@signal Thank-you for taking the initiative to put this together and share it on the forum. The level of reporting is appreciated and sets the bar for other collateral providers in the ecosystem.
@robtg4 I came here to respond after reading the post late last week and found most of my points already covered. Thank-you for your comments and welcome to the Reserve Governance forum. I hope you stick around. I’d love to connect properly, could you drop me a message on TG? @hamdefi
While an ongoing rETH allocation within the basket strongly aligns with some elements of the mandate, it’s decentralised infrastructure being key among them, I do have some concerns. The chief amongst them being the yield profile, which continues to trail the market rate and the fragility of rETH liquidity especially during market stress. Your comments on these two topics go some way to address them but unfortunately I agree with @robtg4, they aren’t completely alleviated.
1. Liquidity
While I disagree with @robtg4 that Boosted Balancer Pools face identical exposure to looped positions such as those within Lido’s EarnETH vault, the LP’s dependency on Aave’s market health remains. For example during the rsETH hack we saw the LPs TVL fall from $7m down to $4.9m. Unfortunately we’ve also seen no meaningful recovery since with TVL stabilising today around $5m. While it’s easy to contribute cause to some of the largest DeFi hacks our industry has endured, this trend for rETH is concerning.
Another concern I have around rETH liquidity is the apparent dependency on the RockSolid rETH Vault to supply liquidity into this position. Prior to the hack their capital made up roughly 15% of the entire pools TVL. While heavily aligned with the protocol they still have their obligations to vault LPs and pulled their position during the recent market stress, leaving rETH liquidity extremely thin. It is also notable that this capital has not yet returned. While this remains an accessible source of capital for Rocket Pool to re-engage, the dependency on a single allocator, combined with underlying exposure to aETH, introduces additional fragility that should not be relied upon as a primary liquidity backstop.
I’d like to ask for further clarity on the efforts to rebuild rETH liquidity, as Rob said we’ve seen a significant reduction in executional depth in the last 6 months and given the stabilisation we’re seeing, current liquidity rebuilding efforts aren’t sufficient.
That being said, the April liquidity Analysis, completed as the market is starting to recover from the rsETH hack shows that rETH is far from the redemption bottleneck. Only starting to contribute to total basket slippage when ETHplus redemption sizes exceed 30,000. For comparison ETHx liquidity (the current bottleneck) is exhausted at 5,000 ETH. This is great as we enter ‘normal market conditions’ once again but the risk still remains during periods of Aave or wider market stress.
2. Yield
@signal your comments, along with @robtg4’s, are helpful but do not yet provide a sufficient basis for ETHplus governors to rely on when assessing potential basket changes. I’d like to ask for further clarity on the expected increase to the yield profile of rETH.
From the April liquidity report, it is clear the basket is currently out of alignment with its mandate, with ETHplus underperforming its yield benchmark, stETH. While there are external factors contributing to this, including the increase in take rate from 5% to 10%, rETH is also acting as a notable drag on overall yield.
Are there any additional materials, forward yield projections, or timelines for the proposed upgrades that can help governors better assess the expected improvement in rETH’s yield profile?
