Opt-in Ethereum <-> Anoma mutual network liquidity

Cryptoeconomics
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(writing up this idea after surfacing it in a discussion with @apriori)

One challenge with mutual network credit is in supporting existing networks which don’t have “distribution governance mechanisms” - e.g. Ethereum which has a fixed (by the protocol) issuance scheme, where issuance goes only to stakers. However, actors who choose to stake have the ability to do so in a way which programmably redirects their rewards, which could be used to enable an “opt-in” mutual network credit mechanism, namely:

  1. Users deposit ETH (or another asset with a similar staking distribution mechanism) into a contract.
  2. That ETH is staked (perhaps via Lido or some other operator in the case of Ethereum), and staking rewards are sent to the contract (instead of the user).
  3. These staking rewards can then be directed wherever the contract directs them. For example, they could be split between:
    • The Anoma network treasury (mutual network credit at the network level)
    • Protocol-owned liquidity of XAN ↔ ETH (mutual network credit at the user level)
    • Funding streams (perhaps managed by proto-Public-Signal governance of the ETH depositors)
  4. In return for doing this, the Anoma distribution governance mechanism can offer XAN both to individual depositors and to Ethereum as a whole (via these managed funding streams, or via other specific credibly neutral PGF distribution targets).

The efficacy of this mechanism to align the two networks is still limited by the staking issuance rate, but it’s at least a possible mechanism which is compatible with the existing monetary policy.

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Note that this can be generalized beyond Ethereum reasonably easily (in principle). For example, one could imagine a Cosmos SDK module that does much the same thing, connected to a protocol adapter which can host the Anoma-side components of this application. A smart contract on Solana could function similarly, I imagine.

In cases where networks have no staking issuance (such as Bitcoin), a weaker but still-interesting mechanism could be envisioned where the asset (BTC) is locked in a LP pool with XAN, where fees from LPing are claimed by the contract periodically.

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to the latter point you could build a uniswap v4 hook that does exactly this for wbtc or cbBTC, etc (pick your flavor of btc).

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This is an interesting possibility, where stakers would opt to get their rewards in XAN instead of ETH. Why would they do that instead of simply swaping their ETH rewards into XAN manually themselves?

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Good question. I think if the mechanism simply mints XAN rewards instead of ETH rewards, this is not particularly appealing, except perhaps as a bet on how the assets will perform (if some lock period is involved), since a user could simply swap ETH to XAN as you mention.

However, I think a more complex mechanism could attract users with more complex values, e.g.:

  1. If part of the staking rewards go to a treasury, where ETH depositors can vote on what streams that treasury funds, people might choose to deposit into this mechanism because they want to support these public goods and influence which ones get funded.
  2. If some XAN goes to the Ethereum network as a whole (as opposed to individual depositors), people might choose to deposit into this mechanism because they want to support Ethereum as a whole (and perhaps save themselves tax consequences…)
  3. Anoma network governance could elect to give future retroactive airdrops to depositors, perhaps also in conjunction with proof of having helped the networks in various ways. The amounts would be uncertain, but could end up being higher than ETH staking rewards (so whether this would make sense for individual depositors or not depends on their expectations, and what they intend to do to help both networks).