RFC: Rocket Pool <> Metronome: Liquidity Incentives Matching

Governance
1

Rocket Pool <> Metronome: Liquidity Incentives Matching

Summary

Authorize a 1:1 incentive matching program for up-to 2,500 RPL per month with Metronome towards rETH:msETH liquidity

Background/Motivation

Metronome (synthetic assets) and Vesper (yield aggregator) are sister protocols designed to interact with one another to offer users a compelling, capital efficient DeFi yield farming experience.

Users can deposit their preferred assets to Vesper and earn yield passively through bluechip DeFi strategies. They can simultaneously take this deposit and post it to Metronome as collateral to mint synthetic assets. They can use those assets to LP, generally as loans, for trading, or to loop their position into more of their deposit.

We believe this to be a very strong set of utilities for rETH in particular. Users deposit rETH to Vesper, where it earns yield by taking out loans from Maker (and as soon as it is supported, through Aave v3 and Euler as well). This enables a “staking-plus” yield experience: keep the all of the rETH yield and get extra DeFi APY on top.

Now take that “staking-plus” position onto Metronome, keep all of that yield, and additionally mint msETH or msUSD and do-more at the same time. In particular, users can perform a looping yield farming strategy in a way that is far more efficient than through Aave or otherwise (because the collateral earns yield and the synthetic loans are more competitive than a p2p lending pool).

That process is illustrated in the graphic below:

In exchange for this set of utilities, we would like to cement ourselves as partners beyond the “public” matching rate with a 1:1 liquidity incentives match.

Rationale

Per RPIP-11, the IMC has an explicit set of guidelines when gauging incentive programs. We believe that Metronome, Vesper, and this partner boost surrounding msETH-rETH liquidity is closely aligned with those principles. In particular,

The IMC SHALL expand access to rETH across major DeFi protocols: Outright, this proposal cements a prioritization to incorporate rETH across both Vesper and Metronome, enabling two DeFi primitives that rETH is currently unexposed to (yield aggregator and synthetics). And combined together, a third as well (looping positions).

And beyond this, the TVL routed through Vesper will additionally plug rETH across its existing DeFi integrations, driving demand and signaling to the market that there is appetite for rETH DeFi.

The IMC SHOULD sustainably build rETH exchange volume: This set of integrations, as outlined above, not only drives liquidity, but also tons of activity. Vesper TVL will drive deposits and borrows of rETH across other DeFi protocols, and additionally converting yield earned to buy more rETH. Additionally, users who participate in the looping strategy outlined above will be performing massive (versus initial position size) volume whenever they enter and exit the strategy, as they are buying rETH on entry and selling rETH on exit. The liquidity built around msETH-rETH is intended to be incredibly active liquidity.

And of course, this is all done in a manner that protects the mission of liquidity, peg, and capital efficiency. Our msETH is designed to trade 1:1 versus ETH, and by engaging in a liquidity incentives match, your incentives go 2x as far as we are putting up as many dollars worth of incentives as yourselves.

Specifications

IMC and Metronome will coordinate on the ideal destination for rETH-msETH liquidity. This may include Curve, Uniswap v3, and/or Balancer.

Both teams will utilize their governance token (RPL and MET) to bribe voters of the pertinent exchange at an equal $$ amount, up-to to the maximum allotted budget of 1,500 RPL per month, and allocated from the existing holdings controlled by IMC.

2

I have some reservations about this proposal.

First off, vesper seems to be very new. The website calls itself a beta and there are very few synths available. I have concerns about driving users to an early-stage project.

Second, it’s not clear that msETH-rETH liquidity is useful. rETH is the more liquid asset and so even though incentive power would be doubled, the overall benefit for rETH holders would be little.

Further, it appears that most assets currently listed do not have co-incentives. Additionally, a number of projects that package strategies in smart wallets have been vying for attention even without RPL incentives.

While this would boost exchange volume, I do not believe it would be in a sustainable fashion.

3

Hey, thanks for taking the time to read through and post reactions! I think these are all fair points to discuss further, I’ll react to each:

First off, vesper seems to be very new. The website calls itself a beta and there are very few synths available. I have concerns about driving users to an early-stage project.

Note that Vesper has been around in prod since Q1 2021 - though Metronome is indeed a newer protocol. The protocol is audited by Quantstamp which may give some confidence, but that doesn’t change that you are looking at a newer-to-market primitive.

The intention behind this proposal, although there is no timeline, is to ramp up this engagement around the same time as Atlas and Shanghai, when Metronome will be more mature and past its beta phase. This coincides with discussions we’ve had with Maverick, I don’t think it would be an issue to put further quantifiers in terms of timing or benchmarks for Metronome “maturity”.

Further, it appears that most assets currently listed do not have co-incentives. Additionally, a number of projects that package strategies in smart wallets have been vying for attention even without RPL incentives.

We do have co-incentives around our FraxBP liquidity, and we have a similar proposal that has been discussed on the Frax side the Frax ecosystem that is in a similar stage. Otherwise the current collaterals and synths supported are just the standard ETH/WBTC/USDC/DAI and some Vesper wrappers on ETH and USDC. Note that we also recently pushed rETH to Vesper and incentives are posted there to incentivize users. On the liquidity side, we are so far using our CVX voting power to drive emissions (with boost from Frax)

I would highlight that this is not necessarily the same conversation as a smart wallet, which takes rETH and automates it through existing DeFi platforms for looping yield or otherwise. We are offering a new set of primitives and combining them together: Vesper offers additional yield to rETH, on top of rETH compounding APY, through DeFi strategies. Metronome offers loans on this “LSD+” position (in msETH, plus msUSD in others). This is 1) a new lending market and 2) a more efficient one, since synths don’t require a pool of idle assets that users borrow from.

In short, we are creating a looping rETH yield farming experience that is higher yield on the collateral side and more efficient on the borrow side. This same mechanism is similarly intriguing for the other major LSD options. This proposal is intended to cement some preference towards Rocket Pool through development and integration of these products, which is a meaningful pitch that you don’t get from a smart wallet integration alone.

Second, it’s not clear that msETH-rETH liquidity is useful. rETH is the more liquid asset and so even though incentive power would be doubled, the overall benefit for rETH holders would be little.

This is most beneficial for rETH holders who are looking to take advantage of the full product stack, which will require minting msETH and swapping for rETH to open positions and vice-versa to exit.

However, the exact makeup of the pool is not a show stopper, we could very easily base liquidity around a Balancer pool of 50% msETH - 25% ETH - 25% rETH or something to that effect, although it is not as efficient for LPers if they have less of their weight in the compounding rETH token. I would trust the IMC judgement here and abide with whatever platform & makeup of pool is deemed most efficient.

LMK if this all makes sense, cheers!