Summary
This proposal is to discuss integrating staked pxETH (apxETH) into the ETH+ collateral basket to enhance the diversification and provide further value to ETH+ holders.
Abstract
pxETH is ETH liquid staking token (“LST”) developed by the Redacted Protocol as part of its Dinero Protocol offering. It is a liquid and fungible receipt token for ETH deposited into the Dinero protocol which is then staked and used to run validators for the Ethereum network. Users can then deposit their pxETH into an auto compounding pxETH vault in exchange for an apxETH vault token which benefits from Ethereum staking rewards and other revenue forms such as MEV tips and block rewards.
Adding apxETH to the collateral basket is attractive given it has been the highest yielding Ethereum LST for the last 5 months and currently yields 10.44% (10/05/24) which is over triple the current ETH+ yield. This proposal suggests allocating 25% of the ETH+ collateral to apxETH and evenly distributing staking diversification across Lido ETH, Rocket ETH, Frax ETH and apxETH.
Problem Statement
With the recent addition of sfrxETH the ETH+ collateral basket has increased from two collateral assets to three in line with the diversification mandate. Despite this there is still a clear opportunity for further diversification in order to spread risk and significantly enhance yield while still sticking to trusted, high-performance tokens from protocols with a strong commitment to security such as Redacted’s Dinero offering.
Rationale
Since inception in December 2021 Redacted has inserted itself in the heart of DeFi with offerings such as Hidden Hand, a marketplace for governance incentives, Pirex, liquid wrappers that allow for auto-compounding and the tokenization of future yield and their latest offering Dinero protocol, an Ethereum LST and yet released stable coin and permissionless RPC.
The current APY for apxETH stands at 10.44% which is far higher than ETH+ current components - sfrxETH at 3.93%, wsETH at 3.21% and rETH at 2.85% which means with an equal 25% share ETH+ yield will increase from 3.33% to 5.11%.
All of Redacted product suite has been extensively audited and have been battle-tested in a live environment and Dinero is no different having been audited by reputable auditors such as Spearbit and Pashov, has an active bug bounty program with C4 and are a member of the secure staking alliance.
Another benefit of pxETH is that it can be redeemed for ETH from the Dinero protocol either instantaneously for ETH which has yet to be staked or for larger withdrawals ETH will be unstaked from validators; however this will delay the withdrawal process. In the future, an incentivized withdrawal pool will facilitate quicker pxETH withdrawals from the protocol especially when there is an ETH unstaking queue and/or adverse market conditions. Potentially aiding rToken holders who wish to exit their positions quickly in the future.
Enhanced Diversification: Adding apxETH further diversifies the sources of yield within the basket and mitigates risks associated with the concentration in fewer staking platforms.
Yield Improvement: apxETH is designed to be loosely pegged to ETH, capitalizing on on the same model as Frax a proven strategy in the synthetic asset market to potentially offer higher yields.
Suggested New ETH+ Collateral Basket
| Token | Allocation | APY = 5.11% |
|---|---|---|
| rETH | 25% | 2.66% |
| Wrapped stETH | 25% | 3.10% |
| sfrxETH | 25% | 4.81% |
| apxETH | 25% | 10.44% |
Risks
Adding another asset as collateral adds additional counterparty risk. However, apxETH has gone through rigorous smart contract audits and has existed for 6 months with a total value locked of $25 million with no exploit occurring.
The two token model such as the ones employed by frxETH and pxETH have complex staking and yield dynamics and I encourage the community to explore them further (here) to be well informed when deliberating on this RFC.
Conclusion
Please provide any questions or feedback in the comments to enhance the discussion and help the DAO in making this decision.
- Yes, in favour
- No, against
- Maybe, I require more information to make an informed decision