Summary
Background: ETHplus has seen rapid TVL growth and increasing institutional participation, necessitating a review of the collateral basket to support larger minting and redemption flows with minimal slippage.
Problem: The current basket, while diversified, fails to meet slippage thresholds for redemptions above ~22,500 ETH, affecting large LP operations.
Proposal: Rebalance the collateral basket with increased wstETH allocation (55%) and the introduction of OETH (15%), improving redemption performance and increasing basket yield from 2.89% to 2.99%, with only a minor reduction in diversification (0.66 → 0.64).
Alternatives Considered: A “Redemption Curve Maxi” alternative was modeled, prioritizing liquidity over diversification, but was ultimately rejected due to its higher centralization risk.
Risk Considerations: The inclusion of OETH is supported by multiple audits and risk assessments (Prisma Risk, LlamaRisk, Chaos Labs, OpenZeppelin). All other assets are well-established within ETHplus.
Conclusion: The proposed changes provide a balanced approach to scalability, yield, and risk, ensuring ETHplus remains a leading rToken capable of supporting growing institutional demand.
Abstract
This proposal outlines a strategic update to the ETHplus collateral basket aimed at optimizing liquidity and minimizing slippage during large-scale minting and redemption events. As ETHplus has experienced significant growth—404% year-over-year in ETH-denominated TVL—the protocol now supports larger institutional LPs whose activities demand more robust liquidity infrastructure. The proposed changes rebalance the basket to improve the performance of redemption curves while maintaining a high level of diversification and increasing the overall yield profile. The proposal also introduces OETH as a new collateral asset, supported by third-party audits and risk assessments. This optimization enhances ETHplus scalability and positions it for continued sustainable growth.
Problem Statement
ETHplus has seen significant TVL growth recently with 465% year on year growth in ETH-denominated TVL. While this growth is monumental we now have more institutional LP providers operating with much larger volumes than we did in the past. Given the larger size of these providers it has become more prudent to optimize the minting and redemption curves of the collateral basket so these larger LPs can conduct their operations quickly and with minimal slippage. The collateral basket change aims to support ETHplus scalability, putting the collateral basket in the best position to maintain the growth we have seen over the past year.
Rationale
The ETHplus mandate has always been to maintain an Ethereum-aligned LST basket, positively impact the Ethereum staking distribution and provide value to ETHplus holders through diversification and as such has been at the forefront of all collateral basket changes.
However, while a vital part of a RTokens make-up clear minting and redemption curve guidelines have not been set despite being discussed previously, most notably in @0xSleepy contributions to address ETHplus liquidity constraints - first RFC, second RFC and @StableScarab comments on how to address diversification here.
The outcome of these discussions add a few more considerations which we can consider when considering collateral basket changes.
- Threshold Slippage - 0.5%
- Target size under Redemption Threshold - 30k ETH
- Largest collateral basket allocation - 50%
- Diversification Ratio - previously ranged between 60-70%
Liquidity Analysis - Collateral Asset and ETHplus basket
Below I have modeled the minting and redemption curves of the collateral assets available for inclusion in the ETHplus collateral basket up to a mint and redemption size of 10,000 ETH.
As you can see from the graphs the price impact curve for minting collateral assets starts higher but climbs at a much shallower gradient when compared to its redemption curve counterpart on the left side of the curve when we move over to the right we see significant kinks along the redemption curve for collateral assets where there is not enough liquidity to satisfy the redemption size; first ETHx at 2000 ETH, sfrxETH at 5000 ETH and OETH at 9000. rETH has a smoother curve and wstETH a near flat line due to its deep on-chain liquidity.
Current basket
| Collateral Asset | Allocation | Yield | Basket Yield |
|---|---|---|---|
| wstETH | 50.00% | 2.85% | 1.43% |
| rETH | 21.00% | 2.58% | 0.54% |
| sfrxETH | 21.00% | 3.04% | 0.64% |
| ETHx | 8.00% | 2.86% | 0.23% |
| Total Yield Profile | 2.83% | ||
| Diversification Ratio | 0.66 |
While well diversified with a diversification ratio of 0.66 the current basket operates poorly on the redemption curve crossing the 0.5% threshold at 22,500 ETH with only wstETH sitting below the threshold past the 30,000 ETH redemption target severely impacting LPs conducting activities with significant size.
Proposed basket
| Collateral Asset | Allocation | Yield | Basket Yield |
|---|---|---|---|
| wstETH | 55.00% | 2.85% | 1.57% |
| rETH | 15.00% | 2.58% | 0.46% |
| sfrxETH | 10.00% | 3.04% | 0.26% |
| OETH | 15.00% | 3.04% | 0.46% |
| ETHx | 5.00% | 2.86% | 0.14% |
| Total Yield Profile | 2.88% | ||
| Diversification Ratio | 64% |
The proposed basket optimises for price impact along the redemption curve while also maintaining a well diversified collateral basket with a diversification ratio of 0.64 and a slight jump in the yield profile from 2.89% to 2.99%.
The new basket has a heavy allocation OETH, a new collateral asset, given it’s strong on-chain liquidity second only to rETH and wstETH. The new allocation pushes the price impact threshold of 0.5% well past the 30,000 ETH target and, while still not ideal, a much smoother minting curve. The proposed basket composition does push us over a 50% wstETH allocation at 55% but I feel we are pressed right up against the upper bound of the liquidity constraints of the other collateral assets forcing us to over-allocate.
Alternate Option - Redemption Curve Maxi
| Collateral Asset | Allocation | Yield | Basket Yield |
|---|---|---|---|
| wstETH | 65.00% | 2.85% | 1.85% |
| rETH | 15.00% | 2.56% | 0.38% |
| sfrxETH | 10.00% | 3.04% | 0.30% |
| OETH | 10.00% | 3.04% | 0.30% |
| Total Yield Profile | 2.84% | ||
| Diversification Ratio | 54% |
In this alternate proposal I have prioritized the minting and redemption curve over diversification, heavily weighting wstETH due to it’s far superior on-chain liquidity. While this does push the redemption curve slightly further past our 30k redemption target and pushes the minting curve under 0.5% for sizes under 20,000 ETH we have heavily sacrificed diversification with a diversification ratio of 0.54. I’m of the opinion that these marginal gains don’t out-weight the risk of centralisation and therefore it hasn’t been put forward as the proposed basket.
Comments on Data Collection and Methodology
All of the data was collected via Llamaswap using the Odos and Paraswap aggregators, with the best price impact between the two being recorded.
For the price impact Vs mint / redemption size models for the ETHplus collateral basket accurate collateral basket allocations were used rather than an extrapolation of the mint and redemption curves for each collateral asset, ensuring accurate slippage values. The data used to model these graphs and other collateral baskets was collected on 28/05/2025 and can be found here.
Risks and Audits
ETH+ is the largest rToken by TVL on the reserve platform; when changing the collateral basket of a rToken of this size slippage and liquidity constraints, if not considered, can lead to under-collateralization of the rToken, resulting in the sale of staked RSR to recollateralize the collateral basket.
While each LST needs to be evaluated on its own merits for liquidity, smart contract risk, dependencies and decentralisation all the assets apart from OETH are already part of the ETHplus collateral basket and have been for some time. However OETH is a new entrant to the basket and should be considered carefully.
OETH has been operational for over 2 years with a TVL of 44,500 ETH ($116m), zero exploits or security incidents to date and has demonstrated a strong commitment to smart contract security as shown by their past audits and active ImmuneFi bug bounty with a max bounty of $1,000,000 for critical findings. Origin has a continuous auditing agreement with OpenZeppelin to review 100% of the OETH and OUSD smart contract changes. Audits can be found here.
August 2024 - Prisma Risk collateral risk assessment
Oct 2024 - LlamaRisk full collateral risk assessment supporting the onboarding of OETH to the Aave V3 instance.
Oct 2024 - Chaos Labs collateral risk assessment supporting the onboarding of OETH to the Aave V3 instance.
Conclusion
The proposed update to the ETHplus collateral basket is a strategic and necessary evolution to support the protocol’s continued growth and scalability in response to increasing institutional participation. By rebalancing the basket to prioritize improved redemption curve performance while maintaining a strong level of diversification and enhancing the yield profile, we address current liquidity constraints without compromising the core principles of ETHplus—Ethereum alignment, sustainable staking diversification, and yield.
This reallocation enables ETHplus to accommodate significantly larger minting and redemption operations with minimal slippage, extending the 0.5% slippage threshold well beyond the 30,000 redemption target. While the increased allocation to wstETH puts us at centralization limits, it reflects a pragmatic response to the liquidity constraints. Overall, the proposed basket remains within an acceptable diversification range and represents a balanced compromise between performance and risk.
The inclusion of OETH, supported by comprehensive audits and multiple third-party risk assessments, introduces an additional high-yield, liquid asset to the basket. This helps improve overall performance without introducing undue centralisation risk, provided its integration is monitored carefully.
Ultimately, this proposal ensures ETHplus remains positioned as a robust, scalable, and resilient RToken for the Ethereum ecosystem, prepared to meet the demands of both current and future large-scale participants.
- Ye, I am in favour of the proposed collateral basket change
- No, I am not in favour of the proposed collateral basket change
- Abstain
It will be a great addition that is sure to increase the combined ETH+ yield as is confirmed from your research.