[IP] ETHplus Rebalance Proposal Q2 2026

[ham]

Summary

The April 2026 ETHplus Liquidity Analysis highlighted a growing misalignment between the current collateral basket and the ETHplus mandate. Most notably, ETHx has become the primary bottleneck to redemption liquidity, causing basket slippage to exceed the mandated 0.5% threshold at approximately 5,000 ETH, while the recent increase in the ETHplus take rate from 5% to 10% has pushed holder yield below the benchmark stETH rate. At the same time, increasing concentration within individual collateral assets requires closer monitoring to ensure compliance with the mandated 10% dependency limits.

This proposal seeks to address these issues through a rebalance which removes rETH, reduces ETHx exposure, increases weETH and frxETH allocations and maintains stETH at 50%. The proposed basket improves redemption capacity, improves the holder yield profile while remaining diversified across multiple ETH staking protocols.

While the rebalance temporarily places ETHplus above the mandated dependency threshold for frxETH, this is expected to normalise as externally incentivised looping positions continue to unwind and ETHplus supply contracts further over the coming weeks. Given this dynamic, execution of the rebalance is recommended only after these positions have largely exited.

Metric	Current Basket (April 2026)	Proposed Basket	Reason for Change
Redemption Slippage Threshold Breach	~5,000 ETH Redeemed	~7,000 ETH Redeemed	Improved Redemption Capacity
Holder Yield	2.30%	2.39%	+9bps
Blended Basket Yield	2.55%	2.65%	+10bps
stETH Allocation	50%	50%	Unchanged
weETH Allocation	22%	25%	Increased (+3%)
rETH Allocation	10%	0%	Reduced (-10%)
frxETH Allocation	10%	20%	Increased (+10%)
ETHx Allocation	8%	5%	Reduced (-3%)
Diversification Profile	0.68	0.65	Slight Reduction
Basket Share of frxETH TVL	5.45%	10.89%	Increased dependency risk (likely transient as incentivised LPs exit ETHplus positions)
Mint Slippage Threshold Breach	Within mandate past tested range	~2,500 ETH Minted	Slight deterioration versus mandate amid weaker market-wide liquidity

Problem Statement

The April 2026 Liquidity Analysis highlighted three areas of concern with the current ETHplus collateral basket composition:

1. ETHx has become the primary bottleneck of the ETHplus redemption curve, causing basket slippage to exceed the mandated 0.5% threshold at approximately 5,000 ETH redeemed. With ETHplus supply currently sitting at ~21,000 ETH, the basket remains within the mandate requiring 20% of supply to exit below the slippage threshold, but would likely fall out of alignment under further supply growth.

2. Increasing the ETHplus take rate from 5% to 10% has negatively impacted the holder yield profile, which now sits at 2.29%, below the mandate benchmark of stETH at 2.46%.

3. The percentage of constituent TVL held within the ETHplus basket continues to rise and requires close monitoring during future rebalances to ensure compliance with the mandated 10% dependency limit.

The following proposal seeks to rebalance the ETHplus collateral basket to restore closer alignment with the mandate and methodology ratified onchain in January 2026, while addressing the issues outlined above.

Proposal

A collateral basket change which completely removes rETH (-10%), reduces ETHx (-3%), increases weETH (+3%), increased frxETH (+10%) and maintains stETH at 50%.

Rational

The proposed basket rebalance attempts to balance liquidity, yield and dependency risk while bringing ETHplus back into closer alignment with its ratified methodology and mandate.

Reducing ETHx from 8% to 5% improves the ETHplus redemption profile. As identified in the April 2026 Liquidity Analysis, ETHx currently acts as the primary bottleneck during large redemption events, causing total basket slippage to breach the mandated 0.5% threshold at approximately 5,000 ETH redeemed. Lowering the ETHx allocation shifts the redemption curve to the right, increasing available redemption headroom and restoring a more comfortable buffer relative to the mandated 20% exit capacity.

At the same time, the rebalance improves the blended basket yield profile. Increasing exposure to higher yielding assets such as frxETH and weETH partially offsets the reduction in holder yield caused by the increase in the ETHplus take rate from 5% to 10%. While the proposed basket still marginally underperforms the current stETH benchmark, the holder yield profile improves by approximately 10bps relative to the current basket and moves ETHplus closer to benchmark parity without concentrating the basket in its highest yielding constituents.

Achieving these improvements required reassessing the role of lower yielding and structurally weaker liquidity profiles within the basket, most notably rETH. The decision reflects both its weaker relative yield profile and growing concerns around the resilience of its secondary market liquidity during stressed conditions. A significant proportion of rETH liquidity remains concentrated within Balancer boosted pools with underlying dependency on Aave market health through aETH exposure. The rsETH incident demonstrates that they are vulnerable to broader deleveraging and liquidity withdrawals during periods of market stress. Additionally, rETH liquidity deteriorated significantly following the Balancer exploit in October 2025 and has shown limited recovery since. The apparent dependency on a small number of aligned allocators to restore execution depth, e.g the RockSolid rETH Vault, further increases the fragility of the liquidity profile relative to other basket constituents.

The decision to not include OETH in the collateral basket was not taken lightly. However, OETH was ultimately excluded given its backed supply currently sits at approximately $65m and its AMO mechanics remain relatively untested during periods of direct protocol or broader market stress, likely warranting only a cautious allocation size. At present, such an allocation would not significantly improve either the yield or liquidity profile of the basket relative to the additional structural complexity introduced.

The proposal does however temporarily place ETHplus above the mandated 10% dependency threshold for frxETH. While this would normally be viewed as outside acceptable methodology constraints, it is expected that ETHplus supply will continue to contract over the coming weeks as externally incentivised positions continue to unwind. Under current estimates, I expect a further 40-50% reduction in ETHplus supply bringing ETHplus back within the mandated dependency limits without requiring further basket adjustments.

Given this dynamic, it is recommended that any onchain vote and subsequent execution of the rebalance is delayed until the majority of these externally incentivised positions have exited. Current expectations are that this process will largely conclude by the end of the month. If this unwind does not occur as anticipated, an updated collateral basket proposal will be presented to governors based on the prevailing ETHplus supply and dependency metrics at that time.

Risks

The proposed rebalance increases concentration within the remaining basket constituents. The removal of rETH alongside the reduction in ETHx results in larger allocations to weETH and frxETH, increasing exposure to their associated smart contract, validator and governance risks. This is partially mitigated by the fact these protocols are among the most established and battle tested within the Ethereum staking ecosystem, with audited smart contracts and multi-year operating histories securing billions in total value locked without major loss events.

The proposal also introduces temporary dependency risk by placing ETHplus above its mandated 10% constituent TVL threshold for frxETH. While this would normally fall outside methodology constraints, execution is expected to occur only after a further unwind of externally incentivised ETHplus positions. If ETHplus supply does not contract sufficiently by month end, an updated basket composition should be presented to governors before execution proceeds to mitigate this.

Delaying execution until these positions unwind also introduces timing risk. Collateral yields, liquidity profiles and ETHplus supply may change before implementation, potentially requiring updated analysis or amendments prior to execution.

Finally, while the rebalance improves the ETHplus redemption profile by reducing ETHx exposure, there remains a risk that ETHx liquidity continues to deteriorate. Should execution depth weaken further, ETHplus may again exceed its mandated redemption slippage thresholds during elevated exit activity, reducing the protocol’s ability to efficiently rebalance or exit positions under normal or stressed market conditions. Continuous monitoring of ETHx liquidity will be required for the next few months to mitigate this.

Conclusion

Overall, this proposal represents a pragmatic step toward restoring closer alignment between the ETHplus collateral basket and its ratified mandate. The rebalance improves the basket’s redemption profile, strengthens the holder yield profile and reduces reliance on ETHx liquidity, while maintaining exposure to large, established and battle tested ETH staking protocols.

The proposal does introduce temporary dependency and concentration trade offs, particularly around frxETH exposure, however these are expected to self-resolve as externally incentivised ETHplus positions continue to unwind. Delaying execution until this process is further advanced provides governors additional flexibility should market conditions, liquidity profiles or ETHplus supply materially change before implementation.

Governors are encouraged to weigh the improved liquidity and yield characteristics of the proposed basket against the temporary increase in dependency and execution timing risk when considering this proposal.

Poll

Given the proposal recommends delaying onchain voting and execution until externally incentivised ETHplus positions have further unwound, it would be premature to advance to IP off the back of a poll at the time of posting. As such, this poll is intended only to gauge the current directional sentiment of governors.

An updated liquidity analysis, dependency assessment and governance poll will be presented at month end. If governor sentiment remains favourable and dependency metrics return within acceptable limits, the proposal will then progress to the IP stage.

• YAY, directionally in favour of the proposed basket
• NAY, directionally against the proposed basket

[zeb]

Thank you Ham for taking the time and lead on this rebalance proposal.

This could be contentious rebalance, as it kicks out one of our hedging ETH LSTs completely and dismisses another potential one. While also overstepping the mandate of concentration by having too much of frxETH. And based on an assumption that is yet to play out. Difficult to vote on.

How about vibe checks on each topic individually?

Do we vote on this poll as is, or wait until at the end of the month?

• We have enough information, keep Ham’s poll.
• There are too many moving parts, let’s wait and see.

Which then would further give us the questions on whether to;

• Exit out of rETH completely
• Lower the rETH exposure
• No strong opinion

• Exclude OETH
• Include OETH
• No strong opinion

Ham, you say you expect further 40-50% reduction in ETHplus supply. As the market is highly volatile, waiting a couple of weeks probably would mean reassessing all the above numbers.

Personally I appreciate and respect both RocketPool and Origin (not saying you don’t Ham, just keeping the message personal), and therefore do not want to vote on excluding them already now, while we are likely going to wait another couple weeks, which could, even if it is a small chance, change the situation again.

I also therefore will tag both @signal and @pete here, just to inform them of the RFC.

All that being said, going through first principles, both rETH and OETH are not contributing positively to the ETHplus yield profile. This clearly works against inclusion. Reading through the rETH thread there is yet to be more clarity on if this will improve. The OETH thread when talking about yield has also been confirmed to be lower, with no reason given to believe it would change.

Then another angle we as ETHplus governors should care for is decentralization and diversification. We will lose diversification due to this proposal, but going through both threads, rETH and OETH both have their own inner constraints that make their liquidity arguably centralized.

This second one is more complicated and that we have to wait and see regarding the contraction of ETHplus supply and what it changes, I also refrain from having an outspoken stance here.

[pete]

Hey @ham, thanks for the work on this rebalance proposal.

I wanted to respond to the OETH exclusion, because the rationale here doesn’t quite line up with the analysis in your own April 2026 liquidity report, and I think there’s a stronger basket available that includes OETH.

On the AMO being untested during stress events and OETH not improving liquidity profile

The AMO has been operating since 2023, was tested defensively during the Curve Vyper exploit, and has operated through multiple market stress events since. During the 2025 Balancer exploit, and the incidents occurring In the last few weeks (Kelp, Resolv), OETH had no exposure to these events, and held its peg strongly throughout them.

Your April liquidity report stated:

@ham

OETH has improved considerably and now exhibits the strongest redemption profile in the set, with minimal slippage observed across the tested range…OETH’s improvements are likely driven by the depth of protocol owned liquidity in the OETH/ETH Curve pool alongside more responsive AMO design, which together provide more consistent exit pathways at size.

Your April report contradicts not having a strong liquidity profile, and several of the screenshots in my RFC as well as in your report confirm that OETH has the strongest exit profile in the test set. @robtg4 also quoted this in his comment:

@robtg4

OETH appears to be the natural replacement given its "strongest exit liquidity profile in the test set

On additional structural complexity

My thoughts are the opposite here. The OETH AMO holds ETH and WETH. The frxETH AMO holds those assets, plus ezETH, and has the ability to be exposed to pzETH. This proposal doubles frxETH and excludes OETH on AMO complexity grounds, but OETH’s AMO is the simpler one. ETH+ already has AMO exposure through frxETH at 10% today, so an OETH AMO wouldn’t be a new risk type, it would just be diversifying within a risk ETH+ already has.

On the backed supply

The 2,700 ETH allocation mentioned in the previous OETH thread lands at ~9.6% of circulating OETH when excluding POL as mentioned, comfortably within the 10% mandate. Frankly I don’t think enough delegates, community members, or ETH+ holders have provided their thoughts on if POL should or should not be included, but sharing two quotes from that thread still:

@ham

I’m majority FOR your inclusion in the basket

@ham

At this stage, this is more a question of sizing and risk tolerance.

This proposal places ETH+ at 10.89% of frxETH TVL, explicitly above the ETH+ mandate.

On not contributing positively to yield
cc @zeb

I think we should zoom out here. Proof of Yield shows the current OETH yield to be the same as the stETH yield (both at 2.42%), but the OETH trailing APY has been consistently above stETH. For example, OETH yield was at 2.65% on March 10, 2026, against stETH’s around 2.38% on the same day.

Over the last 6 months, OETH yield was at or above the proposed basket yield on 132 days, and at or above the current basket yield on 139 days.

@ham

Metric	Current Basket (April 2026)	Proposed Basket	Reason for Change
Blended Basket Yield	2.55%	2.65%	+10bps

OETH earns yield from a combination of:

• DVT Beacon chain staking via SSV
• Curve AMO
• Contracts opted out from receiving yield

DeFiLlama calculates yield against total OETH supply (including AMO position), so the rate appears lower than what circulating holders actually receive - but this design is how OETH has been able to out perform stETH yields regularly. ETH+ would hold wOETH, which is opted-in and captures the bonus yield from the opted-out smart contracts (including the OETH AMO contract itself). You can see the bonus yield on each page of Proof of Yield as the multiplier:

Including OETH in the basket would both contribute positively to the blended basket yield, while also improving the diversification ratio. If we trade some of the proposed frxETH increase for OETH, or traded the ETHx allocation for OETH, the basket lands within mandate on every metric, AND captures the strongest exit-liquidity profile in the test set.

On the polls in this thread:

• Proposed basket: against, due to contradictions with the April Liquidity Analysis report, and reasons stated why OETH should be included within ETH+
• Timing: agree, waiting until end of month makes sense, and to allow more time for input on including/excluding POL in Reserve TVL numbers
• rETH: No strong opinion, will defer to @signal on this one
• OETH inclusion: In favor, for the reasons above and in the 2024 RFC

[ham]

Thanks for your early comments @zeb / @pete. As mentioned the LST / LRT sector is complex, the liquidity and yield profiles are in a constant state of flux and ultimately this leads to contentious rebalance proposals. The only way to reach consensus is through honest discussion and thus I appreciate your comments.

@zeb Agree with your comments. As stated in the post, it’s inappropriate to progress the proposal until positions have been unwound. I feel holding off until the end of May is appropriate and along with the poll at this time, an updated liquidity analysis and dependency assessment will be submitted to governors.

Despite this delay I thought it was prudent to get the discussion underway given we’re already 6 weeks into the quarter and its contentious nature warrants a longer discussion.

@pete I don’t think those excerpts fully represented my position from the earlier discussion, particularly as the caveats immediately following them were omitted.

For those interested here are the full quotes.

@ham

The last few years have given us time to deepen our relationship, see how your products perform with Reserve DTFs and watch the Origin protocol mature, as these updates clearly show. Given this I’m majority FOR your inclusion in the basket, especially given it may help address two key issues the ETHplus collateral basket is currently facing, with redemption liquidity bottlenecking very close to our mandated constraint (20% of TVL) and a holder yield profile which currently underperforms it’s benchmark, stETH. However, I do still have some concerns which I’d appreciate further clarity on.

@ham

At this stage, this is more a question of sizing and risk tolerance.

OETH is a strong asset under normal conditions and could help address current challenges within the ETHplus basket.

However, governors should weigh this against the structural risk that a meaningful portion of liquidity is:

• Centrally controlled
• Potentially transient
• Most likely to disappear in stress scenarios

In my view, if we allocate to OETH, this supports a conservative initial position within methodology constraints, while monitoring how the AMO evolves.

With regards to OETH my opinion remains;

AMO

While the AMO has been tested, e.g during the Curve Vyper exploit, it has never been tested during an incident to which OETH has direct exposure. Given the centralised nature of OETH liquidity, this is what concerns me rather than incidents where OETH itself has no direct exposure.

However, your comments regarding the frxETH AMO are warranted. As we’ve both mentioned ETHplus already has exposure to an AMO via frxETH and this proposal aims to double their allocation. I just want to highlight that while the frxETH AMO can and has diversified via ezETH it currently only amounts to 0.7% of the AMO’s total ETH supply and is currently isolated to the Fraxtal chain. There is currently no exposure to pzETH (Frax Facts).

Yield

I think we should be careful how we present the yield profile of OETH. The ETHplus mandate, ratified onchain in early January 2026, states DeFiLlama is the preferred yield source and the 30 day moving average the preferred metric in an attempt to reduce confirmation bias.

I appreciate that OETH yield is calculated incorrectly on DeFiLlama and suggest we use the 30d MA on the OETH landing page instead.

It’s futile trying to compare OETH yield over the last 6 months to the proposed baskets blended yield given the broad decline of ETH staking yields over the past year.

Closing

The question for governors now with regards to OETH is how to balance the inclusion of another collateral in the basket with a centralised AMO design against improvements in either the yield or liquidity profile of the basket.

While I do agree that not enough stakeholders or governors have yet added their comments or voted in the polls, it’s my opinion that while OETH has a yield profile that matches stETH alongside a superior liquidity profile under normal market conditions, the yield profile underperforms frxETH and the circulating supply of OETH is small relative to the total supply of ETHplus and would therefore need to be sized appropriately. At that scale, the allocation would likely not materially improve either the yield or liquidity characteristics of the basket and larger gains can likely be achieved by increasing the allocation to frxETH instead.

We should also remain cognisant of the operational overhead of ETHplus. While this proposal does increase concentration within certain collateral positions, it simultaneously reduces the collateral set by 20%, simplifying basket monitoring and management alongside reducing some governance complexity. While concentration risk does increase under this proposal, I believe it remains within acceptable methodology bounds given the expected ETHplus supply reduction, improvements in basket simplicity and the continued diversification across underlying staking mechanisms.

[pete]

Hi @Ham, appreciate your responses as always:

@ham

@pete I don’t think those excerpts fully represented my position from the earlier discussion, particularly as the caveats immediately following them were omitted.

Fair criticism. I should have included the caveats - I highlighted the quotes I did because your stance on the quotes were different from your statements above. The broader context also includes your April liquidity analysis report mentioning OETH having strongest redemption profile in the test set, and @robtg4 separately calling it a natural replacement on that thread - they both point toward inclusion rather than against it.

AMO

@ham

While the AMO has been tested, e.g during the Curve Vyper exploit, it has never been tested during an incident to which OETH has direct exposure.

There is no other place the OETH Curve AMO has direct exposure - are you suggesting that the OETH AMO won’t be fully tested until Curve experiences another attack?

I am not sure what would convince you or any others having this same thought. Maybe an analogy? The airbags in my car haven’t been tested, and I’m exposed to the risks of driving on the road daily, yet I trust that they’re going to work when needed because Kia has tested them endlessly in their cars and adheres to certain safety standards. Origin has been running AMOs since 2022 across multiple chains and tokens aside from OETH: OUSD on mainnet, OS on Sonic, superOETHb on Base, and superOETHp on Plume (see AMO audits on OUSD, Sonic, Base, Plume).

The protocol hasn’t depegged under stress, which is what the AMO design is structurally engineered for: 100% collateralization is enforced mechanically, circulating OETH is backed 1:1 by Beacon Chain staking, and unbacked OETH in the AMO never enters circulation without being collateralized first.

@ham

Given the centralised nature of OETH liquidity, this is what concerns me rather than incidents where OETH itself has no direct exposure.

The centralization of the OETH AMO is limited to the Guardians’ ability to move liquidity out of the AMO into the OETH vault, where it can then be withdrawn by OETH holders. The OETH contract dependencies chart has always displayed this:

The Guardians move very quickly to respond to any bug bounty submissions, maintaining an average response time of 7 hours, placing Origin as the 4th fastest to respond when sorting by resolution time. Origin still maintains a $1,000,000 max bounty for critical findings.

@ham

However, your comments regarding the frxETH AMO are warranted. As we’ve both mentioned ETHplus already has exposure to an AMO via frxETH and this proposal aims to double their allocation. I just want to highlight that while the frxETH AMO can and has diversified via ezETH it currently only amounts to 0.7% of the AMO’s total ETH supply and is currently isolated to the Fraxtal chain. There is currently no exposure to pzETH (Frax Facts).

You are not wrong that the frxETH AMO only has 0.7% of the AMO’s total ETH supply allocated to ezETH and that it currently has no exposure to pzETH, but the proposal that brought ezETH/pzETH into the AMO sets caps at up to 20% combined for those assets, and up to 100% for wstETH/stETH, allocated by the Frax team “if deemed advantageous.” That’s a discretionary expansion that could be activated at any time without further ETH+ governance - Is that not a centralization vector that could cause issues in times of stress?

Worst case scenarios at scale:

• If the Frax team exercised the full 20% ezETH/pzETH cap, ETH+ would inherit roughly 4% basket exposure to these LRTs, if frxETH were 20% of the basket, without further ETH+ governance involved
• If the Frax team exercised the full 100% wstETH/stETH cap, and stETH depegged, ETH+'s stETH exposure at 20% frxETH would be ~70% of the basket, without further ETH+ governance involved

I’m not arguing the Frax team would make these moves - they’ve operated responsibly. But the same “centralized discretion + untested in stress” concern you’ve raised about the OETH AMO applies to the frxETH AMO at magnitudes here. At the current 10% frxETH, this is a smaller risk. At the proposed 20% frxETH, the discretionary surface is multiplied. The OETH AMO has no reliance on any additional LSTs or LRTs - it is structurally bound to ETH/WETH.

While we’re comparing AMOs, it is probably worth mentioning the POL accounting. The Frax proposal states “most of frxETH POL is on Curve”, with the AMO able to be moved up to 100% across asset types. Is frxETH’s POL included in the TVL figure being used for ETH+'s 10% dependency calculation? If it’s excluded the same way we’ve discussed for OETH, then disregard this accounting question.

Yield

@ham

I appreciate that OETH yield is calculated incorrectly on DeFiLlama and suggest we use the 30d MA on the OETH landing page instead.

Using other verified data sources is stated as an option within the methodology, so this we can agree on.

@ham

It’s futile trying to compare OETH yield over the last 6 months to the proposed baskets blended yield given the broad decline of ETH staking yields over the past year.

ETH staking yields have declined across all ETH LSTs, this isn’t specific to OETH. It is the addition of OETH’s AMO, and the bonus yield coming from those opted-out from yield, that allow OETH to earn yields higher than standard staking rates.

@ham

it’s my opinion that while OETH has a yield profile that matches stETH alongside a superior liquidity profile under normal market conditions, the yield profile underperforms frxETH

larger gains can likely be achieved by increasing the allocation to frxETH instead.

Every LST/LRT being considered for this basket has a yield profile that underperforms frxETH. The goal isn’t ‘beat frxETH on yield’ - that framing would push ETH+ toward a yield-maximization mandate closer to dgnETH’s original purpose than ETH+'s current safety-and-liquidity-first methodology.

On the actual numbers: OETH’s 30d yield is currently 2.42% per the landing page, at parity with stETH and above rETH at 2.11%. Adding OETH would lift the blended basket yield from where it sits today, before counting the liquidity and diversification gains.

Liquidity

@ham

the circulating supply of OETH is small relative to the total supply of ETHplus and would therefore need to be sized appropriately. At that scale, the allocation would likely not materially improve either the yield or liquidity characteristics of the basket

From the methodology itself:

@ham

• Curate a basket that seeks safety and liquidity over maximised yield or diversification profiles.

• Where safety and liquidity isn’t compromised, the collateral basket can be optimized for favourable diversification and yield profiles.

• Champion a deeply liquid collateral backing with slippage for minting and redeeming ETHplus less than or equal to 0.5% for sizes up to 20% of total ETHplus supply.

OETH can handle size multiple times larger than the amount I suggested in the RFC before reaching 0.5% slippage:

Versus the others in the basket at the same size:

Other LRT/LSTs in the basket:

The amount tested above at 12,010 ETH is roughly 4x the size of the proposed OETH allocation. At the actual allocation size, slippage on OETH is practically zero. A 2,700 - 3,000 ETH allocation lands OETH at 12.86% - 14.29% of the ETH+ basket at 21,000 ETH supply - that is comparable in size to rETH, frxETH, and ETHx in the current basket. That is real basket weight, not a marginal slot.

@ham

simplifying basket monitoring and management alongside reducing some governance complexity.

I don’t think these were goals of ETH+ within the methodology, but the operational cost of one extra constituent seems small relative to the cost of either a methodology breach on frxETH or leaving the strongest exit profile in the basket unallocated. The current ETH+ basket already runs at 5 constituents, so adding OETH wouldn’t introduce new operational complexity, it would just preserve the diversification profile.

Going forward

The OETH being discussed in this rebalance is materially different from the one in the original IP and RFC. We’re not discussing 2024 OETH anymore, especially considering OETH is the only major LST using cryptographic proof of reserves. OETH at 12.86% - 14.29% of the basket stays within methodology on every dependency metric, captures the strongest exit profile in the test set per your April analysis, and lets governors/holders compare the trade-offs directly. My ask: when the end-of-month liquidity analysis goes out, would you be open to modeling a 5-constituent alternative alongside the proposed basket? Happy to provide any data inputs that would help the modeling.

[ham]

I appreciate everyones patience here as we waited over the last month for LPs to exit their LP positions. We can now see that these exits culminated in an ETH supply drop of 45% from 22,000 to 12,000 ETH and when coupled with ongoing ETH price depreciation saw a contraction in market cap of 60%. While this does make for painful reading for the ecosystem as a whole it does somewhat relieve some of the pain points we’ve been discussing here.

I’m going to try and keep this post as short as possible so will first present the data in full before briefly summarising my preferred basket and the rationale behind it.

Individual Collateral Assets

Current Collateral Basket

Previously Proposed Basket

---

Proposal

I propose we continue with the rebalance into the proposed basket as planned for the following reasons;

• ETHx Reduction, 5% (-3%) - A stepwise reduction to the asset which is bottlenecking ETHplus redemption liquidity. A stepwise approach to the reduction has been chosen given the poor overall liquidity of the asset, even a 3% reduction to ETHx’s total allocation has to be completed in two steps as exiting 375 ETHx in a single transaction gives 44.5% slippage. ETHx should then be considered for complete exit at the next rebalance if liquidity metrics do not improve.

• weETH, 25% (+3%) - Increases ETHplus exposure to LRTs to 25%, a comfortable allocation given weETH can easily accomodate the increase given it’s strong liquidity profile and a yield profile that beats ETHplus yield benchmark, stETH. I’d be cautious to increase the allocation to weETH or the LRT class more generally given the additional slashing risks associated with LRTs.

• rETH, 0% (-10%) - A complete reduction in rETH given it’s the least performant asset in the basket, yielding 2.04% while stETH yields 2.45%. The additional risks associated with the asset’s primary liquidity venue being an aETH boosted pool on Balancer also carry some weight on it’s exclusion from the basket.

• frxETH, 20% (+10%) - Given ETHplus supply has reduce by 45% this month, a 20% allocation to frxETH now comfortably sits within the previously ratified dependency parameters (<10%) holding 6.38% of frxETH total supply. Coupled with a favourable liquidity profile and the strongest yield profile among eligible collateral assets, a 20% allocation to frxETH helps maintain ETHplus competitiveness relative to its benchmark, stETH.

• OETH - I’m grateful to @pete for the thoughtful and ongoing discussion around OETH and acknowledge that the recent reduction in ETHplus supply makes a meaningful allocation more viable than when this discussion began. However, while OETH remains an asset worth monitoring, ETHplus currently underperforms its yield benchmark and OETH does not currently improve that position. As a result, I do not believe inclusion is warranted as part of this rebalance, though it may be worth revisiting in future should its relative yield, liquidity profile or strategic role within the basket change.

• Liquidity Profile - While the proposed rebalance does not significantly alter the point at which basket redemption slippage exceeds the 0.5% threshold (~5,000 ETH), it reduces exposure to ETHx, the primary contributor to redemption slippage within the current basket. This improves flexibility for future rebalances and places ETHplus in a stronger position should a complete exit from ETHx be required.

• Diversification Profile - Despite increased concentration in frxETH, the diversification ratio declines only marginally from 0.68 to 0.65 and remains comfortably within mandated limits.

• Yield Profile - The proposal increases the holder yield profile by 8bps from 2.25% to 2.33%, aligning it closer with its yield benchmark, stETH which currently yields 2.45%.

Execution

Given ETHx liquidity remains extremely limited, with redemption liquidity largely exhausted beyond 200 ETHx, I propose executing the rebalance in two equal steps. This reduces execution risk while keeping the estimated cost of each rebalance leg to approximately 0.03% of ETHplus supply. Following completion of the first step, liquidity metrics can be reassessed before proceeding with the second rebalance.

For reference, the table below illustrates the estimated execution costs associated with completing the rebalance in a single transaction. Due to the limited liquidity available for ETHx redemptions beyond ~200 ETH, a single-step execution is estimated to incur approximately 173 ETH of slippage, equivalent to 1.38% of ETHplus supply. This compares to an estimated cost of just 7.2 ETH (0.06% of supply) when executed in two stages.

Poll

• YAY, proceed with the proposed basket rebalance using a two-step execution strategy
• YAY, proceed with the proposed basket rebalance using a single-step execution strategy
• NAY, do not proceed with the proposed basket rebalance

[pete]

Hi @Ham, thanks for the update. A few things before this goes onchain:

@ham

• OETH - I’m grateful to @pete for the thoughtful and ongoing discussion around OETH and acknowledge that the recent reduction in ETHplus supply makes a meaningful allocation more viable than when this discussion began. However, while OETH remains an asset worth monitoring, ETHplus currently underperforms its yield benchmark and OETH does not currently improve that position. As a result, I do not believe inclusion is warranted as part of this rebalance, though it may be worth revisiting in future should its relative yield, liquidity profile or strategic role within the basket change.

The bar for OETH inclusion has been a moving target across this discussion, my RFC, and the IP, but now is resting on yield as the deciding factor?

Currently it appears to be “OETH must close the gap with the stETH benchmark,” which is a tougher standard than the methodology specifies. OETH 30d MA sits at 2.42% vs stETH 2.45% - a 3bps gap would be within normal monthly variation. OETH is still higher yielding than rETH though, so any replacement of rETH with OETH in the basket would increase the ETH+ yields.

However, what you’re forgetting here, is that increased yield is the methodology’s lowest-priority factor. The methodology you ratified states:

@ham

1. Curate a basket that seeks safety and liquidity over maximised yield or diversification profiles.

OETH delivers on both:

• Safety: Your April analysis, which may have been forgotten about, identified OETH’s redemption profile as the strongest in the test set
• Liquidity: The liquidity is clearly there. The liquidity screenshots in my previous response shows OETH handling 12,010 ETH exits at 0.42% slippage, versus rETH at 79.27%, ETHx at 98.40%, and frxETH at 62.77% at the same size

Yield is explicitly listed lower than safety and liquidity. If yield were the primary driver, ETH+ wouldn’t run 50% stETH at 2.45%, it would lean harder into frxETH at the highest yield. OETH is being excluded on the methodology’s lowest-priority factor while delivering on the two highest-priority factors.

I had asked in my previous response for a 5-constituent OETH-inclusive alternative to be modeled alongside the proposed basket so governors could evaluate the trade-offs directly. That modeling wasn’t included in this post.

Governors are being asked to vote without seeing how an OETH-inclusive alternative would actually compare on the metrics that matter. The decision is being made on projected yield differences rather than modeled outcomes. Could you please add a viable comparison basket before the onchain vote that includes OETH, to give governors the data they need? Even a single scenario, such as, stETH 50%, weETH 25%, frxETH 15%, OETH 5%, ETHx 5%, would give governors actual data on yield, redemption capacity, diversification, and dependency trade-offs rather than the projected difference on yield alone.

Poll

• NAY on the current proposal as it stands - OETH inclusion hasn’t been evaluated against a modeled alternative, and the methodology priority places safety and liquidity above yield

[zeb]

With all the different arguments and given data I am in favor of going ahead with the proposed 2-step rebalance. I appreciate all the time people have put in defending their positions.

[ham]

Hey @pete, thanks for your comment.

I think were not seeing eye to eye on this given different interpretations of the ETHplus methodology. While we both agree that yield is a much lower priority, once all safety metrics have been fulfilled I feel we should prioritise yield over redundant liquidity depth.

As ETHplus supply has come down to ~12k ETH, liquidity and concentration conditions are much easier met allowing us to optimise for yield much more efficiently. For example, the redemption curve for the proposed basket shows ETHx as the bottleneck pushing the ETHplus redemption curve past the mandated 0.5% threshold at 5k ETH. frxETH then starts contributing to the ETHplus redemption curve around a redemption size of 10,000 ETH. This is well aligned with the mandated guidance on acceptable liquidity which states 20% of ETHplus total supply must be able to be redeemed with under 0.5% slippage, as with current supply this would equal a redemption size of ~2.5k ETH. Given this parameter has been met, I see no need to further optimise for liquidity and we can instead optimise for yield, hence the doubling of the highest yielding collateral asset, frxETH.

In terms of yield could you please provide further guidance on the source of your 30d MA for OETH yield. You state it’s 2.42% but the OETH landing page has it at 2.33%. Which actually places it as the lowest yield LST/LRT in test.

Given I don’t think we’ll ever be aligned entirely on this and the fact that other ETHplus delegates have weighed-in and given their opinion in the recent poll. I feel sufficient time for discussion have been achieved and will graduate this proposal to IP early next week. The first IP will aim to rebalance the basket into the the interim basket proposed.

[Braden]

I am in favor of proceeding with the 2 step rebalancing. I hope we are able to eventually include OETH in the basket and do appreciate Pete’s continued efforts to do so.

[ham]

This proposal has now been moved onchain. The Request for Comments period has ended and the poll is closed. This is the first of two IPs for this proposal which rebalances the ETHplus collateral basket into the proposed interim basket.

Link to onchain proposal: Reserve app | DTFs

[pete]

@ham

will graduate this proposal to IP early next week.

@ham

This proposal has now been moved onchain.

@ham you moved this proposal onchain several days ahead of the deadline you set, and without allowing myself more time to respond to your comments. It was also moved onchain without including a modeled 5-constituent comparison basket like I asked for in my previous response. As a delegate I previously recommended delegating voting power to and as an RSR holder myself, this is disappointing, as governors are being asked to vote without seeing how an OETH-inclusive scenario would compare on yield, redemption capacity, diversification, and dependency.

Why bother mentioning the April 2026 ETHplus Liquidity Analysis on the onchain proposal, if you’re going to be cherrypicking from the results? ETH+ liquidity is clearly important, especially considering this line in the second sentence of the onchain proposal:

@ham

Most notably, ETHx has become the primary bottleneck to redemption liquidity…

The heightened increase in frxETH increases the stETH backing above 50%, considering frxETH is currently backed by 2,592.9412 stETH. Why bother holding ETH+ instead of stETH at this point? Might as well put the ETH into the stETH ARM which is higher yielding.

Considering the above I suggest all delegates vote against the onchain proposal, at least until an OETH-inclusive model can be completed to allow for a full comparison that uses the full results of the April 2026 ETHplus Liquidity Analysis.

[ham]

Agree, I communicated the timeline poorly here, so apologies for that. I followed my usual governance process by moving the proposal onchain over the weekend so voting could conclude during the working week and, if successful, execution could then be queued before close of play on Friday and executed the following Monday.

With regards to the April liquidity analysis, that work was completed prior to a significant contraction in ETHplus supply. Since then supply has fallen from approximately 32,500 ETH to 9,000 ETH, a reduction of more than 70%. As a result, many of the liquidity constraints identified in that analysis have been substantially reduced.

In your comments below, you compare slippage between OETH and the incumbent collateral assets at a size of 12,000 ETH, equivalent to roughly 133% of ETHplus’ current supply. OETH performs well under that scenario and I agree it remains a collateral asset worthy of continued consideration. However, at ETHplus’ current size, I do not believe it is appropriate to optimise the basket for redemption scenarios larger than the entire circulating supply when there is an opportunity to safely improve yield instead.

@pete

• Liquidity: The liquidity is clearly there. The liquidity screenshots in my previous response shows OETH handling 12,010 ETH exits at 0.42% slippage, versus rETH at 79.27%, ETHx at 98.40%, and frxETH at 62.77% at the same size

I appreciate the request for a modelled OETH-inclusive basket and unfortunately was not able to complete that work before moving the proposal onchain. Given the proposal has already been affected by long delays as we waited for ETHplus supply to reduce and the strong support expressed by delegates for the proposed two-step rebalance process, I did not believe delaying the proposal further was justified.

Thank you also for highlighting that increasing frxETH results in a small increase in indirect stETH exposure. This is not something I had previously made governors aware of. frxETH currently has a supply of approximately 66,500 ETH and holds around 2,500 stETH as backing. This equates to roughly 3.75% indirect stETH exposure within frxETH itself. At a proposed portfolio weight of 20%, this would contribute approximately 0.75% additional indirect stETH exposure to the basket, bringing total stETH exposure to approximately 50.75% (50% direct and 0.75% indirect).

While this does take the basket marginally above the 50% threshold, I believe the improvement to ETHplus’ yield profile outweighs the risks associated with this additional exposure. Nevertheless, governors should remain aware of this indirect stETH exposure and continue to monitor it in future rebalances.