Swivel Safety Module (SSM)
An introduction to staking with the Swivel Safety Module
As introduced on our substack, the Swivel Safety Module (SSM) serves as a central mechanism for stakeholder empowerment while acting as an effective protocol backstop.
Through the Swivel Safety Module SWIV stakeholders can stake their SWIV tokens alongside ETH at a 80:20 ratio, in the process providing liquidity to an 80/20 weighted Balancer pool while implicitly insuring deposits on the Swivel protocol.
This design allows our most confident stakeholders to commit their SWIV towards protecting the protocol while earning significant premiums alongside the protocols growth.
A shortfall event is defined as a loss that has occurred on Swivel that has originated from faults that directly relate to the Swivel protocol. Such events would include the loss of funds on Swivel.sol relating to bugs or hacks of the Swivel protocol as well as any admin errors or faults relating to the management of the Swivel protocol.
Losses originating from external protocols that are isolated to those external protocols are not covered by the SSM. For example, if Aave has their own shortfall event, depositors on Swivel are not insured by both the SSM as well as Aave's security module, and instead would rely on the Aave security module to cover their deposit.
Facing ambiguity, determining a shortfall event, and the payout of funds for a shortfall event will rely on governance.
The yields that SSM stakers (stkSWIV holders) recieve are comprised of a number of revenue streams.
- Swivel Protocol Fees: The SSM earns 50% of all fees currently generated on the Swivel protocol. The fee share is variable dependent on future governance proposals.
- Balancer LP Fees: As all deposits are also providing liquidity, the SSM also earns all fees generated by an 80/20 Balancer pool comprised of SWIV/ETH.
- SWIV Incentives: Each epoch a given amount of SWIV are allocated in incentives to the SSM.
- External Incentives: Each Balancer Pool is eligible for incentives through balancers veBAL gauge system.
In order to ensure the solvency of the SSM during a shortfall event, cover of the Swivel protocol is limited to 33% of the current value of the SSM.
Further, in order to ensure users do not withdraw in preparation for an upcoming payout, withdraws must be queued and set on a cooldown before being processed.
Specifically, users must queue their withdrawal 2 weeks before their expected withdrawal date, and then have a 1 week window to then withdraw their funds.
As already mentioned, while a staker's loss is limited to 33% of their stake, stakers are taking on the risks involved in covering deposits on the Swivel protocol. This is discussed in more detail above under Shortfall Events.
Further, depositors are also exposed to the volatility and potential impermanent loss of the 80/20 Balancer pool.