I think it’s important to call out that while adding a token to the basket improves diversification under equal weighting, with the weighting changes proposed, ETH+ is actually decreasing its diversification.
The formula for diversification is 1 minus the sum of squared weights.
- For current basket, .33/.33/.33 diversification is: 0.67
- If basket were .25/.25/.25/.25 diversification would improve to: 0.75
- However, the proposed basket .5/.21/.21/.08 diversification is reduced to: 0.65
I think it would really help ETH+ to use this as an opportunity to codify the logic behind basket changes to provide clarity to holders moving forward. It seems that the current logic for this change is:
- wstETH is the most liquid, so let’s max it out to the most that holders might be comfortable with (50%)
- then let’s add ETHx to the max liquidity constraints can tolerate (8%)
- then split up the rest
An alternative approach, which would lead to better diversification, is to start from the liquidity constraint. It seems we have chosen 30k mint/redemption as the desired target. Based on that, does .31/.31/.31/.07 wstETH/rETH/sfrxETH/ETHx, which would improve diversification score to 0.7, meet those liquidity constraints? If so, I think that would be more aligned with the ETH+ mission. If not, I would advocate for increasing wstETH weight or decreasing ETHx weight only enough to achieve the desired liquidity, with tolerance for variance.
I believe ETH+ holders really care about the product’s mission of decentralization, and increasing weighting of wstETH straight to 50% without clear rationale will be viewed negatively.