TL;DR

This proposal aims to introduce a rewards-share system to encourage market participants who may not prioritize or stake with the Lido protocol without rewards. To effectively manage the program and minimize risk, tiered rewards will be implemented as percentages of the generated rewards. This ensures that the incentives align with ETH being staked with Lido and maintain the protocol's sustainability. It's also proposed to form the Committee which will control a multi-signature wallet with authority to whitelist, filter, and distribute stETH protocol rewards.

Proposal

This proposal is for a tiered rewards-share program that offers a percentage of the DAO’s 5% share of staking rewards to participants who stake ETH using Lido. The program is designed to have limited rewards pools, gradual payouts, a fixed duration that the DAO shares with participants, and filtering for program abuse(details of abuse mentioned later).

The rewards-share program operates in three-phases:

1. Onboarding: This phase involves the initial application and evaluation process. Prospective participants need to meet the eligibility criteria outlined in the proposal below. The Rewards Share Committee will review and vote on applications, then add the accepted addresses to the program.
2. Rewards-Share: Once onboarded, participants are eligible for rewards-share. The Committee will monitor participants’ stETH contributions and calculate rewards based on positive activities, disqualification activities, and unstaked ETH.
3. Offboarding: The Rewards-Share program is designed with a defined termination points for all participants. The offboarding phase happens either when a participant voluntarily leaves the program, does not renew their participation, gets disqualified due to violation of the program’s Terms and Conditions, is discontinued by a DAO vote, or the rewards pool for rewards-share is exhausted and not renewed.

Onboarding

Prospective participants can be wallets, institutions, protocols, crypto services, neobanks, and custody services.

• Minimum Potential Contribution: Participants must demonstrate a potential to drive at least 2,500 ETH to Lido over the span of 12-24 months. This potential contribution will be assessed based on the current ETH total value locked (TVL); or total addressable market(TAM) within the participant’s protocol, wallet-products, or institution.
• Promising New Projects: If an applicant does not meet the minimum potential contribution level, the committee can assess applications from projects that show potential for driving growth to the Lido protocol. Evaluating factors may include the uniqueness of the product or any other qualities that the committee recognizes as indicative of future growth potential.
• Commitment to Lido: Participants must at least be willing to market and promote Lido equally with alternative liquid staking tokens(LSTs). Participants will still be eligible for the program if they promote Lido alongside alternatives.
• Compliance and Conditions: Participants will certify during onboarding that participation in Rewards-Share will follow Lido’s Terms of Use
  • The DAO determines the size of the rewards-share pool and the amount and terms of the stETH token reward, and can modify them through a DAO vote
  • The DAO can stop, pause, and resume the program at any time
  • The DAO can, at any time, change the operating conditions of the Rewards-Share Program
  • The rewards-share program does not have a specific time frame. The Program ends when there are no more tokens in the Reward Pool
  • Participants may maintain open lines of communication with the Rewards Share Committee and report any changes in their staking activities, relevant business operations, or other factors that could impact their eligibility for the program
  • Participants have the opportunity to appeal decisions to the Rewards Share Committee, but the committee makes the final decision on their eligibility, rewards, or other program-related matters
  • Participants are eligible for rewards share for 12 months from time of joining
  • The Rewards Share Committee must vote (by majority of the committee members) to renew a participant’s eligibility into the program after 12 months
  • In the event that the DAO does not renew the Rewards-Share Program, all rewards in the Rewards Pool will be paid out until exhausted

Rewards-Share

Tiers

Participants share a percentage of the DAO’s 5% share of staking rewards. For each individual ETH staked by participants, the DAO shares rewards for a period of 12 months starting from the date the ETH was staked. The amount of rewards-share from the DAO is tier-based, determined by the total cumulative ETH staked by the participant and/or by users via participants’ products and services.

The tiers:

• 30% between 0 - 50,000 ETH
• 35% between 50,000 - 150,000 ETH
• 40% between 150,000 - 350,000 ETH
• 45% between 350,000 - 700,000 ETH
• 50% for 700,000 ETH or higher

A participant’s starting tier will be determined by the amount of ETH originating from a participant’s products and services prior to their enrollment in the program. Necessary prerequisite for the recognition of the staked amount - staking transactions must be unambiguously attributable to the participant’s products and services based on the on-chain data. This might be achieved by:

• The integration of a unique referral code provided to the participants of the previous referral programs that tracks staked ETH
• Or by using on-chain data from a router smart contract that interacts exclusively with the participant’s own tokens and/or tokens belonging to the users of the participant’s products and services.

The Rewards-Share committee can disqualify any staking transactions for the purpose of the tier determination if they are too ambiguous or difficult to attribute to a participant’s products and services with a sufficient level of confidence.

Rewards-Share Calculation

All participants will be provided a unique referral code, that can be integrated at the website or protocol level, to track stETH they stake using Lido protocol. The Rewards-share committee will check activity within calendar months(ex. Jan 1st-31st).

These actions determined the amount of rewards-share:

• ETH Contribution: The total amount of ETH staked through the Lido Protocol by the participant
• Tier Level: A participant’s starting tier is determined by their cumulative contributions prior to joining rewards-share(total amount of ETH they were responsible for staking to Lido protocol before joining the rewards-share program). They can move up tiers while in the program as their contribution increases.
• Staking Duration: Rewards share lasts 12 months from the time each ETH was staked

Rewards-Share Disqualification Activities

Listed below are samples of activities that are detrimental to the program and can result in disqualifying stETH from being included in rewards-share. Only stETH involved in disqualification is excluded, not all stETH. The committee will filter for all new staked ETH within calendar month checking periods. These activities include:

• Unstaking: If ETH has been staked and unstaked in a period, then only net amount will be counted towards rewards-share
• Selling stETH on DEXs/CEXs: Trading stETH on decentralized or centralized exchanges
• Cycle-staking: Repeatedly staking ETH, selling or unstaking the resulting stETH, and then staking again
• One-sided stETH liquidity provisioning on DEXs: Providing liquidity for only one side of a decentralized exchange pool
• Secondary leveraged staking from money markets: Engaging in leveraged staking on platforms like Aave, Compound, or Euler are eligible for rewards-share. However, rewards-share for stETH originated from leveraged staking will be disqualified if the position risk ratio (borrowed funds/borrow limit) is above 0.95 or if the corresponding staking transactions take place:
  • While the deviation of the stETH:ETH swap rate from 1:1 is greater than 1%
  • When a temporary increase of the liquidation threshold for (w)stETH collateral on money markets is enacted

These activities do not disqualify the participant from the program outright, just the stETH directly involved in disqualification activities. However, if stETH originating from a participant is repeatedly involved in disqualification activities, the rewards-share committee can disqualify a participant from the program completely.

• If a participant is directly involved in disqualification activity, they will be considered for outright disqualification from the program(custodian, institution)

Unstaked ETH and the Social Unstake Deduction

Unstaked stETH will be deducted from stETH eligible for rewards-share. For unstaked stETH that is difficult to track directly to its source (mixed with tokens from other sources, or split between different addresses etc.) - we created the social unstake deduction.

This technique indirectly adjusts eligible stETH for rewards-share by considering the total unstaked stETH during a calendar month and the proportion of that unstaked stETH contributed by rewards-share participants. This mechanism was invented to overcome limitations imposed by stETH fungibility - it is hardly possible to determine the origin of a particular unstaked token.

The social unstake deduction will not be enabled by default. It will be used as an emergency brake in case of mass unstaking of participants in the rewards-share program.

• If the total amount of withdrawals that are difficult to attribute directly to participants in a month exceeds 25% of the average monthly new stake for the last three months, then the social unstake deduction will be applied. By default, the deduction will be disabled the next month if withdrawals don’t exceed the threshold.
• The social unstake deduction will be enabled on a permanent basis if multiple participants are systematically cheating through cycle staking to get higher rewards.

Avoiding the Social Unstake Deduction with Whitelisted Addresses

The whitelisted address is a way for participants to avoid the social unstake deduction. stETH sent to the whitelisted address will be exempt from the social unstake deduction but will be subjected to direct unstake deduction instead if withdrawals take place.

This process allows the Rewards-Share Committee to easily track a participant’s contribution.

Off-boarding

The Rewards-Share program is designed with a predetermined termination point, marking the onset of the offboarding phase. This phase can be triggered under several circumstances:

• Voluntary Departure: Participants may decide to leave the program at their own discretion.
• Non-renewal: After 12 months of active participation, participants must reapply for the program. If a participant does not renew their participation, they automatically enter the offboarding phase.
• Disqualification: If a participant violates the program’s Terms and Conditions, they can be disqualified and ushered into the offboarding phase.
• DAO Discontinuation: The DAO reserves the right to vote for the conclusion or non-renewal of the rewards pool. If such a vote passes, all participants are moved to the offboarding phase.
• Exhaustion of Rewards Pool: If the rewards pool for rewards-share is exhausted and not renewed, all participants will no longer receive rewards-share

If a participant’s status in the program is terminated and is no longer earning rewards-share going forward, stETH before termination will still be earned rewards-share(12 months from time of staked ETH). However, should the rewards pool be depleted or the DAO decide to discontinue the program, the rewards-share distribution will consequently cease for all participants.

Rewards Share Committee

The Committee will control a multi-signature wallet with authority to whitelist, filter, and distribute stETH protocol rewards.

Multisig disclosure: Use 0xe2A682A9722354D825d1BbDF372cC86B2ea82c8C rewards share multi-signature wallet that is controlled by the Rewards Share Committee members(aka signers):

• frontalpha: 0x22c05930160c6a74a6bA59436e8F7006176ed104
• kadmil: 0x9A3f38AF97b791C85c043D46a64f56f87E0283D4
• Zuzu_eeka: 0x004812da927b5DCd07e7329609eDD75E25d2d295
• Pipistrella: 0x5da409e1cbDABeC67471dB01Ff956f804bb8879f
• jbeezy: 0x039bDD285d3eDb1D9B6001d3097067Aa2AF7d826
• McNut: 0xc7a8DE05264442A318189f2bd160d2830902C8CD
• kethfinex: 0x639e084095020E1E85a857eb12b2219292a5B979

The committee will follow the DAO’s policy on multisig operations.

The Committee will start with an initial rewards pool of 3,000 stETH, which will be requested with Easy Track motions (respectful factories to be deployed) if this proposal is approved in the current Snapshot. When the pool is depleted, the DAO will vote whether to replenish it.

Supporting Research and Analysis

• Rewards Share Simulation: A simulation is available to see how aspects like tier, staked amount, disqualified ETH, and unstaked ETH determine the rewards earned by participants
• Social Unstake Penalty: A paper on the “social unstake” penalty concept, which addresses the challenge of tracking unstaked stETH and offers a solution to indirectly adjust rewards share based on the total amount of unstaked stETH and its proportion to stETH originating from rewards share participants.

Definition of Terms:

• “Rewards Share Committee” means the committee established by the DAO to oversee the distribution of rewards within the Rewards-Share Program.
• “Lido” refers to the name of a suite of software tools deployed on the Ethereum blockchain.
• “stETH” means the staked Ethereum token created by Lido as a representation of a user’s staked ETH.
• “DAO” means the decentralized autonomous organization responsible for managing and governing Lido software.
• “ETH” refers to the native cryptocurrency of the Ethereum blockchain.