[HIP-22] - Approve Ether.fi gauges

Proposal Severity: 1

Introduction

This proposal seeks community approval to add two new gauges to Hermes, in collaboration with Ether.fi;

• weETH/ETH (Minimum width: 60)
• ETHFI/ETH (Minimum width: 480)

Liquidity for the gauges is already in place on UniV3 on Arbitrum:

• weETH/ETH - https://app.uniswap.org/explore/pools/arbitrum/0xA169d1aB5c948555954D38700a6cDAA7A4E0c3A0
• ETHFI/ETH - https://app.uniswap.org/explore/pools/arbitrum/0x7e9cb8aD4a7683070E233F3Eb1D07d87272b9b26

Strategic Alignment

Ether.fi is a highly successful liquid restaking platform, currently ranked number 5 on Defillama, with over $6bn TVL. Like MaiaDAO, they are building for the long term, and aiming to be a deeply rooted part of the Ethereum alligned DeFi Ecosystem for many years to come.

Ether.fi is looking to foster long term mutually beneficial partnerships with other DeFi protocols that provide synergies to their mission. Hermes gauges are a good fit for their tokens liquidity requirements, particularly as they allow for incentivising liquidity within pre-defined ranges, avoiding problems such as liquidation cascades that are associated with LPs farming with leverage in very tight ranges. As a multichain protocol, Ether.fi is also well positioned to utilise and benefit from the omnichain features of Ulysses. They are continuing to develop new products (including a BTC derivative, eBTC) and there is potential for further gauges to be added as these products go live on Arbitrum.

Ether.fi run seasonal programs to incentivise liquidity provisioning and will be able to direct bribes towards these gauges during these programs. This benefits all Hermes voters and drives volume through the gauges.

Hermes Protocol would welcome Ether.fi with an allocation of Hermes tokens to bootstrap these gauges, as part of our launch event for top DeFi protocols. Going forward, Ether.fi would be able to particpate in our Partnership Program, likely participating in the Accumulating and Bribing sports. These programs have been designed to reward behaviours that help to grow and maintain the health of Hermes, and thus to allign incentives for long term, universally beneficial participation for all ecosystem actors.

Upon the successful passing of this governance proposal and the launch of the gauges, Ether.fi is happily committed to co-marketing activities to help introduce the Hermes protocol to their community, and raising awareness in the wider space through their powerful social media channels.

Gauge performance analysis

Snapshots of the relevant historical metrics of the UniV3 pools on Arbitrum:

• weETH/ETH TVL

• Weekly Fees

• ETHFI/ETH pool TVL

• Weekly Fees

Market impact analysis

Hermes gauges will give optionality to Ether.fi LPs, who can choose to stake their positions, exchanging fees for emissions of the Hermes tokens. This in many cases will offer boosted rewards, incentivising LPs to join the pool and thicken the depth of liquidity for the Ether.fi tokens.

Gauges also facilitate highly capital efficient deployment of liquidity mining incentives through bribes, as Ether.fi would only be paying rewards to LPs in an active range around the current price, denominated in ticks. This can result in better APRs for LP's with smaller inputs of capital, and thus again, thicker liquidity. Hermes gauges further enable strategic deployments of incentives to target specific goals, such as price stability for weETH.

Risk assessment

• Volatility of fee revenue over time
  • ETHFI/ETH pool Volume and TVL metrics have been relatively stable to date (although the sample size is small), thus the risk of significantly over / under paying for liquidity is low.
  • weETH/ETH pool Displays higher volatility of fee revenue, thus elevated risk of being over / under subsidised by emissions in volatile periods.
• Smart Contract Risk - As the liquidity comes from a 3rd party, Hermes cannot guarantee that there is no additional smart contract risk from integrating the Ether.fi tokens. As a leading liquid staking provider they are of course heavily audited and battle tested, and tokens are bridged using the official Arbitrum native bridge. However users should do their own due dilligence before interacting with these pools.
• Ether.fi audits:
  • https://246895607-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FG3Lk76lfvw9ecPIg0mK8%2Fuploads%2FFgdNivH2FNNe7JwkZXtd%2FNM0093-FINAL-ETHER-FI.pdf?alt=media&token=5aa1a2dc-33c7-430d-a2cb-59f56d2cfd2b
  • https://246895607-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FG3Lk76lfvw9ecPIg0mK8%2Fuploads%2FnmeIJh2pdXrFJLRTqMoz%2FOmniscia_Audit_EtherFi.pdf?alt=media&token=8df704c0-cc57-4a51-9a1d-1e4afc118d5c
  • https://skynet.certik.com/projects/etherfi
  • https://246895607-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FG3Lk76lfvw9ecPIg0mK8%2Fuploads%2FZgymtAAi8L1kkuuzrT9E%2FAudit_Report_-_ether.fi_26.10.2023.pdf?alt=media&token=1d8564be-61de-42ca-96c5-b21e58ef5155
  • https://github.com/hats-finance/ether-fi-0x36c3b77853dec9c4a237a692623293223d4b9bc4/blob/master/report.md
• Systemmic Risk - LP's should be aware of Ether.fi tokens use elsewhere in DeFi including in some leveraged strategies, and thus potential for liquidations in periods of high volatility, impacting the price stability of the pools.

Calldata for Onchain Execution

weETH/ETH

target: 0x0000000000D3D3dB0D56Ed2F2DedDcf90b160e44 calldata:0x5d6b2a9d000000000000000000000000a169d1ab5c948555954d38700a6cdaa7a4e0c3a000000000000000000000000000000000000000000000000000000000000000400000000000000000000000000000000000000000000000000000000000000020000000000000000000000000000000000000000000000000000000000000003c00000000000000000000000000000000000000000000000000000000

ETHFI/ETH

target: 0x0000000000D3D3dB0D56Ed2F2DedDcf90b160e44 calldata:0x5d6b2a9d0000000000000000000000007e9cb8ad4a7683070e233f3eb1d07d87272b9b260000000000000000000000000000000000000000000000000000000000000040000000000000000000000000000000000000000000000000000000000000002000000000000000000000000000000000000000000000000000000000000001e000000000000000000000000000000000000000000000000000000000

Ending note: This proposal created in accordance with the relevant guidelines for adding gauges as delineated here - we welcome your thoughts and feedback on this framework, as it will be used extensively going forward.