Summary
- Redemption liquidity across major LSTs has deteriorated this quarter, seen in the collateral basket with rETH and frxETH showing sustained weakness for a second consecutive quarter
- The collateral basket remains compliant on yield, diversification, and minting liquidity, but redemption slippage now exceeds the 0.5% threshold at around 5,000 ETH, well below the current ~6,700 tolerance
- Protocol level minting and redemption remain the most capital efficient entry and exit mechanism at scale, while secondary market liquidity becomes constrained quickly beyond small trade sizes
- A previously identified denominator mismatch error overstated basket slippage in earlier reports. The error has now been fully corrected but does reduce the lack of comparability been this and previous data sets
Question for Governors
Given the current liquidity environment, should temporary breaches of the redemption slippage threshold during periods of stressed LST liquidity be tolerated, or should governors consider whether immediate adjustments to rETH and frxETH allocations are warranted to improve the liquidity profile of the DTF and maintain alignment with the proposed ETHplus methodology?
Liquidity Analysis, December 2025 - Full Report
This report aims to be a comprehensive analysis of ETHplus liquidity and the liquidity of its constituent collaterals. The purpose of this report is to inform and educate the wider Reserve community, key stakeholders and institutional capital allocators on key liquidity metrics and support governance activities over the next quarter. As per the ETHplus Methodology document this analysis is completed every quarter, with the series becoming a reference library for key liquidity metrics and how they have changed over time.
Collateral Asset Liquidity
September 2025
December 2025
The quarter has seen another general decline in Liquid Staking Token, LST liquidity. Likely due to a combination of poor market sentiment and a number of high profile hacks, most notably Balancer V2. While there is some deterioration in the minting curve of frxETH, crossing 1% slippage at sizes above 1,000 ETH before plateauing in the 1.5-2% range, the rest remain extremely efficient. However, the same isn’t true for the collateral assets redemption curves with frxETH, rETH and OETH all displaying liquidity exhaustion 50% earlier than last quarters levels. The only outlier here being ETHx which has doubled, now showing liquidity exhaustion at 4,000 where it was 2,000 ETH previously.
ETHplus Basket
September 2025
| Collateral Asset | Allocation | Yield | Basket Yield |
|---|---|---|---|
| wstETH | 50.00% | 2.67% | 1.34% |
| rETH | 21.00% | 2.42% | 0.51% |
| sfrxETH | 21.00% | 3.06% | 0.64% |
| ETHx | 8.00% | 2.72% | 0.22% |
| Total Yield Profile | 2.70% | ||
| Diversification Ratio | 0.66 |
| Asset | Total TVL | Basket Allocation | Basket Share of Asset TVL |
|---|---|---|---|
| stETH | $38,000,000,000 | $200,000,000 | 0.53% |
| rETH | $2,000,000,000 | $84,000,000 | 4.20% |
| frxETH | $500,000,000 | $84,000,000 | 16.80% |
| ETHx | $675,000,000 | $32,000,000 | 4.74% |
| OETH | $163,000,000 | $0 | 0.00% |
| weETH | $11,500,000,000 | $0 | 0.00% |
December 2025
| Collateral Asset | Allocation | Yield | Basket Yield |
|---|---|---|---|
| stETH | 50.00% | 2.63% | 1.32% |
| rETH | 21.00% | 2.34% | 0.49% |
| frxETH | 21.00% | 3.70% | 0.78% |
| ETHx | 8.00% | 2.78% | 0.22% |
| Total Yield Profile | 2.81% | ||
| Diversification Ratio | 0.66 |
| Collateral Asset | Allocation | Total TVL | Allocation ($) | Basket Share of Asset TVL |
|---|---|---|---|---|
| ETHplus | $109,500,000 | |||
| stETH | 50.00% | $38,000,000,000 | $54,750,000.00 | 0.14% |
| rETH | 21.00% | $2,000,000,000 | $22,995,000.00 | 1.15% |
| frxETH | 21.00% | $250,000,000 | $22,995,000.00 | 9.19% |
| ETHx | 21.00% | $675,000,000 | $22,995,000.00 | 3.41% |
| weETH | 0.00% | $9,100,000,000 | $0.00 | 0.00% |
| OETH | 0.00% | $163,000,000 | $0.00 | 0.00% |
There is currently a proposal on the forums to codify elements of the index methodology used when determining the optimal collateral basket for ETHplus. This proposed methodology covers areas including diversification and yield profiles, dependency risk, and threshold slippage constraints.
The current collateral basket remains largely compliant with this framework. It maintains a yield profile above Lido’s stETH, a diversification ratio above 0.60, avoids holding more than 10% of any underlying collateral’s total TVL, and exhibits a minting curve that does not cross the 0.5% slippage threshold until well beyond 6,700 ETH (20% of ETHplus supply).
However, several external factors have materially impacted redemption liquidity this quarter. These include the Ethereum validator exit queue remaining in the 35 to 45 day range for much of the period, alongside broader liquidity disruptions following the Balancer V2 exploit. As a result, liquidity when exiting LST positions has been notably thinner.
This deterioration is reflected in the ETHplus redemption curve, which now exceeds the 0.5% slippage threshold at approximately 5,000 ETH. The two main contributors to this are rETH and frxETH, both continuing to deteriorate for a second consecutive quarter and are now bottlenecking redemptions for ETHplus around the 5,000 ETH mark. This places redemptions temporarily out of compliance with the proposed ETHplus methodology, which states that both mints and redemptions should remain below the 0.5% slippage threshold for sizes up to 20% of total ETHplus supply. With ETHplus supply currently at approximately 33,500 ETH, this threshold corresponds to around 6,700 ETH.
RocketPool specifically have taken comments onboard regarding the liquidity depth of rETH and are actively exploring strategies and incentives to improve this. Governors are now faced with a decision on whether this thin liquidity is expected to improve into Q1 2026, or whether a reduction in exposure to these assets is warranted to maintain compliance with ETHplus slippage thresholds.
ETHplus - Secondary Market Liquidity
As ETHplus can be entered or exited either through protocol level minting and redemption or by swapping via on chain DEX liquidity, this section focuses on the latter, less discussed pathway: accessing ETHplus through its own secondary market liquidity.
| ETHplus - Swap Size | Entry Slippage | Exit Slippage |
|---|---|---|
| 500 | 0.19% | 0.00% |
| 1000 | 0.23% | 0.28% |
| 1500 | 0.26% | 1.00% |
| 2000 | 0.29% | 1.89% |
| 2500 | 0.33% | 5.77% |
| 3000 | 0.42% | 15.46% |
| 3500 | 0.71% | 21.67% |
| 4000 | 2.19% | 28.89% |
| 4500 | 6.51% | 35.56% |
| 5000 | 12.07% | 41.08% |
At a 1,000 ETH trade size, entering ETHplus via secondary market liquidity incurs approximately 0.23% slippage, while exiting incurs around 0.28%. By comparison, protocol level interactions remain more efficient, with a 2,500 ETH protocol mint incurring approximately 0.05% slippage and a 2,500 ETH redemption incurring approximately 0.38%, despite recent initiatives to deepen secondary market depth such as the Gearbox ETHplus/WETH market.
At sufficiently small trade sizes, secondary market liquidity is likely to become the more efficient entry and exit route. Based on observed slippage curves, this crossover point is expected to occur at sizes well below 2500 ETH reinforcing protocol level minting and redemption as the most capital efficient pathway for larger ETHplus positions.
Data Collection
All liquidity data in this report was sourced using Matcha Meta on 16/12/2025. Matcha Meta aggregates liquidity across multiple solvers but also simulates execution outcomes at the time of query. Avoiding reliance on static pool snapshots helps ensure slippage estimates reflect realistic, executable prices across trade sizes.
However, onchain liquidity remains in a constant state of flux, and execution outcomes may vary materially as market conditions, incentives, and available liquidity evolve. Given this, a limitation of this analysis is the results are accurate only at the time of collection.
Denominator Mismatch Error
Previous liquidity reports contained a denominator mismatch error when calculating basket slippage for ETHplus mints and redemptions. Slippage percentages for each collateral asset were summed, rather than first aggregating absolute ETH losses and then normalising slippage at the basket level. This led to an overestimation of basket slippage when swapping into and out of ETHplus. This error has now been corrected. While the minting and redemption curves for the individual collateral assets can still be compared, the ETHplus minting and redemption curves in this report are not directly comparable with those in previous reports.
Question for Governors
Given the current liquidity environment, should temporary breaches of the redemption slippage threshold during periods of stressed LST liquidity be tolerated, or should governors consider whether immediate adjustments to rETH and frxETH allocations are warranted to improve the liquidity profile of the DTF and maintain alignment with the proposed ETHplus methodology?
Summary
The analysis shows a continued deterioration in redemption liquidity over the quarter, with rETH and frxETH exhibiting reduced depth for a second consecutive quarter. While the ETHplus basket remains compliant on yield, diversification and minting liquidity, redemption slippage now exceeds the 0.5% threshold at approximately 5,000 ETH, well below the desired threshold proposed in the ETHplus methodology document. Protocol level minting and redemption remain the most capital efficient entry and exit mechanism at scale, while secondary market liquidity becomes constrained rapidly beyond small trade sizes. It is now up to governors to assess whether current redemption liquidity conditions are likely to improve into Q1 2026 or whether basket adjustments should be considered to maintain alignment with the proposed ETHplus methodology.