unshETH Ecosystem Fund

Summary:

Running a quick temp check about setting aside a portion of the USH token supply for the unshETH Ecosystem Fund. This is done to gauge community feedback before putting together formal proposals to the DAO regarding token allocations and distributions from the community / incentives budget.
This is a discussion topic, not a proposal; aspects of this discussion will be included in future formal proposals to the DAO.

Motivation:

unshETH wants to grow the Liquid Staking and LSDFi ecosystem. There are many promising projects building on unshETH where it’s a win-win proposition to provide grants or make DAO-led strategic investments to help grow the ecosystem, unshETH TVL, and accrue value to the DAO. Want to gauge community sentiment on earmarking a portion of the token supply for this purpose.

Specifications:

A portion of the USH token supply would be set aside for the Ecosystem Fund. These tokens would be set aside and would not enter circulating supply as liquidity incentives, farm rewards, treasury management, etc. All Ecosystem Fund token disbursements would be subject to specific DAO votes, or disbursed with pre-allocated budgets (with DAO votes) to a pre-selected Ecosystem Fund committee.

  • 10% of the total supply (14.35M USH) towards Ecosystem Fund
  • Up to 5% earmarked for grants to protocols whose LSTs are whitelisted into unshETH
  • Rest earmarked for LSDFi projects building on or adjacent to unshETH

Liquid Staking Protocol allocation:

unshETH DAO wants to motivate LST protocols to participate in governance, provide co-incentives to vdUSH stakers, and get whitelisted to be part of unshETH. By providing grants to Liquid Staking protocols, they’d be motivated to be early participants in governance and get a lasting benefit by acquiring vdUSH voting power that will be used to increase their target weights. This is a similar model to NFT grants from Solidly forks to new projects to bootstrap governance process, but in unshETH’s case would apply only to protocols that participate in the co-incentivized whitelisting process.

  • Protocols that are whitelisted into unshETH are eligible for Ecosystem Fund grants
  • Grants should be proportional to the initial 3-6 months of bootstrapping co-incentives provided by LST protocols as part of the whitelisting process
  • Grants should be granted in the form of 1Y vdUSH
  • Dollar value of USH grants should not exceed the dollar value of co-incentives provided during the whitelisting period

The exact market-driven mechanism of setting target weights for whitelisted LST protocols based on vdUSH balances will be announced in the coming weeks. unshETH DAO is collaborating with the leading governance incentives marketplace (Hidden Hand) to design a custom protocol for continuous target weight setting via vdUSH governance. Early LST protocol participants in the co-incentivized whitelisting process will be able to acquire lasting voting power from Ecosystem Fund grants.

LSDFi project allocation:

The second major category of Ecosystem Fund allocations is for protocols building on or adjacent to unshETH. These allocations can come in the form of unlocked USH incentives, locked USH grants, treasury swaps for governance tokens, angel investments, etc. Each individual project decision would ideally be decided on with a DAO vote.

Ecosystem Fund consideration should be given for new / innovative projects, or initiatives unshETH DAO would like to pursue but doesn’t have capacity to. Liquidity incentives to incumbent protocols integrating unshETH (e.g. lending protocols, dex, etc) would not be part of the Ecosystem Fund budget.

Examples of projects that could be eligible include:

  • Omnichain ETH earn vaults staking into unshETH
  • “Convex of USH” - Protocols “black-holing” USH to gain vdUSH governance power
  • Protocols developing stablecoins backed or minted against unshETH
  • Applications that enable unshETHium
  • Consumers of unsh-X suite of protocols
  • Perps protocols using unshETH as collateral

Points for discussion:

  • How does the community feel about ecosystem fund grants to LST protocols… Good / bad idea? Does the overall allocation level sound right?
  • Are there any big categories missing that should be generally included?
  • How much should unshETH DAO engage in treasury swaps vs grants?
  • Would it be preferable to run each decision through a DAO vote, or empower a pre-selected committee to make decisions?
15 Likes

Well-thought-out proposal, generally agree. An ecosystem fund would serve to both decentralize protocol governance to long-term, aligned actors, as well as bootstrap early growth.

Perhaps allocation levels from ecosystem funds for other projects can be provided here to inform the community governance process.

What is unshETHium?

5 Likes

I think grants are fine, provided the other side receives 1-year-locked vdUSH as stated. The amount allocated to grants sounds fine.

However I am a bit wary of treasury swaps - if a treasury swap entails merely swapping liquid USH for another token from some random project. I don’t like that. GMX has done this a few times with no-name projects, and those projects bag a 5k esGMX bag and then fade into obscurity. And GMX is left with some terrible STFX token. Unless the project is very promising, I wouldn’t bother swapping liquid USH for their token. At least with a grant it is locked as vdUSH for a year and we all receive liquid incentives from the other protocol. The other protocol also gets some governance power for having, presumably, a decent-sized vdUSH bag.

I’d rather empower a pre-selected committee to make decisions to speed things up for the time being.

3 Likes

pre-selected dictators pls

i like the actions that go towards expanding the ecosystem and thus decentralization

  • How does the community feel about ecosystem fund grants to LST protocols… Good / bad idea?
    Good

*Does the overall allocation level sound right?
Yes, up to 15% is okay in my opinion - isolated from the 5% for WL LSTs

*Are there any big categories missing that should be generally included?
Should we be accumulating AURA/FXS? idk im dumb

  • How much should unshETH DAO engage in treasury swaps vs grants?
    Depends on project, a treasury swap with a stablecoin protocol, ohm, or aura would be cool

  • Would it be preferable to run each decision through a DAO vote, or empower a pre-selected committee to make decisions?
    empower a committee that is genuinely long term aligned

1 Like

Another thing I thought of - definitely want to give voting power to LST protocols so they can vote themselves in, and they should be able to collect bribes etc. But perhaps the granted voting power should be excluded for the purposes of votes on whitelisting new protocols: e.g. incumbent protocols should not be able to simply gatekeep out all newer protocols.

4 Likes

Overall, think majority of these proposed items would be net positive for unshETH and partnered LSD protocols, as well as the broader crypto space.

The ecosystem fund particularly could be extremely synergistic in long-term value alignment between unshETH and other LSD protocols. LSDfi is still in its nascent phase and it is no easy task to come in and build out this evolution in DeFi.

unshETH has showcased its ability and skillset to be the top candidate and catalyst to bring real LSDfi to the crypto industry. It has built the fundamental building blocks needed for novel innovations to occur, and the ecosystem fund is the next logical step to this.

Love the proposal, supports cross-protocol alignment and drives demand for USH. Swell will be allocating a considerable portion of our supply to Swell Voyage participants (including USH community) and would love to play a part in the markets which will be built on top of this mechanism.

I also support token-swaps for useful assets. Pure governance tokens, or utility tokens are not idea – Aura, CVX, etc are all useful but I’m not sure how they fit specifically into unshETH’s internal AMM architecture.

1 Like
  • “Convex of USH” - Protocols “black-holing” USH to gain vdUSH governance power

Have been hard at work on this task. My team is building gUSHer and look forward to a synergistic future with unshETH! We are a team of DeFi native veterans and excited to get things off the ground quickly.

Read more below:

3 Likes

I like the proposal in general but it definitely has its holes that could be improved.

I definitely like the idea of high performing individuals that make up committee. There are some centralization risks and conflict of interest risks that can be mitigated by putting security measures in place. More deeper discussion on forming committee probably has to be held and most likely it should be a paid position depending on the individual performance delivered. Paid role might not be feasible but can be evaluated.

Criteria has to be defined for protocols to meet before they can apply for the grant to avoid going through high volume low quality governance proposals - this is important! There has to be some metrics in place the protocol has to put forward on the benefits we/they will gain. It has to be measurable and value added to the unshETH community.

No funds should be allocated up-front. Staged approach would be better where funds are funnelled as pre-agreed KPIs are met. It has to be target driven approach to avoid low effort protocols capitalise on it. Exit plan has to be defined in order to avoid grifters put a low quality effort and drag it for a year to convert to USH that can be dumped on the community.

All governance is not valuable, nor all partner tokens are value-added to the unshETH. Might have to brainstorm more on those aspects what we actually do with partner tokens. Kind of reminds me of India pushing to pay for their stuff in rupees where the receiving country have no place to put the currency anywhere.

2 Likes

Generally the most well managed grant programs come from DAOs that have an elected grant committee/council and not ones that have full DAO votes on it.

Giving grants to new LST protocols seems like a great way to expand decentralization of the unsheth index as well as push for more adoption of unsheth. Treasury swaps or something close to it with these new LST protocols would be a great idea.

  • HH

Do you have good examples of committees/councils that have seen success in DeFi?

I agree in principle with this proposal as positive development or unhETH. LSDfi is very new & has potential to be one of the key segments of the overall crypto industry with its ‘Real Yield’ being the foundation to drive & sustain this industry for many years. So reaching out the unshETH tentacles to include many protocols can only be good. As Howth mentioned, we should be careful on treasury swaps as we don’t want to fill up with shit coins. However, while there is a good chance that over 90% of the projects supported will fail - a few projects that succeed will more than cover the losses…

Regarding DAO governance - a suitable team should be appointed to carry out this work without DAO involvement in every decision. Some integrations will probably require a level of confidentiality and should not be discussed in public. The DAO could be ‘consulted’ for a temperature check on some new or controversial decisions. The DAO should be updated on progress & developments on a regular (agreed) basis. Also, there could be regular (monthly or quarterly) review meetings with the DAO & management team for binding decisions & votes.

UnshETHium - I believe its is a bit too early in the project life for this…

3 Likes

Overall, think majority of these proposed items would be positive for unshETH.

But we need to be careful whom do we give grants to, or we will end up wasting valuable resources.

I agree with @Howth @Linkdad on this one.

2 Likes