyback mechanism early on, especially to bolster the DAO treasury already allocated 27% of the entire ETHFI supply, might be premature.
  3. Proposal Aims:

    • The proposal aims to take protocol revenue in low volatility assets (ETH, weETH/eETH, and stablecoins) and sell them into a high volatility asset (ETHFI), which will have $3bn+ of new supply introduced over the next four years. Then, use that asset to start a protocol-owned liquidity pool.
  4. Liquidity Pool Volume:

    • If the liquidity pool is deployed on Curve with a standard 0.3% fee, it would need $426m worth of volume to break even on an annual 5% revenue buyback of ETHFI. The most liquid pool for ETHFI to date has done $115m, mainly around its launch.
  5. Revenue Structure:

    • Using the 5% take rate on annualized staking rewards and the 2% management fee on the two vaults, the annual revenue would be around $25.7m. 5% of that would be $1.28m, or $107k monthly.

Governance Process:

  1. Expedited Process:

    • While we respect the desire for action, the overall governance process seems to seek an expedited process while lacking comprehensive planning.
  2. Delegate Incentives:

    • Displaying 9 entities under the “delegates” tab on Agora who did not go through the delegate selection process creates a perverse incentive structure regarding user delegation. Users have been incentivized by “points” to delegate, leading to an intense skew of delegations.
  3. Delegate Influence:

    • The largest delegate receiving ~82% of total delegations is ~108k tokens away from being able to reach quorum for a vote on their own. This skew could potentially impact the governance process significantly. Consider increasing it.
  4. Thoughtfulness in Planning:

    • More thought should be given to avoid situations where one delegate’s vote could have a substantial impact. Regardless, we respect the stance of the foundation and the individual delegators.

In general, it seems like it would be more economical to take a chunk of the ETHFI in the treasury and create a protocol owned liquidity pool with that. Also, this should not be spun as “bolstering the treasury”. Hasu, a strategic advisor at Lido has written ad nauseam about this. Overall, EtherFi’s revenue streams are growing at an incredible rate for a protocol that is still so young. The buy-back is uneconomical in our opinion, and does not serve the best interest of the protocol’s long term growth potential. The 5%-50% range of allocation used for buybacks, could quickly go from “experimental” to “reckless” if there are no clear guidelines for what would constitutes success here. See our assumptions and projections to for a brief quantitative analysis on the potential impact of this proposal.

We look forward to gathering more information on the proposal before we make our decision, and we hope that others weigh in and make thoughtful decisions here.

10 Likes

Sounds great!Lets do it

3 Likes

Definitely - FOR! Good proposal!

1 Like

I support buyback and POL too, makes a lot of sense in the diluated market we are getting these days

1 Like

I support buyback and liquidity pool.

1 Like

Looks sensible lets move forward

1 Like

great idea! agree with this proposal

1 Like

:100: :100: :100: this is amazing !

1 Like

The proposal lists down good options and will be beneficial

1 Like

Hi, I approve the ETHFI Buyback and Liquidity Pool Seeding Proposal.

3 Likes

I’m strongly against this for the same reasons as stated by @Kairos_Res.
We have never seen a case where BuyBacks have ever worked.
Buybacks of ETHFI only seem to be like a strategy to siphon revenue from the DAO to the ETHFI vesters.
Interesting that the proposal was rushed (lack of clarity in gauging the success and failure of this initiative) and was passed within 24 hours of discussion.

also, agora states 1.5M ETHFI eligible to vote.
image
but 1.8M have voted already.

2 Likes

I think that the idea of buyback is great! Tottaly for!

1 Like