[RFC] Addition of Stader's ETHx into the ETH+ LST Basket

[knight_mayr]

Summary

This RFC advocates for integrating ETHx, Stader’s ETH Liquid staking token, into the ETH+ collateral basket to enhance diversification and value for ETH+ holders.

Abstract

ETHx is an innovative liquid staking token by Stader, designed to offer users flexibility in trading and leveraging their staked ETH while participating in DeFi and earning staking rewards. We propose allocating 10% of the ETH+ collateral to ETHx, alongside Staked Lido ETH, Staked Frax ETH, and Rocket Pool ETH.

Problem Statement

The current ETH+ collateral basket’s limited asset composition restricts risk diversification and yield enhancement opportunities. Integrating ETHx will expand the asset spectrum, improve risk distribution, and potentially increase the ETH+ yields. Incorporating ETHx will further allow the basket to more accurately reflect the evolving Ethereum staking ecosystem while maintaining a focus on secure, high-performance assets from trusted protocols.

Rationale

• Diversification: ETHx currently offers users an APY of 3.01%, which is on par with Frax and Staked Lido ETH, and higher than Rocket Pool ETH. Integrating ETHx into the ETH+ basket not only diversifies yield sources but also mitigates risks associated with asset concentration

• Bonus Rewards: Upon incorporation of ETHx, users can earn 5% Flat annualized staking rewards (1.6X of the usual reward rate) for the first 90 days on the ETHx component of the basket. Stader will sponsor the delta (in SD tokens) on top of native staking rewards to make it 5% total. Stader will also share flat 70% of its revenue back for the first 180 days on ETHx component to the users.

• Healthy Onchain Liquidity: There is $20M+ liquidity in ETHx pools across leading DEXs such as Uniswap, Curve, Balancer, Pancakeswap, etc. allowing trades of up to 4000 ETHx at less-than 1% slippage.

• Security: ETHx has triple-audited smart contracts, active bug bounty and an external multisig. It is backed by an experienced team that has developed on six other chains.

• Backers and Partnerships: Stader is backed by top-tier investors such as Pantera, Coinbase Ventures, Jump Crypto, Accel, Accomplice, True Ventures, etc. Stader is trusted by leading CeFi players, wallets and funds such as SwissBorg, Nexo, OKX, Metamask, Ledger, Safepal, Abraxas Capital and MEV Capital.

Proposing the following ETH+ collateral basket after adding ETHx:

Asset	Allocation	APY (Source: ETH+ Dapp)
Staked Lido ETH	50%	3.19%
Rocket Pool ETH	25%	2.77%
Staked Frax ETH	15%	3.33%
ETHx (Stader Staked ETH)	10%	3.01% (5% for first 90 days)

Risks

Adding another asset as collateral introduces additional counterparty risk. However, ETHx mitigates this risk with three comprehensive smart-contract audits and a $1 million bug bounty. Having been operational for over a year, ETHx has a total value locked of 125K+ ETH and 20K+ active stakers, with zero exploits or security incidents to date

Developed by an experienced team that has worked across multiple chains over the past three years, ETHx is widely accepted on numerous DeFi platforms. It offers users several liquidity pools and various yield-generating options. You can read more about ETHx’s security measures here

Please share any questions or feedback in the comments to enrich the discussion and assist the DAO in making an informed decision.

• Add 10% ETHx to the ETH+ basket
• Don’t add ETHx to the ETH+ basket
• Would need more research

[0xSleepy]

Love this @knight_mayr really exciting!

Are there any plans in place to continue growing ETHx liquidity on its stable pools?

At 10%, there could be liquidity constraints with ETH+ at > $200 Million market cap, so having a plan in place to scale it further would be good for the community to see

[Smeddy]

Can anyone smarter than me point out any risks specific to this RFC? - I’m fine with the usual considerations when adding or changing collateral.

Because otherwise I will vote yes on a proposal aligned to the above (as a very small holder of ETH+)

[Westwood]

frxETH 2.0 should be out in a couple weeks fwiw. Might want to keep a decent allocation for the highest yielding LSD out of the bunch. Just saying

[ham]

Very interesting proposal @knight_mayr.

Good to see Stader aligning themselves closely with this proposal with the short-term yield boost and revenue share kickbacks. Regarding the kickbacks as anyone ran the maths to see how much this will boost base yield? Think it would be good to conceptualise how much of an impact this will actually have if the proposal goes forward.

Given that ETH+ has been marketed as a DAO treasury asset it’s good to see your commitment to security and the risk diversification will outweigh the additional minting costs of adding another asset to the collateral basket to these large players.

I do however echo Sleepy’s concerns and would love to hear how you plan to scale ETHx liquidity given ETH+ rapid growth over the last few months. We could very quickly near current liquidity constraints.

I am also with @Westwood on significantly reducing the allocation towards sfxETH. There was previously strong support for the addition of sfxETH to the collateral basket in favour of diversification and feel the current proposals 50% allocation to Staked Lido ETH reverses this. If the community decide to include ETHx in the collateral basket i’d propose a more equitable 30/30/30/10 split.

[rspa_StableLab]

The proposal meets most formal requirements and is very well researched and structured. Let us know if you want help putting this to an on-chain vote.

We took the liberty to add a community poll in the RFC so we have a temp check.

[0xSleepy]

[RFC] Adjusting the ETH+ Collateral Basket To Adjust Liquidity Constraints To Protect ETH+ Holders From Slippages

Summary To change the collateral basket of ETH Plus (ETH+) into a more liquid structure allowing for easier redemptions, issuance, and adjustments on its collateral basket as it continues to scale. Current ETH+ Collateral Basket 33.4% wstETH 33.4% sfrxETH 33.4% rETH Proposed ETH+ Collateral Basket 61% wstETH 24% rETH 15% sfrxETH Abstract This proposal aims to adjust the collateral basket for ETH Plus (ETH+) to enhance liquidity and reduce slippage risks as the protocol scales. The current…

When considering the diversification, it would be good to look at this RFC and the other RFC from over a month ago.

I don’t think a 30/30/30/10 split would properly address liquidity concerns.

A distribution closer to this may be more ideal, but now adjusting for ETHx as well

@Westwood could you share if sfrxETH 2.0 will have strategies in place to reduce slippage?

I would like to keep as high an allocation as possible and maybe we could even increase this distribution if there is a strategy around slippage reduction and a concrete release timeline

[bet]

I wanted to share some of the charts for reference, updated to reflect todays liquidity.

Based on today’s data, sfrxETH liquidity has improved in the last few weeks! sfrxETH and rETH have extremely similar liquidity today. cc @Westwood

Here is today’s liquidity for an ETH+ basket with inclusion of ETHx at 10%. I find the short term yield boost intriguing! cc @knight_mayr

Happy to provide more information/data to help move the conversation forward.

[0xSleepy]

@Westwood what are your thoughts on this breakdown? I think this balances scalability with diversification in the interim

cc: @StableScarab

[Westwood]

Where the did liquidity come from? This looks fantastic.

[ivanhalen0x]

Thanks for this well thought out proposal @knight_mayr. I believe the proposed split appropriately addresses the diversification debate prompted by the previous RFC posted in this forum as long as liquidity onchain continues to scale as ETH+ grows.

[knight_mayr]

Thanks a ton for the detailed feedback folks.

@0xSleepy On the topic of secondary liquidity, we already have plans to double it over the next couple of quarters in accordance with the lending market requirements which should be good for the $200M+ supply cap

@rspa_StableLab would appreciate the guidance. Please let us know the steps for the on-chain vote

[rspa_StableLab]

Happy to help! Where can we best DM you? Here on the forum?

[StableScarab]

In the RFC To Adjust Liquidity Constraints, we were adjusting the basket to get to 30k ETH+ slippage. It seems with the updated liquidity we have now checked that box, which implies that we can keep the collateral basket as is.

This separate RFC for adding Stader’s ETHx raises a different set of question for ETH+: what are the criteria for a new LST to be added? In the past ETH+ was 50/50 stETH/rETH, then it became 33/33/33 stETH/rETH/sfrxETH. Following those changes, it would seem to me that in the spirit of maximizing diversification, the addition of ETHx should ideally target a 25/25/25/25 stETH/rETH/sfrxETH/ETHx weighting.

However, it seems that ETHx may be more liquidity-constrained than the other options. The choice we seem to be making is to offset the liquidity constraints of ETHx inclusion by impacting diversification and upping the weighting of stETH. An alternative would be, maintain the equal weighting of stETH/rETH/sfrxETH and add in ETHx until the chosen liquidity constraint of 30k is hit. So instead of 50/20/20/10 stETH/rETH/sfrxETH/ETHx, we would see if 30/30/30/10 would meet liquidity requirements, if not 31/31/31/7. But ideally, we would want to get to 25/25/25/25 over time.

I think finding a way to make the criteria for inclusion/weighting as procedural as possible will also give other LSTs a path to joining the ETH+ basket in the future. I’m a big fan of the builders at Stader and I’m looking forward to seeing them included.

[0xSleepy]

@bet I think this would be good to see modeled out if you have time to do today or this weekend, I’d like to get an IP out to vote on next week so we can this settled

[0xSleepy]

GM @StableScarab

I want to leave this link to a discord message I left on the Reserve discord governance channel: Discord

TlDr I’d like to see that modelled out if possible and a solution maybe to be close to finalized in the governance call today at 11:00am EST

I think the recommendations from that call paired with this conversation will be sufficient for me to push this to IP

[MEVCapital]

Hello, thank you @knight_mayr for your proposal.

We recently shared our research on the composition of the ETH+ asset basket as part of the RFC to Adjust Liquidity Constraints. We invite you to review it to understand our thoughts on the matter.

Regarding ETHx, we also support your desire to include it in the current asset basket.

We believe this would lead to better decentralization and increased attractiveness in the short/medium term.

Here is our recommendation for the inclusion of ETHx:

• 50% wstETH
• 28% sfrxETH
• 17% rETH
• 5% ETHx

As highlighted in our previous report, we consider it crucial to improve liquidity during the minting process of ETH+. Therefore, we are opting to significantly reduce the allocation of rETH in favor of increasing wstETH.

As for ETHx, its inclusion would enhance overall liquidity in the ETH+ asset basket and be beneficial for decentralization.

Check out our simulations:

Mint price Impact

Actual ETH+ basket composition price impact

• As of September 3rd, it would take around 42 days to absorb the price impact from minting 12,000 ETH+ given the current ETH+ APR.

New ETH+ basket composition price impact

• With the new allocation, it would also take 15 days (based on the current ETH+ APR).

Redemption price Impact :

Actual ETH+ basket composition price impact

New ETH+ basket composition price impact

With this new composition, the price impact during minting and redemption has significantly decreased.

To recap, the new allocation will:

• Increase the expansion of ETH+ by improving mint liquidity
• Boost ETH+ yield by adding ETHx
• Enhance redemption liquidity without exposing wstETH to more than 50%

We also have other composition ideas:

• wstETH: 48%
• sfrxETH: 28%
• rETH: 17%
• ETHx: 7%

Or:

• wstETH: 50%
• sfrxETH: 21%
• rETH: 21%
• ETHx: 8%

Please feel free to share your thoughts/responses to further the discussion.

[bet]

Much appreciated for the in-depth look at the ETH+ basket! I reran my analysis for the 50/21/21/8 ETH+ basket and noticed some differences. Can you help clarify a few points to make sure we are on the same page:

1. Price Impact: My data shows the 8% ETHx component hitting the 0.5% price impact level at an ETH+ size of 30,000. On your chart the ETHx component surpasses 0.5% price impact around the 12,000 level. There is also a linear trajectory for ETHx in your chart. Can you explain these differences?
2. Concave Redemption/Minting Lines: I noticed that a few lines (sfrxETH minting, rETH redemption) appear concave downwards while increasing. Can you elaborate on why this would happen?

Can you help clarify the above and provide any factors or parameters to help align our analysis? I have been working with data returned from the Odos aggregator. Thanks again @MEVCapital

[MEVCapital]

Hello, thank you for your response.

There is indeed an issue with ETHx: it stems from the fact that we did not use the same data source. For our simulations, we used 1inch (Odos for sfrxETH) and CowSwap to cross-check some results.

(For the linear ETHx curve, this is due to a lack of data.)

Here are the simulations using Odos as the data source for ETHx.

Mint Price Impact :

Redemption Price Impact :

Suggestion 1 :

Suggestion 2 :

1inch was chosen because it is the only aggregator that uses certain liquidity sources. As we detailed in our first report, certain routes are activated only when a swap reaches a certain size.

This is the case with Rocket Pool, which has a liquidity pool of 31,000 ETH used to convert rETH to ETH at the peg.

1inch only starts using this pool when the swap size reaches a certain threshold, meaning that the price impact is equal (or slightly lower) from a certain size onward.

(For sfrxETH, our dataset does not show a decreasing value over the swaps.)

We may notice differences in some results because liquidity is quite volatile, and some aggregators sometimes change routes in real-time (which can alter the price impact by more than 0.10%).

(The graphs have been edited based on the initial proposal.)

[knight_mayr]

Thanks for the detailed analysis @MEVCapital. Looks like Option 2 is better from a diversification stand point with sfrxETH & rETH getting equal weightage but feels a bit too restrictive around ETHx’s weightage which goes against the grain of diversifying the index

While a few ideas were floated around in both the threads as to what constitutes an ideal mix, ranging from equal weightage for all assets to honoring the market share, we do acknowledge the realities around slippages and the general caution around addition of any new assets.

Hence we started with a relatively smaller ETHx’s share of 10% in our original proposal. Which we believe might just be substantial enough to make an impact and can later be scaled with our ever growing liquidity position. So can you please run the analysis and add a similar graph for the following mix

• wstETH: 50%
• sfrxETH: 20%
• rETH: 20%
• ETHx: 10%

While not so drastically different from Option 2, it works better from an optics stand point and simplifies the decision making to increments of 5 or 10. Happy to hear the community’s thoughts on the same