Liquid ETH staking and farming campaigns on Uniswap V3 with StakeWise
It is tough to find a better product combination than StakeWise and Uniswap V3 — both maximize the return on your capital and are used by DeFi novices and power-users alike. Recognising these synergies, the StakeWise DAO has voted in favour of deploying liquidity pools for its staked ETH tokens on Uniswap V3 and created a farming contract to incentivize liquidity provision. The result is a combo of highly liquid pools that allow exits from staking and compounding of staking rewards, all while offering double- and even triple-digit APYs to LPs and <1% slippage for trades as large as $4m (on the Pool’s $12m of active liquidity). At the risk of sounding pompous, nothing really compares.
Below we will explore the great benefits offered by Uniswap V3 pools to the LPs and stakers, examine the farming opportunities open to the DeFi users, and review the rules of the farming program.
Liquid ETH2 staking with StakeWise
Liquid staking is the holy grail of ETH2 pools. With the deployment of liquidity on Uniswap V3, StakeWise users have the freedom to exit from staking at any time and do so with minimum slippage. All that is required is swapping sETH2 tokens for Ether via the Uniswap interface, with direct swaps from the StakeWise dashboard currently in the development pipeline.
Meanwhile, large stakers looking to skip the StakeWise deposit queue (created to boost APY) and users looking for bargains can utilize the liquidity pool to snap up sETH2 at or below its redemption value. Trades in both directions boost the total volume passing through the pool, handsomely rewarding LPs for providing capital.
Following the latest update, the deposits from new stakers will be routed through Uniswap whenever sETH2 price is below 1, contributing to a tight peg in the liquidity pool and adding to LPs profits. It is good to be a StakeWise staker and an LP — everyone wins.
Provide liquidity without impermanent loss
Liquidity providers are the kingmakers of liquid staking protocols. In the pursuit of a deeply liquid staked ETH pool (defined by the amount of slippage, not TVL), StakeWise has focused on building a sustainably profitable LP strategy that would offer the best risk/reward ratio to the seekers of yield on ETH. Thus, we created a pool with no impermanent loss yet with up to triple-digit APYs coming from:
- a 42x boost to the trading fee that LPs have come to expect from staked ETH liquidity pools, based on the capital efficiency improvement of Uniswap V3 and a higher swap fee
- the highest staking yield on the market, and
- generous farming incentives.
The numbers speak for themselves: based on the 7-day trading activity in our sETH2/ETH pool, LPs earned >100% trading fee APY as a whole, with values higher or lower depending on the choice of the ticks. Together with a farming APY in excess of 10%, LPs can be earning a triple-digit yield on what effectively is a stable pool between staked ETH and ETH.
As LPs contribute more capital, we expect the APY to converge to lower figures. To counteract this effect, we will focus on expanding the integration of sETH2 across DeFi, which would support greater utilization of growing liquidity. This includes pairing sETH2 with more assets in liquidity pools and gaining acceptance for sETH2 as collateral in insurance, options selling, and lending protocols. This activity will undoubtedly contribute to the consistent growth of StakeWise TVL and trading fees for the LPs, ensuring that the LP strategy with the sETH2/ETH pool continues to yield the most in ETH terms in the whole of DeFi.
Reinvest staking rewards to boost yield
Compound interest is the 8th wonder of the world. From the beginning, our dual token system was created to boost the staking yield via the possibility to reinvest staking rewards back into principal and and benefit from the power of compounding. Whereas its boost to the APY is marginal when the network yield is 6%, it will become a game-changer when the Merge pushes the staking yield to over 15%. Only the dual token system can offer reinvestment opportunities before Phase 2, and our sETH2/rETH2 liquidity pool on Uniswap V3 now makes it possible.
Compounding the rewards requires a simple swap of rETH2 tokens into sETH2 tokens via the Uniswap interface, and soon also directly via the StakeWise dashboard. Going forward, we will develop a vault for auto-compounding of the rewards to solidify our position as the liquid ETH2 staking protocol with the highest yield, and simplify the restaking process for users.
The terms of the farming campaign
To support the deployment of pools on Uniswap V3, StakeWise team has developed one of the first farming contracts for Uniswap V3 and released a dedicated Farms page with an overview of ongoing farming campaigns that involve StakeWise tokens.
In short, it follows the same principle that is used by Uniswap to allocate the trading fees: the more of LP’s liquidity is active (based on the size of position and proximity of chosen ticks to the current price), the more farming rewards they will earn.
What is yet another testament to the capital efficiency of StakeWise, locking one’s LP tokens is not necessary to participate in farming — the contract automatically recognizes those who add or remove liquidity and takes hourly snapshots to allocate both the farming and staking rewards to these LPs. Farming & staking reward payouts happen daily via a Merkle distributor, which means that LPs can choose to claim the rewards daily or stack them up for as long as they want — weeks, months, or years. Since locking of LP tokens is not necessary to participate in farming, they can be taken to other DeFi protocols to be used as collateral and earn more yield for the LPs.
To bootstrap the initial liquidity, the StakeWise DAO has chosen to allocate 6,000,000 $SWISE to the sETH2/ETH pool and 500,000 $SWISE to the rETH2/sETH2 pool as farming incentives. The campaign will run for 30 days, after which it is likely to be extended based on the importance of token liquidity for the protocol. Current incentives offer double-digit farming APY in the pools with zero IL risk and an additional ETH yield coming from staking rewards and trading fees. Are you not entertained?!
We are excited about this new chapter for StakeWise — one where LPs, ETH stakers and DeFi users at large can benefit from our high-yield crops based on non-custodial and liquid ETH staking.
For those looking to dip their toes into our staking and liquidity pools, we wrote a guide for the Uniswap V3 LPs, published a deep-dive into our ETH2 security practices, and continue building our community on Discord and Telegram. Pop in to say hi!