[RFC] Collateral Basket Change Proposal: Add Re7 WETH Morpho Vault

[Re7Labs]

Summary

This proposal seeks to add the Re7 WETH Morpho Vault back into the dgnETH collateral basket.

Current dgnETH Collateral Basket:

Collateral Asset	Allocation	APY
wOETH	25%	2.52%
Convex ETH+/ETH	75%	4.41%
Total APY		3.94%
sdgnETH APY		6.91%

Diversification Ratio: 0.375

Proposed dgnETH Collateral Basket:

Collateral Asset	Allocation	APY
Re7 WETH Morpho	12.5%	3.16%
wOETH	12.5%	2.52%
Convex ETH+/ETH	75%	4.41%
Total		4.01%
sdgnETH APY		7.04%

Diversification Ratio: 0.406

Note: Asset APY’s were taken from the Reserve APP.

Abstract

Our analysis indicates the recent collateral basket change proposal has caused dgnETH to diverge away from its mandate.

This proposal aims to align the dgnETH collateral basket more closely with its mandate while increasing the yield profile and the diversification ratio.

At Re7 Labs, we’re dedicated to empowering the Decentralized Finance (DeFi) ecosystem. Active since 2019, we’ve established ourselves as an institutional-grade liquidity provider and experts in risk curation and vault management. We utilize our specialized in-house tools and research to enhance liquidity and user experience across DeFi protocols, managing over $550 million in our curated vaults.

Problem Statement

The dgnETH mandate:

1: Take appropriate risks to capture high DeFi yields and sustainably outperform the LST market. 2: Distribute revenue to maximize staking contract yield.

According to the first part of the mandate, the goal of dgnETH is to sustainably outperform the LST market. By adding wOETH(an LST) in the collateral basket at a 25% allocation, only 75% of the collateral basket will be able to sustainably outperform the LST market. 25% of the collateral basket will offer returns equal to the LST market.

There is a noticeable deviation between the dgnETH collateral basket and its mandate.

Rationale

There are two main avenues for ETH yield in the DeFi space that can sustainably outperform the LST market. Lending Vaults and Liquidity Pools.

Liquidity Pools(Convex) :

Convex Finance enhances the rewards for Curve liquidity providers by offering additional CVX token incentives. The ETH+/ETH pool on Convex delivered impressive yields over the past year, exceeding 20% and reaching a high of 12.53% in April 2025.

Graph of TVL and APY from defillama of ETH+/ETH Convex chart:

Lending Vaults(Morpho) :

Morpho vaults are structured to ensure that capital is actively used, minimizing idle time and maximizing the productive use of deposited funds, which in turn translates to higher yields for lenders. Yields for the RE7 WETH vault touched 12% APY in the last year, including a high of 5.63% in June 2025.

Graph of TVL and APY from defillama of the RE7 WETH Morpho Vault:

LSTs offer lower yields compared to the returns from providing liquidity to pools or supplying assets to lending markets. LST exposure should be kept to an absolute minimum if the dgnETH collateral basket aims to align with the mandate.

This proposal aims to enhance sdgnETH’s yield, increase the diversification ratio and better align the collateral basket with its mandate.

Risks

Governance risk is our primary concern. There is a mandate that governors have deviated from. If this deviation continues to grow, dgnETH could lose its clear framework of rules for future governance proposals. It is recommended that governors support this proposal to begin to realign themselves with the mandate and prevent further deviation.

• Yay
• Nay

[ham]

Thanks for putting this well informed RFC together and posting on the forums @Re7Labs. I’m in complete agreement that the collateral basket has deviated from it’s mandate and as such am grateful that you’ve proposed a collateral basket change that begins the realignment process.

At the time of the OETH inclusion vote a new Curve pool had come online for OETH and we saw yields increase and stabilise above 3.5% for a few days prior. While I did encourage OETH to delay the vote until a time where we could see yields stabilise this did not happen. However, I did eventually voted YAY for this proposal since it’s always been my opinion that the yield seeking nature of dgnETH outweighed it’s mandate to outperform the LST market and with OETH yielding 3.5% at the time it was yielding more that the other plug-ins available to us, RE7 Morpho vault included albeit unproven. With yields dropping back to 2.3%, with a 30d average of 2.6% it looks like this new Curve pool has made little to no impact on OETH yields in the long term.

With what is for me a clear deviation away from the dgnETH mandate and now this drop in yield I will be voting YAY for this proposal since it’s becoming increasingly apparent that OETH is a not a good fit for dgnETH.

Since the poll is also in favour, i’d recommend pushing this for IP Sunday 27th June (preferred since then the entire voting period will occur in the week, ending Friday) or Monday 28th June. Pushing to IP at this time will also give time of Origin and other community members time to respond if they’d like to do so, tagging @pete for visibility.

OETH Yield

** Voting started 09/07/2025

Also @Re7Labs as the RToken Champion for dgnETH i’d love to connect outside of the forums, while I strongly believe in the transparent communication forum posts provide it will be good to have a direct line to your team so I can update you on dgnETH strategy, governance and on-chain votes when these arise. Please DM me on TG, my handle is @HamDeFi. Thnx.