Impact Staking with Lido - Grant Proposal
TLDR
Launchnodes has pioneered Impact Staking of ETH through several initiatives, since launch in 2020. Impact Staking is the process of using staking returns to fund projects that address climate, infrastructure and inequality issues across communities globally. Impact Stakers pledge a proportion of the rewards that they would typically receive from staking, while receiving their initial staked capital (ETH) back at an agreed time. Projects which receive funding from Impact Staking are required to provide agreed, clear data and metrics which demonstrate the efficacy of the funding that their project has received. In this way, Impact Stakers can closely monitor the impact their commitment has made, with the most impactful projects expected to receive ongoing funding, and ineffective projects identified and remedied quickly.
This grant proposal is to enable Lido stakers to pledge some or all of their staking rewards to projects that require ongoing funding. Projects are expected to include initiatives from UNICEF, GiveDirectly, Save The Children and other leading global organisations. It is anticipated that individuals and entities such as foundations and family offices will consider Impact Staking through Lido in the future.
The 3 initial causes to which Lido Impact Staking rewards are planned to be targetted are:
| Cause / Project | Project Delivery | KPIs / Outcome Tracked |
|---|---|---|
| Net Zero Ethereum | Treedom | Carbon Offset (tonnes/CO2) vs Ethereum footprint |
| Internet Connectivity for Schools | UNICEF Giga | Number of schools connected to the Internet |
| Lifting People Out of Poverty | Give Directly | Number of people lifted out of poverty |
These 3 projects have huge global potential to improve lives, and to reduce the carbon footprint of the Ethereum network.
All aspects of the web3 infrastructure and implementation for Impact Staking with Lido are intended to be fully transparent and visible in public repos and on the Ethereum blockchain.
Background
Launchnodes committed staking returns from one of its first Ethereum 2.0 validator nodes to fund vital IT equipment for Save The Children in September 2021:
Subsequently, Launchnodes has worked with governments, UNICEF Giga, the Ethereum Foundation and other global organisations to demonstrate how ETH staking rewards can be used to fund powerful global initiatives such as enabling internet connectivity for schools:
- Impact Staking - Delivering school connectivity with Ethereum staking - YouTube
- Giga Finances School Connectivity in Rwanda through Ethereum Staking – Giga
There is a widely held belief by the general public that blockchain technologies and cryptocurrencies are a speculative gamble with no societal benefits. There is also a malaise within web3 and blockchain communities that the focus for builders in this space is heavily skewed towards financial gain at all costs. Impact Staking demonstrates that these perceptions are not indicative of the web3 community overall – and that Ethereum, blockchain and staking can be a serious long term financing tool to address the world’s most pressing problems.
Invitation to Lido and our Industry
At Devcon Bogota in October 2022, and on multiple other occasions, Launchnodes has invited other staking organisations, developers, researchers, thinkers and builders to participate in Impact Staking. While we have been a catalyst, this initiative requires support from a far broader community to scale to levels where significant global impact can be realised.
We have approached several ETH Staking as a Service providers and projects, and would be immensely grateful for Lido’s involvement as the world’s largest liquid staking provider.
Scope of Work
Launchnodes is seeking grant funding for its project: Impact Staking with Lido.
Tax Advice
Prior to further planning, design and implementation for this project, Launchnodes will engage with an international tax specialist, for advice and guidance on how Impact Staking can operate in the most tax efficient way possible for Impact Stakers and projects, while remaining fully compliant with tax authorities. Launchnodes has checked with several sources and understands that donating staking rewards to a good cause has all the tax benefits of donating crypto directly to a good cause - and therefore will be as attractive to potential impact stakers. We will however receive and share specific advice on this point. This project will not continue further or receive any further funding in the event that it is more tax advantageous for typical digital asset holders to donate directly to good causes, rather than share their staking rewards.
Regulations & Compliance
We will also confirm with partner organisations (initially planned to be UNICEF Giga, Treedom and GiveDirectly), that Know Your Customer (KYC) and Anti Money Laundering (AML) requirements are fully met from their perspectives, to ensure that all donations to these entities are successfully received in full.
Website & Public Dashboard
A highly visual, intuitive website - similar in style and impact to ultrasound.money - will be created to provide a real-time, impactful view of ETH staked by Impact Stakers, donations made to the causes, impact achieved (eg. carbon offset) and other dynamic insights and projections.
There are 3 core aspects to this project, with this grant application intended to primarily fund the first component (Lido Impact Staking Smart Contract). This grant will fund all 3 components of this project, with the final end-to-end security and smart contract review to be funded by Launchnodes or ecosystem partners that have already expressed strong interest in supporting this project.
1. Lido Impact Staking Smart Contract
This is the core smart contract used to stake ETH via Lido for Impact Staking, and apportion a % of a user’s rewards to projects for a period of time. The contract will accrue all the rewards and only allow the Impact Staker to access a percentage of the staking returns, the remaining staking returns will be sent to the organisation that the user has chosen. In keeping with enabling stakers to always be able to access their Ether, the initial ETH that customers have staked will always be liquid and available for the customer to use in Defi, to hold, or to withdraw for other purposes.
This is enabled by the following mechanism:
The smart contract mints or acquires stETH or wstETH when a staker pledges a certain amount of ETH, stETH or wstETH. This token is pledged for a period of time (eg.12 months), with a designated proportion of rewards provided to the cause (impact project). Early exiting of this agreement by the staker is possible, however will result in a portion of the original staked ETH being “sacrificed" (withheld as an early-exit fee), with the remainder being returned to the staker.
This is equivalent to an Impact Staker of say, 10 ETH having eg. 0.1 ETH apportioned directly to the impact project at the start of the staking process, with the remainder returned in full when the user wishes to stop staking.
This mechanism is in place to avoid the situation where a long-running project (eg. delivering a medicine programme) is terminated early because initially pledged funds disappear part-way through. The ‘sacrificed’ ETH amounts will be calculated to be a reasonable forecast of the total value to the impact project had the staking not been interrupted. This is challenging given that future staking yields are uncertain, therefore a simple mechanism such as an average of historic yields may be used. Stakers will be made aware of this amount before they commit to Impact Staking with Lido. With this information, stakers will be able to choose the duration of the projects that they wish to support.
We welcome any and all suggestions on how best to structure the smart contract and logic to enable the highest levels of Impact Staking and satisfaction for stakers and impact projects.
Launchnodes will also explore the potential of Lido Vaults to enable Impact Staking, with each cause (GiveDirectly, UNICEF Giga etc.) having a Vault to which staking rewards can be sent.
Impact staking can use the Staking Router Modules, to generate additional funds for organisations wanting to drive social impact. Leading foundations, charities, Non Governmental Organisations could become staking modules and Lido would share its ‘volume’ of ETH to stake with these validators to fund their climate and social impact outcomes. This approach is beyond the scope of this grant application.
2. Impact Staking - User Interface to Pledge Returns and View Impact
The web3 interface will allow users to select the project(s) they wish to support, the time period, and % of rewards they wish to pledge.
In addition to allowing users to stake their ETH and select their preferred project(s), a highly visual and impactful online dashboard will be created. This will show all ETH that has been impact staked to date, how much has been raised for each cause, the real-time impact of the project (eg. schools connected to the Internet, carbon savings achieved etc.)
The website will be easy to view and share, supporting ongoing awareness of the project via social and traditional media.
3. Impact Staking - Project Interface and Metrics
This web3 interface enables projects to list their projects, and to provide key
operational and performance metrics on an ongoing basis – enabling Impact Stakers
to determine how effective the projects are, compared to their intended goals and outcomes. Metrics will be project dependent, examples would be ‘number of trees planted’, ‘number of children connected to the internet’ etc.
The requested grant funding is planned to enable a ready-to-launch smart contract and platform, with additional funding required for scaling, and final security and smart contract audits. Funding for this final component is expected from Launchnodes’ ecosystem partners that have already shown strong interest in bringing Impact Staking on Lido to life. The ultimate goal is for Impact Staking to span multiple blockchains, protocols and entities.
Lido Impact Staking Smart Contract
At the core of this project is a smart contract which enables users to stake their ETH with Lido, while pledging a proportion of their overall staking rewards to one of the available Impact Staking projects.
The smart contract will enable users to:
- Stake an amount of ETH, stETH or wstETH
- Determine a proportion (%) of their rewards that they are willing to donate to Impact Staking
- To select one of the projects available in the Project Interface based on the staker’s personal interests (eg. funding internet connectivity for schools in Africa, reforestation of the rainforest etc.)
- Determine the staker’s minimum time period for Impact Staking
It is recognised that a key attraction of staking through Lido is liquidity of funds. Stakers will be entitled to withdraw their stETH at any point, as described in the ‘Lido Impact Staking Smart Contract’ definition above.
Users will visit the User Interface, select the proportion of their rewards that they are happy to pledge ( x% ), the project that their rewards will fund, and potentially their minimum time period (3 months, 6 months, 1 year, 2 years). A smart contract will be initiated in order to:
- Stake the user’s ETH, stETH or wstETH via Lido
- Collect 100% of all rewards for the user received from Lido
- Share x% of the rewards with the designated project
- Send the remainder of the rewards (100%-x%) to the user’s wallet
- Manage a request from the staker to unstake their stETH / exit the contract
The smart contract instance will be in existence until the user wishes to un-stake their ETH from this contract. If the user wishes to continue to stake their ETH beyond the life of the impact project, the user will receive all staking rewards - as if they were a typical Lido staker with no impact staking component. Alternatively, that user may select another impact project to share future rewards with.
As is the case currently, Lido node operators will receive a fee for operating the validators from the existing Lido smart contract. Any stETH deposit is subject to the current model and structure for staking.
Staking Router
Launchnodes understands Lido’s plans to move from its current curated list of validator operators, to a model that allows anyone to become a Lido validator without permission. The smart contract and approach described within this proposal will be compatible with both models - and enable both existing validator operators and new service providers to support users who wish to impact stake.
Outside the scope of this grant application, Launchnodes is keen to support Lido’s future validator set by offering ‘Impact Staking’ options connected to the Staking Router, and other beneficial options for staking.
Go To Market Strategy
Our plan to share this initiative and encourage participation globally involves 3 channels:
- Each of the global causes that we engage with have active and effective marketing teams, able to promote Impact Staking to potential stakers across the world
- Go-live of a highly memetic website, coupled with a powerful story explaining that Lido Impact Stakers can help to reduce Ethereum’s carbon footprint to zero, has significant potential to become a viral news story that attracts the attention of the world’s media
- Launchnodes plans to continue to engage across the Ethereum and crypto community and draw on the support of individuals, teams and projects globally.
Project Timing
We are conscious that the recent Shapella upgrade continues to require immense focus, new functionality and testing from Lido and the broader Ethereum ecosystem globally.
We are very keen that Impact Staking with Lido becomes a viable offering as soon as possible - with considerable activity expected across all forms of ETH staking, and potential new entrants and applications arising following Shapella’s success.
Launchnodes is attuned to the current workload and priorities of the Lido development team, and intends to be self-sufficient through the development process of this project - relying on existing learning materials, documentation and code as far as is possible. We believe that there will very few lulls in development for Ethereum and Lido as the Surge, Verge, Purge and Splurge advance - so are keen to begin this work as soon as is possible in Q2 2023 - and liaise closely with the Lido team to schedule future reviews, in-depth testing and go-live as busy schedules allow in the following months.
Key Highlighted Risks and Mitigations
Risk: Response &
Mitigation
1: The causes available to impact stakers aren’t appealing.
Causes may not suit crypto natives.|We have attempted to start this initiative with 3 high profile, global issues (climate change/carbon footprint, Internet connectivity to unconnected schools and addressing extreme poverty) with large, global partners with high levels of trust, transparency and historical trust.
The purpose of this project is to develop an architecture and model for multiple different causes to be represented and achieve donations through staking rewards.
If the initial 3 causes do not adequately resonate with Lido stakers, alternatives will continue to be added that represent other causes and societal benefit.
It is extremely challenging to pick ‘winners’ in terms of causes that Lido stakers have highest affinity to, however we will continually seek feedback, proposals and partnerships from potential stakers, that align closely with staker values, concerns and mindset. The website proposed as part of this project will enable crypto natives to share their views on where impact staking rewards should be directed from their perspective.
It may actually be the case that individuals who might previously have donated in fiat currency to worthy causes begin to understand that staking provides an alternative approach, where they can make ongoing donations but receive their original stake back, when they wish.
2: The initiative will fail as a result of insufficient / ineffective marketing
The 3 initial causes chosen have in part been selected due to their global marketing capabilities, and the ability for these causes to help create a global buzz around Lido Impact Staking.
The memetic website will be highly visually appealing, with elements will be included to increase its global visibility, reach and use in future press features / global media.
Launchnodes has established an Impact Staking working group, and plans to continue promoting this as a core part of its mission. We have NGO, government, multilateral, academia relationships that we will be leveraging to further encourage stakers to participate.
Launchnodes will actively be spending additional marketing funds, during this project and beyond.
3: The approach and mechanics do not meet the needs of donors / philanthropists
Launchnodes will investigate and confirm the advantageous tax treatment of impact staking rewards donated to a good cause, prior to the start of this project. If it is discovered that it is more favourable for an individual to donate digital assets to charity directly, rather than donating staking rewards through this mechanism, the project will be disbanded and no further costs will be incurred.
If the causes and global impact promised through Impact Staking are not appealing to donors / philanthropists, Launchnodes will seek to add additional projects/causes which have greater appeal.
4: The Lido Impact Staking initiative falters after an initially successful project
Launchnodes has designed the project to be self-sustaining for the long-term, after successful go-live.
The mechanism for this is described below in the ‘Ongoing Maintenance, Support and Growth’ section.|
Who are Launchnodes?
Launchnodes was founded in April 2020, to support individuals and organisations globally to run their own Proof of Stake blockchain nodes in a secure, scalable, cost effective way as Solo Stakers. Launchnodes has been supporting individual and enterprise customers to become self sufficient, Solo Stakers in Ethereum and over 15 of the other leading blockchains - on both public cloud, and in private data centres. Launchnodes pioneered and promoted Impact Staking in 2021, and is planning new and exciting initiatives with several global multilaterals, governments and foundations.
Grant Request
Breakdown Timeline for each of the following components:
- Understanding Tax, KYC, AML Requirements - 4 weeks
- Lido Impact Staking Smart Contract - 12 weeks
- Impact Staking - User Interface to Pledge Returns - 4 weeks
- Impact Staking - Project Interface and Metrics - 6 weeks
- Security Review - Full External Security Review of Smart Contract and Systems (to be executed in coordination with the Lido Audit Committee)
Total Project Duration: 6 months (Development) + 1 month (External Security Review)
(2 Smart Contract Engineers, 1 Front End Engineer, 1 Back End Engineer, 1 Test Engineer, 1 External Security Audit Team)
Access
Access and ongoing support relating to all features outlined in the Scope of Work proposed above is planned for at least 12 months after completion of the full scope of the proposal.
It is intended that the platform and Impact Staking as an initiative will grow at pace throughout 2023 and beyond, and that the project components will continue to be built upon, supported and maintained - either by Launchnodes directly, or through a community approach with a dedicated DAO or similar structure.
Fees and Payment
For the Scope of Work proposed above, Launchnodes is requesting a $300,000 grant with the following structure for execution:
- Agreement to proceed, contingent upon tax benefits of charitable giving applying to Impact Staking
- Tax law opinion received (US jurisdiction) on whether there is parity between direct charitable giving, and donation of impact staking rewards - Launchnodes to fund
- 25% upon project initiation
- 15% upon successful external security review and satisfactory resolution of Medium, High, and Critical-level issues highlighted - the external security audit team will be engaged in coordination with the Lido Audit Committee
- 60% after the first $3m has generated in funding for Impact Staking projects across all Lido Impact Staking vaults
This model ensures that 60% of the project’s fees are contingent upon Lido Impact Staking engaging a meaningful volume of supportive Impact Stakers.
We are open to accommodating DAI, at the suggestion of the LEGO committee.
Ongoing Maintenance, Support and Growth
Under the existing Lido operating model, Launchnodes could become a node operator to fund the maintenance, upkeep and ongoing expansion of the Lido Impact Staking platform, onboard new projects and ensure ongoing development and expansion. Being a node operator in this way would provide a revenue stream that supports the longevity of impact staking.
Another approach would be for Launchnodes to potentially operate nodes on behalf of organisations such as Save the Children, UNICEF and others, in order for these causes to become staking modules. Again, Lido’s operating model here would enable the node operator (Launchnodes in this case) to receive funds to support the ongoing upkeep of this service.
An alternative option, where Launchnodes is not operating nodes directly on behalf of Lido or on behalf of global causes, would be for Launchnodes to charge a small % of the rewards achieved, or of the total amount staked, eg. 0.25% of the staked amount (to be agreed). This is similar in approach to the fees that Liquid Staking Protocols typically charge, in order to remain sustainable long-term.
Initial Impact Projects and Causes
All projects will be required to provide ongoing data on all of the Key Performance Indicators being tracked as part of their project delivery, eg. tonnes of CO2 offset. This will drive the real-time data on the Lido Impact Staking dashboards.
Net Zero Ethereum Treedom: Plant or Gift a Tree and Follow the Story Online
Treedom was established in Italy in 2010. This initiative allows Lido Impact Stakers to fund trees being planted in different countries of the world. For total transparency and community engagement, The Lido Impact Staking dashboard will include GPS co-ordinates of the trees planted, and photograph images of these trees. The carbon impact of trees planted on behalf of Impact Stakers will be shown and will increase over time to overtake the carbon footprint of Ethereum. Treedom have planted over 3.8 million trees to date.
Internet Connectivity for Schools https://giga.global
Over 2.7 billion people are still offline, and 96% of these are in developing countries. This also means that these people have no access to Ethereum or other connected technologies.
Launched in 2019, Giga aims to connect every school in the world to the Internet by 2030, to improve the health and life prospects of children everywhere. Giga is an initiative of UNICEF and the International Telecommunications Union (ITU) and has connected over 1 million schools to date.
Giga has undertaken an Impact Staking project with Launchnodes in Rwanda, where Ethereum staking rewards are planned to fund school connectivity.
Lifting People Out of Poverty https://givedirectly.org
GiveDirectly have delivered over $660m in cash since 2009, into the hands of over 1.4 million people living in poverty. GiveDirectly’s view is that people living in extreme poverty deserve the dignity to choose for themselves how best to improve their lives, and they have shown that providing cash directly to people in need is the most effective way to lift people out of poverty.
Launchnodes is engaged at the highest levels with GiveDirectly, who are excited at the potential of Impact Staking to accelerate their work.