Allow the Optimism Foundation to Stake a Portion of Sequencer ETH Through Season 8

[system]

Allow the Optimism Foundation to Stake a Portion of Sequencer ETH Through Season 8

Proposal Type: Sequencer ETH: Passive Management (see updated Operating Manual)

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Notes about this Proposal Type:

Yield estimates are subject to change based on market conditions and other factors, estimates in this proposal are as of writing (2/27/25.)

• This proposal type must be initiated by the Foundation given our current level of organizational decentralization. In the future, full proposal rights will be transferred to governance (potentially a delegated set of representatives) and this process may be facilitated as a public RFP process.
• Please note that additional governance responsibilities related to Sequencer ETH will be brought online at a later date. We are conducting various workstreams to reduce the dependencies between Phase A and Phase B in Row 19 of our Decentralization Milestones. The approval of this proposal, would move us incrementally closer to Phase B but we do not expect to achieve Phase B in Season 7.
• This vote is subject to Citizen approval as Sequencer ETH currently accrues to the Retro Fund, by default. We are currently doing active research to further develop this proposal type and to design the “Sequencer ETH: Active Management” proposal type. Future versions of this proposal type may vary substantially as a result, and may be subject to Token House approval and/or veto in future iterations.

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Executive Summary

• The Foundation would like to stake a portion of the Sequencer ETH accruing to the Collective treasury on behalf of the Collective (details here.)
• This sequencer ETH includes the revenue contribution of chains within the Superchain. The Superchain has generated 14,991 ETH to date, with 10,325 ETH currently held in the Collective Treasury (4,667 ETH is currently held by chains contributing revenue and, as such, cannot currently be staked.) This proposal would enable the Foundation to stake up to 60% of the sequencer ETH, or 6195 ETH, across three providers in 2025.
• Upon approval of this proposal, an initial 20%, or 2,065 ETH, will be staked within 10 days of approval. At a ~4.5% yield, this would generate 81 ETH per year for the Collective, net of fees.
• By early 2H25, the Foundation plans to onboard an additional 2 custodians to manage an additional 20% (2,065 ETH) each. The total result would be 60% of sequencer ETH staked (6,195 ETH) across three custodians for an expected net yield of 243 ETH per year (~560,000 USD as of 2/27/25.) The Foundation does not believe it is prudent to stake any more than 60% of the ETH in order to maintain sufficient reserves (reserves may be used to support regular network operations, etc.)
• This proposal would be in effect until the end of Season 8 (Dec 2025), when it would need to be renewed.

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Motivation

Quite simply, the Collective is incurring an opportunity cost by not generating yield on sequencer ETH. While we work towards the development of robust economic models that will allow governance to more fully manage the treasury, we propose staking a portion of this ETH so that the Collective can earn up to ~243 ETH per year in the meantime. All yield generated will accrue directly to the Collective treasury (specifically, defaulting to the Retro Fund.) Any resulting loss, although unexpected, would also accrue to the Collective treasury.

Specifications

• Operational details

  • Sequencer ETH is currently custodied passively at BitGo, but generates no yield.

  • This proposal would enable the Foundation to promptly open an agreement with BitGo Custody to stake an initial 20% of the sequencer ETH - or 2,065 ETH - on behalf of the Collective. This is consistent with the Foundation’s internal policies, which cap exposure to a single counterparty at 20%.

  • Third-party providers determine staking parameters (decisions regarding the type of block builder, client software, fork choice rule election.) You can view BitGo’s staking overview here

  • The factors considered in selecting Bitgo are outlined below:

    • Operational Simplicity: We currently hold this ETH with BitGo. Transitioning to staking requires minimal operational lift, ensuring seamless integration with existing workflows and partnerships.
    • Proven Partnership: Our existing relationship with BitGo has demonstrated their reliability and efficiency in handling institutional-grade assets.
    • Security and Insurance: BitGo Custody offers $250 million in cold wallet insurance (for all assets under custody), providing significant risk mitigation for staked assets stored in cold storage. This insurance generally covers cases where keys are stolen, lost, or misused by BitGo.
    • Regulatory Compliance: BitGo is a regulated custodian, holding various licences, aligning with Optimism’s governance and compliance standards.
    • Redemption: Staked ETH has a minimal redemption delay (estimated at 24-48 hours post-request, depending on network congestion). This ensures efficient execution of withdrawal requests, if needed.

  • If approved, this proposal will also allow the Foundation to deploy an additional 40% of the sequencer ETH, split equally across 2 additional custodians, from the list below. These providers were selected for minimal protocol risk, strong reputations, ease of use, and a preference for companies that have existing partnerships with Optimism. We plan to further evaluate liquid staking options in the future. Please note that the Foundation also covers the USD cost of maintaining an agreement with each provider, estimated at ~36,000 USD per year.

    • Kraken
    • Coinbase

Impact summary

• If approved, this proposal will immediately stake 2,065 ETH resulting in the below projections:
  • Annual Yield: Staking with BitGo is expected to generate net annual returns of 4-5%.
  • Fee Structure: BitGo charges a competitive staking fee of approximately 10-15% of staking rewards, which is deducted before rewards are distributed.
  • Estimated Yield: Assuming an average yield of 4.5% and average staking fees of 12.5% of yield, we would estimate returns in the region of ~$213k in the first year, on this initial 20% allocation.

• We estimate that by staking the full 6,195 ETH this proposal approves, the Collective can generate ~243 ETH annually.

• While we believe this is a low-risk yield generation strategy, it is not without risk. Risk factors include:

  • Smart Contract Risk: Potential vulnerabilities in the staking protocol could expose assets to loss. However, Ethereum’s network is among the most secure and rigorously tested.
  • Validator Performance Risk: Staking rewards depend on validator uptime and behavior. Misbehavior or downtime could result in slashing penalties. However, BitGo’s validators are professionally managed to minimise this risk.
  • Liquidity Risk: Staked ETH is subject to a withdrawal delay (currently estimated at 24-48 hours). This reduces flexibility compared to holding ETH idle.

Action Plan

If this proposal is approved, the Foundation will promptly enter into an agreement with BitGo Custody to stake 2,065 ETH within 10 days of the passing of this proposal. The Foundation will also onboard and stake and additional 2,065 ETH (each) with the 2 additional providers listed above, covering the associated USD fees. An exact timing estimate is not possible as staking is subject to onboarding and agreements with each new staking providers, but we hope to have the additional 40% staked by early 2H25.

The Foundation will will confirm execution with each provider at the bottom of this post. The Foundation will post quarterly updates about yield generation as a comment on this post, if approved and implemented.

The actions taken via this proposal may be rolled back (unstaked) in circumstances including security incidents, extreme market downturns, and/or to support any immediate operational needs. Any rollback/unstaking actions taken will be noted by the Foundation as a comment on this post.

Yield estimates are subject to change based on market conditions and other factors, estimates in this proposal are as of writing (2/27/25.)

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[GFXlabs]

@system

• Annual Yield: Staking with BitGo is expected to generate net annual returns of 4-5%.
• Fee Structure: BitGo charges a competitive staking fee of approximately 10-15% of staking rewards, which is deducted before rewards are distributed.
• Estimated Yield: Assuming an average yield of 4.5% and average staking fees of 12.5% of yield, we would estimate returns in the region of ~$213k in the first year, on this initial 20% allocation.

Question about this: This seems above market (which is great). Does it come with additional risks? Lido appears to be paying net 3.3% right now, so this is a significant increase in yield and just wondering if this is a promotional rate or something else?

@system

• • • Kraken
    • Coinbase

Why are there no DeFi options on here? We strongly recommend a public RFP process to avoid a perception of conflicts of interest.

[jengajojo]

Glad to see efforts being initiated to earn yield. It would be great to understand the rationale behind leaning towards custodians as opposed to DeFi strategies on Optimism which will help increase TVL since this is one of the important metrics for the season.

A public RFP would be a nice option for the 2nd or 3rd portion of the ETH to be staked as it will help the collective gather essential feedback on the difference between processes and costs between offline and public processes.

[MinimalGravitas]

This proposal would enable the Foundation to promptly open an agreement with BitGo Custody to stake an initial 20% of the sequencer ETH

If approved, this proposal will also allow the Foundation to deploy an additional 40% of the sequencer ETH, split equally across 2 additional custodians, from the list below. […]

• Kraken
• Coinbase

So this means 60% in total right?

20% with BitGo, 20% with Kraken and 20% with Coinbase… if so then it really seems this is worded obtusely. Why say 2 custodians from the list below when the list only contains 2 options? What am I missing?

Also, same question as GFXlabs about the yield - it’s not clear from the docs where the extra comes from, could it just be that their marketing is out of date?

Finally, with regards to risk, both Coinbase and Kraken use Prism for a majority of their CL clients (over 60% for CB and almost 100% for Kraken). I’m not sure the client diversity of Bitgo and their site doesn’t seem to make it clear how their validators are set up. If they are mostly using Prism too then would it be better risk management to choose staking service providers with a more varied set of node software?

[0xDonPepe]

First, I want to commend the Foundation for proactively seeking to put the Collective’s idle ETH to work, this is a smart and necessary step toward responsible treasury management. Generating yield on sequencer ETH is a no-brainer, and your focus on security, compliance, and simplicity with BitGo is understandable. That said, I believe there’s a far more impactful way to achieve these goals while aligning with Ethereum’s values and generating even greater returns: partnering with Obol Labs instead of centralized custodians like BitGo, Coinbase, or Kraken.

Here’s why Obol is a superior choice:

1. Strengthens Ethereum Decentralization

Centralized custodians like BitGo, while convenient, directly contradict Ethereum’s core ethos of decentralization. By contrast, Obol’s Distributed Validator Technology (DVT) splits validator operations across independent node operators (e.g., techne credential holders), eliminating single points of failure and censorship risks. This:

• Avoids reliance on institutional middlemen (BitGo’s validators = centralized control).
• Enhances network resilience—critical for Optimism’s long-term credibility as a “Superchain” leader.
• Builds grassroots alignment by supporting small operators in the Obol/Optimism ecosystems.

2. Generates Higher Yield

Obol’s proposal isn’t just about ideology, it’s financially compelling:

Metric	Optimism + BitGo	Obol Partnership
Base APR	4.5% (net after 12.5% fees)	~3% ETH staking
Additional Yield	None	1-2% $OBOL rewards + AVS rewards + EigenLayer restaking + potential airdrops
Liquidity Utility	Illiquid (24-48h unlock)	osETH (DeFi-ready LST) for lending, LP, etc.
Effective APY	~4.5%	5-8%+ (depending on AVS/restaking strategies)

Obol’s 1% fee structure (vs. BitGo’s 10-15%) and $OBOL token rewards alone make it a better deal. Add in Stakewise’s osETH liquidity and EigenLayer restaking, and the upside dwarfs custodial staking.

3. Future-Proofs Optimism’s Ecosystem

Adopting Obol would:

• Boost Superchain’s DeFi ecosystem by introducing osETH as a liquid staking primitive for Optimism’s dApps.
• Accelerate decentralization milestones by aligning sequencer ETH management with community-operated validators.
• Create governance synergies—Obol contributions grant Retroactive Public Goods Funding (RPGF) eligibility and future governance rights in Obol’s Collective.

The Foundation’s proposal is a solid start, but settling for centralized custodians leaves value and values on the table. Obol offers a rare win-win: higher yields and stronger decentralization. As a leader in the ecosystem, Optimism has a responsibility to champion Ethereum’s principles while maximizing treasury efficiency. Let’s not replicate TradFi models, let’s build something better.

[system]

Thank you for the questions @GFXlabs and @jengajojo

@GFXlabs

Question about this: This seems above market (which is great). Does it come with additional risks? Lido appears to be paying net 3.3% right now, so this is a significant increase in yield and just wondering if this is a promotional rate or something else?

The yield rate we’ve presented is not promotional. It reflects the current yield estimate provided directly by BitGo. It’s possible given current market rates that actual yield comes in lower than BitGo’s projected number.

@GFXlabs

Why are there no DeFi options on here?

Our risk management framework requires comprehensive security evaluation and continuous monitoring for any protocol we rely on. This proposal only includes custodial options because it’s the fastest path to get ETH staked and earning yield in a way that meets our security standards.
We definitely recognize the benefits of staking via DeFi strategies on Optimism – these are probably the right long-term solutions here. This proposal suggests the Collectie take the shortest path to start generating yield immediately, and the conversation around safe and positive-sum DeFi options can take place in parallel. As more robust treasury management capabilities come online in future seasons, these options will feature heavily.

@jengajojo

A public RFP would be a nice option for the 2nd or 3rd portion of the ETH to be staked as it will help the collective gather essential feedback on the difference between processes and costs between offline and public processes

A public RFP process is likely the right solution for this type of decision at some point in the Collective’s future. This proposal represents a shorter term approach to begin generating yield for the benefit of the Collective. It’s worth noting that any experiments with RFP processes should not be done via full Citizens’ House vote (like this proposal), but rather a delegated group that manages procurement. To date, the Citizens’ House hasn’t managed any similar procurement or RFP process, which is also a consideration here.
This proposal would stake ETH through the end of Season 8 (which runs through H2 2025), at which point another proposal or public procurement process should take place.

[GFXlabs]

@system

The yield rate we’ve presented is not promotional. It reflects the current yield estimate provided directly by BitGo. It’s possible given current market rates that actual yield comes in lower than BitGo’s projected number.

We don’t think you should make decisions based on that quoted number. No one else can provide yield like that purely from staking, so we recommend you ask BitGo for an updated estimate. See here for what should be expected:

(Source)

Another view of what market staked ETH rates are:

(Source)

If BitGo insist they can pay more than any of the major staked ETH providers, we recommend additional due diligence to understand how they are doing so before relying on those estimates.

@system

This proposal suggests the Collectie take the shortest path to start generating yield immediately, and the conversation around safe and positive-sum DeFi options can take place in parallel. A

Well, it looks like you can spot dump more than $1m each of wstETH and rETH on Optimism itself without incurring any meaningful price impact. And that’s just on Optimism, not taking into account local markets on Base and other chains.

Isn’t simply buying and then self-custodying a bunch of liquid staking tokens 1) faster, 2) cheaper, 3) safer, 4) eating our own dogfood?

Let’s also remember that in reality, governance is unlikely to sell/unstake the funds all at once. But if, for some reason, funds are needed ASAP, liquid staking DeFi assets allow for immediate exit rather than being caught up in the unstaking queue + any delays from the custodian.

It is just an incredibly poor look if Optimism doesn’t trust its own product. How are we supposed to attract financial institutions to utilize the Superchain like that? It should be noted that Arbitrum holds its treasury assets on its own chain, and also uses that process to court more and more financial institutions to deploy there.

It is both a practical and political imperative that the Foundation not pursue a custodian-only strategy with governance-owned ETH. We are going to get eaten alive if the message is “Even Optimism doesn’t trust its funds to the Superchain.”

[Gonna.eth]

I’m inclined to vote against this proposal, not because I oppose staking ETH, but because I believe the approach could be more aligned with governance decentralization. Here’s where I see room for improvement:

• Foundation Contradiction: The statement “Optimism doesn’t trust its funds to the Superchain” raises concerns. I don’t think there are risks or doubts about the Superchain’s security or sustainability, but if there are they should be openly discussed. Clarity here would strengthen trust in the broader ecosystem.
• Step-by-Step Token House Decision: Instead of a single approval for staking both the ETH amount and providers, a more decentralized approach could involve separate Token House votes. First on the providers, then on the staking amount. This would give the community more say in risk management and treasury decisions. Or make the providers put a proposal and let TH choose.
• Exploring a Treasury Council: Rather than relying solely on the Foundation to make these financial decisions, the creation of a Treasury Council with a lead chosen by the Foundation but governed by a broader group can be a better solution. This would allow for a structured transition toward decentralization while keeping expert oversight in place.

Staking ETH makes sense financially, but how we decide to stake is just as important as whether we do it.

[mastermojo]

I love this proposal, but think we should 100% have a DEFI option on here.

IMO 20% to bitgo, 20% coinbase, 20% kraken, then 40% onchain. Putting a portion of your sequencer $eth onchain is a huge nod to your current builders, protocols. Perhaps the onchain options could be voted on eventually (Token and Citizen house)?

onchain options could be explored on stage 1 chains only

[jackanorak]

Fwiw i think it’s totally fair game for the Foundation to stake its ETH anywhere as an intermediate step, especially if there are some constraints with regard to how Optimism can stake.

I do think it’d be appropriate to have some clear pathway toward self-custodied, fully onchain alternatives but the explanations for BitGo seem totally fine to me.

[katie]

I would love to see the ETH used in defi at some point but I’m supportive of anything that gets us yield in the interim and the Bitgo rates are great, I fully support this proposal!

[ashrafstakala]

Why bypass the Token House on this proposal? It seems like quite an important decision for the Collective, and I’m sure many Token Holders would appreciate the opportunity to vote on it.

We risk sending the message that only Citizens have input on proposals relating to the Sequencer revenue. Not sure if that is the intention.

[system]

Thank you all for the feedback and discussion.

It is just an incredibly poor look if Optimism doesn’t trust its own product.

To reiterate from the comment above: positive-sum DeFi, and Superchain DeFi in particular, is the best longterm solution here. The Foundation continues to support the growth of DeFi across the Superchain through business development, grants, and product support.

This procurement process should evolve towards Superchain-native DeFi protocols, but this proposal is the shortest route to get staking up and running on a short timeline given the Foundation’s commitments and constraints around security, tax, and legal.

In other words, we are in agreement about the importance of using DeFi staking solutions, but that will require us to set up new structures to manage the security, tax, and legal implications for the DAO and that will take time. So the question is not whether we should include DeFi solutions - we should! - but rather whether we want to move forward with staking the ETH using the current structures we have in place to start generating yield for the Collective immediately (as outlined in this proposal), or incur the opportunity cost of not generating yield while we set up the structures required to feasibly enable DeFi solutions (likely until the end of Season 8, which is when this proposal expires.)

Exploring a Treasury Council: Rather than relying solely on the Foundation to make these financial decisions, the creation of a Treasury Council with a lead chosen by the Foundation but governed by a broader group can be a better solution.

This is a great callout. This is an important part of the Collective’s evolution. Here’s the high-level plan, starting in Season 8:

1. Establish a Joint House Budget Board to enable the Collective to develop economic decision making processes for Optimism. (Mentioned here and here.)
2. Support the Budget Board in developing an advanced and data-driven framework for Treasury management.
3. The Budget Board could run a public RFP process for staking providers (including or even limited to Superchain-native DeFi) as part of broader Treasury management strategy

Rather than wait for the above to take place, this proposal is suggesting the Collective stake ETH to generate yield as soon as possible while we continue to evolve the processes and frameworks that will let the governance community make independent, legitimate decisions around treasury management.

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Another important clarification, as it appears there is some confusion about this proposal type: While it is undoubtedly valuable for Token House delegates to share their opinions on this proposal, this proposal will be voted on by Citizens, as sequencer revenue defaults to the Retro Fund, which is managed by the Citizens’ House. This is an important part of the capture resistant design of the Collective outlined here. You’ll note that in the future, “The Token House may vote on proposals to divert a portion of the surplus protocol revenue for other Optimism Collective” which would come online when the Sequencer ETH: Passive Management proposal type comes online.

[loxia.eth]

Boosting the staking utilization rate of ETH is a brilliant idea! Retro Funding requires more ETH to generate additional positive externalities for the entire ecosystem! The current compromise, balancing yield and security considerations, also appears to be quite sensible. Indeed, in the long run, it would be appropriate to transition the ETH staking method to a Superchain-native approach.

Having previously worked in a blockchain insurance protocol, I’ve compiled extensive data on security incidents. One particularly striking conclusion is that the likelihood of security incidents in a DeFi protocol significantly decreases only after it has been operating smoothly for six months or more. Therefore, I fully understand that OP should support its own ecosystem and community. However, from a security standpoint, I personally believe that staking a large portion of funds in a Superchain-native staking protocol that has been securely operational for less than six months is not advisable. Instead, funds should be staked in batches over time. This would be a complex and protracted process, involving multiple alternative DeFi protocols, with the total staking period potentially spanning six months to a year, and a dedicated task force continuously monitoring and maintaining the process.

I am very fond of this proposal and am eagerly looking forward to seeing new updates on it!

[Gonna.eth]

@system

So the question is not whether we should include DeFi solutions - we should! - but rather whether we want to move forward with staking the ETH using the current structures

Fully agree to stake now after this answer,

I am an Optimism delegate with sufficient voting power and I believe this proposal is ready to move to a vote.

[mastermojo]

I am an Optimism Top 100 delegate [Delegate Commitments - #65 by mastermojo ] with sufficient voting power, and I believe this proposal is ready to move to a vote

[OPUser]

I fully support this proposal in current form, but there are a few points to consider. For BitGo, do we know the source of the additional yield mentioned by GFX Labs above?

Collective is supporting DeFi and Superchain-native applications from multiple angles—through proactive and retroactive grants, as well as intent and social outreach initiatives. If and when we proceed with DeFi approach, I believe it is reasonable to request assurances from native staking providers in the event of a smart contract bug or exploit. This technology has been around for a decade, and I think it’s time we demand guarantees that these protocols will make us whole if something goes wrong, rather than simply asking us to accept the outcome as an inherent smart contract risk.

Additionally, instead of immediately transitioning to a DeFi staking solution, I would recommend moving the funds on-chain in the form of cbETH and kr(?)ETH at a later stage, once they are fully supported on Inkonchain. However, I am uncertain about the potential legal challenges associated with this approach.

in case this propsal requires delegate approval.

I am an Optimism delegate with sufficient voting power and I believe this proposal is ready to move to a vote.

[SEEDGov]

As delegates, we want to express our agreement with the straightforward nature of this proposal to allocate the Sequencer ETH funds for staking with BitGo, a service provider already used by the Foundation for other purposes. We agree that basic ETH staking is the best baseline for generating yield before considering riskier options. However, we want to highlight and reiterate the following points:

1. Clarify BitGo’s estimations.
2. Expand on the Foundation’s challenges in considering DeFi options as viable alternatives, as other major organizations currently use them (e.g., it is unclear what the risks would be of simply ‘buying and holding’ staked ETH derivatives, self-custodied in an on-chain governance contract or through BitGo).
3. Provide staking details offered by Base and Kraken.
4. Work into an RFP process as soon as possible.