Introducing the Gitcoin Staked ETH Index ($gtcETH)

The Gitcoin Staked ETH Index (gtcETH) is an index token made up of the leading Ethereum liquid staking tokens. In addition to a methodology that encourages decentralization, gtcETH shares a portion of staking rewards with Gitcoin in support of public goods funding.

Since 2017, over $50m has been donated to and distributed by Gitcoin to support of public goods.

In this post, you will learn:

• The Basics of the gtcETH Token

• The Methodology behind the gtcETH Token

The Basics

gtcETH is built on Index Protocol, a good-faith fork of Set Protocol v2. Therefore, gtcETH will use the same battle-tested infrastructure as other Index Coop products like $DPI, $MVI, and $BED.  The same security assumptions and audit coverage for Set Protocol apply to Index Protocol as no changes have been made to the core code; more information on Index Protocol can be found in the docs here.

At launch, gtcETH will be composed of rETH (Rocketpool), Wrapped stETH (Lido), and sETH2 (StakeWise). In order for gtcETH to be a “re-pricing” token, its components must also be “re-pricing”. In other words, staking and execution layer rewards must accrue to the liquid staking token’s net asset value, with the token gradually appreciating in price relative to ETH over time. For this reason, stETH must be wrapped and sETH2 rewards must be periodically reinvested so that the ultimate index token is “re-pricing”. The key feature that enables the continuous contribution to public goods is the streaming fee, a mechanism in the gtcETH token contract that charges a percentage of the total value locked in the index over time (not a performance fee or commission). The streaming fee accrues on a block-by-block basis and can be collected anytime. In the case of gtcETH, there is an annualized streaming fee of 2.00%, with 1.75% going to Gitcoin and 0.25% going to Index Coop. This streaming fee creates a constant funding source for Gitcoin that is similar to subscription revenue and complements existing funding methods.

There are 5 major benefits to using gtcETH:

• Fund public goods on Ethereum

• Earn staking rewards while giving back

• Diversification across liquid staking tokens

• Ease of use

• Promote decentralization amongst liquid staking protocols

Fund public goods on Ethereum

Purchasing gtcETH is a simple, consistent way of giving back to public goods on Ethereum. Instead of waiting for quarterly funding rounds and choosing between many deserving projects, all you have to do is buy and hold gtcETH. By doing so, you provide a steady stream of funding for public goods.

Earn staking rewards while giving back

Unlike most donation methods, gtcETH offers a positive-sum solution where you can give to public goods, keep all of your ETH, and earn staking rewards. The price of gtcETH will closely track the price of ETH because it is simply a basket of liquid staking tokens, so holders keep their price exposure to ETH. The Net APR on gtcETH is expected to be 2-4% (4-6% Gross Staking APR - 2% Streaming Fee), so gtcETH holders still earn staking rewards after sharing with Gitcoin.

Diversification across liquid staking tokens

A diverse set of liquid staking tokens within gtcETH reduces the risks associated with individual tokens and also stabilizes returns. The price of a single liquid staking token can be volatile relative to ETH, but a basket of liquid staking tokens will have more price stability. In the same way, the rewards earned by different liquid staking tokens can be volatile, but gtcETH holders have balanced exposure to all of these rewards.

Ease of Use

gtcETH provides a simple way to access diversified Ethereum staking rewards.

Easy access - gtcETH can be easily purchased on a decentralized exchange (DEX) or through a process called Flash Mint. This eliminates the need for users to individually buy all of the components to mint gtcETH themselves, resulting in significant gas savings.

Passive holding - gtcETH allows users to simply buy the token and let rewards accrueover time, without requiring any additional effort or involvement. This can be a convenient, hands-off way to fund public goods and earn staking and execution layer rewards.

Auto rebalancing - adjusting the proportions of different assets within gtcETH maintains a desired balance and optimizes returns. Users do not pay any gas fees when a rebalance is performed.

Evergreen index - the exact constituents of gtcETH will evolve over time according to the dsETH methodology. This allows the gtcETH (and dsETH) to adapt to changing market conditions and continue to offer long-term value to holders as the liquid staking market evolves.

Promote decentralization of the Ethereum network

gtcETH, which utilizes the dsETH methodology, promotes decentralization by incentivizing liquid staking protocols to support more node operators. By increasing the number of node operators, the protocol becomes more decentralized and less vulnerable to the actions of a single node operator. Protocols are also incentivized to evenly distribute staked ETH across all nodes so that the liquid staking tokens they offer are not overly dependent on a concentrated set of node operators.

Understanding the Methodology

The objective of gtcETH is to enable token holders to access the top ETH liquid staking tokens through a single token while simultaneously contributing to public goods funding.

The methodology is the same as dsETH’s, which gives token holders diversified exposure to ETH liquid staking tokens, with a weighting that favors decentralized liquid staking protocols as measured by the number of node operators as well as the distribution of stake across node operators.

To begin, constituents are equally weighted before adding a Node Operator Factor, which benefits staking protocols with more active node operators. An HHI (or Herfindahl-Hirschman Index) Factor is then added, which measures the concentration of stake and broader competition amongst active node operators within each protocol.

Initial components for gtcETH:

• Rocket Pool ETH (rETH)

• Wrapped Lido Staked Ether (wstETH)

• StakeWise Staked ETH2 (sETH2)

Token Breakdown/Fees

Additionally, at a TVL of $1m, gtcETH would contribute ~$17,500 annually to Gitcoin Grants.

gtcETH will have a streaming fee of 2.00% (200 bps), split 1.75% to Gitcoin and 0.25% to Index Coop, and no mint or redeem fees.

Liquidity

Two liquidity pools have been seeded by Gitcoin on Uniswap v3:

• gtcETH / WETH 5bp Fee

• gtcETH / dsETH 1bp Fee

How to Buy / Mint

Buy / Sell / Mint / Redeem: Index Coop App

More Resources

• Read the forum post

• Index Protocol explainer

• Review the analytics dashboard on Dune

• Gitcoin's gtcETH funding forum post

For more information on Index Coop, please visit: Discord | Twitter | Website