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March 7, 2023

Introducing gtcETH: A New Way to Fund Public Goods through Staked ETH

New funding mechanisms are needed to overcome limitations in traditional public goods funding. This necessitates offering fresh ways to incentivize contributions, broaden the pool of available resources, and ensure efficient allocation of funds. Gitcoin has been deploying blockchain technology to establish decentralized funding mechanisms that facilitate more transparent and streamlined funding of public goods. Gitcoin and Index Coop are partnering to create Gitcoin Staked ETH Index (gtcETH) to…

New funding mechanisms are needed to overcome limitations in traditional public goods funding. This necessitates offering fresh ways to incentivize contributions, broaden the pool of available resources, and ensure efficient allocation of funds. Gitcoin has been deploying blockchain technology to establish decentralized funding mechanisms that facilitate more transparent and streamlined funding of public goods. Gitcoin and Index Coop are partnering to create Gitcoin Staked ETH Index (gtcETH) to take this ambition further. The objective of a new ERC-20 token is to provide diversified exposure to the top liquid staking tokens enabling users to earn staking rewards and contribute to public goods simultaneously.

"Index Coop has been a leader in creating novel index tokens to offer exposure to leading protocols and trends in the market. gtcETH is a fantastic addition to their suite of products and ensures a "set it and forget it" option is available when folks want to fund public goods," said Kyle Weiss, Gitcoin co-founder. "We are optimistic this will enable long-term sustainable funding for public goods as the value in the pool grows."
Simplifying staking in ETH

Public goods in the Ethereum ecosystem create a supportive environment for innovation and attract new users and businesses to the platform. They also help advance a decentralized internet that empowers individuals and organizations by providing a secure and accessible ecosystem. ETH, the main asset in the ecosystem, benefits from the development of public goods and network effects.

Staking is a popular method of earning a return in ETH, and decentralized protocols that offer liquid staking tokens have grown in popularity due to higher returns and lower deposit requirements. However, stakers may find it challenging to choose which protocol to entrust with their ETH and diversifying their stake across multiple protocols can be exceptionally expensive. Gitcoin Staked ETH addresses these challenges by indexing prominent liquid staking tokens into a single ERC-20 token, providing a way to passively fund public goods.

A positive-sum opportunity to fund public goods

gtcETH will enable token holders to access the top ETH liquid staking tokens through a single token while simultaneously contributing to public goods funding. The token will be built on Index Protocol and contain Rocket Pool, Lido, and StakeWise liquid staking tokens.

gtcETH offers a win-win solution for those interested in donating to public goods. A portion of the staking rewards earned by the underlying assets will gradually add to the token's value and be realized in the form of price appreciation. In addition to retaining price exposure to ETH, token holders can earn some staking rewards while simultaneously donating to public goods. This is unlike an outright donation, where the user must give up their ETH.

"We are excited to partner with Gitcoin on this product and introduce a novel method to fund public goods. gtcETH enables a positive-sum path for people to earn ETH staking yield, secure the network, and finance public goods. By simplifying the donation process, gtcETH will provide a steady funding stream for Gitcoin Grants." – C-squared, Index Coop

Of the total streaming fee of 2.00%, 1.75% of the fee goes to Gitcoin, and 0.25% goes to Index Coop. In a scenario where a user holds 1 gtcETH token for a year and earns a 5% gross staking APR (assuming a constant ETH price of $1,700), the resulting contribution to Gitcoin is approximate twice the average contribution by a participant in previous Gitcoin Grants. Buy your gtcETH here.

Thus, at a TVL (Total Value Locked) of $1 million, gtcETH would contribute ~$17,500 annually to Gitcoin Grants. This provides a low-friction access point for contributions and a consistent revenue stream for funding grants and/or bounties.

Initial composition for gtcETH

gtcETH will employ the dsETH methodology, which promotes decentralization and competition among liquid staking protocols. Though there are many different liquid staking tokens in the DeFi ecosystem today, no on-chain offerings enable users to earn staking rewards and contribute to public goods simultaneously. However, this table presents the liquid staking tokens that will be present in gtcETH and their respective yields:

token

Issuing Protocol

Protocol Fees

APR (sources)

wstETH

Lido

10% of rewards

5.2%

rETH

Rocket Pool

15% of rewards

4.7%

sETH2

StakeWise

10% of rewards

5.3%

As a result, the initial composition for gtcETH will yield a 2.99% Net APR after accounting for the streaming fee (2.00%). This is a simple projection, and it is worth noting that various factors (percentage of ETH staked, network fees, fee burn, etc.) fundamentally affect reward rates, and thus yield is subject to change over time.

Building a sustainable partnership

By buying and holding the gtcETH token, Gitcoin contributors can now:

  • Keep their ETH and maintain price exposure
  • Earn staking and execution layer rewards
  • Contribute to Gitcoin Grants funding

Alongside this, the token diversifies the portfolio with multiple liquid staking tokens and promotes decentralization within the liquid staking ecosystem. Both the Index Coop and Gitcoin communities have voted with resounding support to launch the Gitcoin Staked ETH Index.

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