Summary
This proposal discusses the removal of the Morpho Re7 WETH Vault weighting from the Degen ETH, dgnETH collateral basket. To instead favor an equal 50/50 weighting of Dinero’s apxETH and Convex ETH+/ETH LP. In order to provide closer alignment with dgnETH’s mandate of capturing high yields which consistently outperform the LST market rate.
Abstract
This proposal advocates for the removal of the Morpho Re7 WETH Vault from the dgnETH collateral basket due to its declining yields, which have underperformed the Liquid Staking Token (LST) market rate for the past two months. Initially, the Morpho Re7 WETH Vault delivered returns of 6-10%, justifying its inclusion. However, recent performance has dropped to 2-4%, significantly reducing the overall yield of the collateral basket. To better align with dgnETH’s mandate of capturing high DeFi yields, the proposal recommends replacing the Morpho Re7 WETH Vault with a 50/50 weighting of Dinero’s apxETH and Convex ETH+/ETH LP. This adjustment is expected to increase the basket’s yield from 7.16% to 8.46%, thereby enhancing the staked Degen ETH APY from 23.83% to 28.14%. While this shift may increase counterparty and smart contract risks due to a more concentrated asset allocation, these risks are mitigated by the rigorous audits undertaken.
Problem Statement
The yield provided from the Morpho Re7 WETH Vault has significantly deteriorated since inception of the dgnETH rToken and has now for the last two months has lagged below the LST market rate. To closer align the collateral basket with dgnETHs mandate to capture high DeFi yields and sustainably outperform the LST market it must be removed.
Rationale
At the inception of the dgnETH rToken the inclusion of the Morpho Re7 WETH Vault in the collateral basket was acceptable to holders given yields had consistently returned yields in the 6-10% range, well above the LST market rate. However over the past three months we have seen a significant and sustained deterioration in yield with it sitting in the 2–4% range over the last two months reducing the yield of the collateral basket overall. Considering this significant and sustained deterioration I propose we remove the Morpho Re7 WETH Vault from the collateral backing.
In the absence of alternative adapters that are as closely aligned with the dgnETH mandate as Dinero’s apxETH and Convex ETH+/ETH LP I propose an equal 50/50 weighting of both of these assets.
Current dgnETH collateral basket
| Collateral Asset | Allocation | APY (7.16%) |
|---|---|---|
| Morpho Re7 WETH Vault | 40% | 3.45% |
| apxETH | 35% | 7.58% |
| Convex ETH+/ETH LP | 25% | 9.34% |
Staked Degen ETH APY - 23.83%
Proposed dgnETH collateral basket
| Collateral Asset | Allocation | APY (8.46%) |
|---|---|---|
| apxETH | 50% | 7.58% |
| Convex ETH+/ETH LP | 50% | 9.34% |
Staked Degen ETH APY - 28.14%
Risks
While the 17% allocation uplift of the other two collateral basket assets does concentrate counterparty and smart contract risk the proposed basket change balances the risk and return offering ETH DeFi yields beating the LST market while earning from protocols that have gone through multiple rigorous audits.
Convex Audits - Audits | ConvexFinance
Dinero Audits - https://dinero.xyz/docs/security
Conclusion
The ongoing inclusion of the Morpho Re7 WETH Vault does not align with dgnETH and its removal is a significant opportunity to improve the yield of the underlying collateral basket. This improvement is only compounded when the two-token model dgnETH has been built on top of is taken into consideration.
Given the high yield seeking nature of dgnETH proposals relating to the underlying collateral basket changes are likely to be published frequently. I would appreciate strong community participation as we relentlessly pursue the obliteration of LST market yields and return the highest yields DeFi can offer to dgnETH stakers.
- Yes, remove the Morpho Re7 WETH Vault and change to an equal 50/50 weighting of the other two assets
- No, make no changes to the collateral basket