Summary
This proposal seeks to complete the slow introduction of Stader’s ETHx to the Ethereum Plus, ETH+ collateral basket, now that the safety criteria set in Step 1 have been met. The approval of this proposal will fully integrate ETHx into the basket, completing the two-step process initiated in the previous RFC. This proposal has been made with the ETH+ mandate in mind, diversifying the collateral basket further without compromising on either yield opportunities or security.
Abstract
This proposal aims to finalize the integration of Stader’s ETHx into the ETH+ collateral basket, following the fulfilment of safety criteria established in the previous RFC. By incorporating ETHx, the ETH+ basket will benefit from enhanced yield potential, while also rebalancing rETH and sfrxETH to minimize slippage during larger mints and redemptions. The proposal reflects the ETH+ mandate of optimizing both yield and security and advancing the basket’s evolution without introducing undue risk. In this second phase, the goal is to continue with the introduction of ETHx, address liquidity bottlenecks, and ensure smooth execution without compromising the rTokens stability or incurring a loss to RSR stakers…
Problem Statement
The current ETH+ basket is currently in a state of transition with ETHx being introduced to further diversify the basket and increase yields while rebalancing the incumbent yield strategies, rETH and sfrxETH to limit the impact of slippage with large mints and redemptions, this RFC aims to complete the second step further diversifying the basket and enable us to explore the addition of other LSTs, like the addition on OETH which was posted on the ETH+ forum recently.
Rational
The rationale for this RFC is to complete the previous RFC and as such has the same overarching goals;
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Addresses current liquidity bottlenecks (rETH for minting, sfrxETH for redemption)
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To introduce ETHx at conservative levels and increase once safety criteria have been met
The first step was executed on 01/10/24 and the transaction incurred roughly a 7% loss (~$30k) to the backing buffer, much less than expected given the trading bot mitigated slippage by minting directly as opposed to purchasing ETHx through a DEX LP. Due to this mitigation of slippage the collateral basket was left with an over-allocation of rETH which the trading bot then proceeded to auction off as revenue, the result of this was an additional 45% (~$170k) loss to the backing buffer. Now the backing buffer has refilled to >70% we are confident we can complete the second step without losing >40% of the backing buffer preventing loss for RSR stakers.
Since the completion of Step one of this two part basket change liquidity has been monitored closely. As you can see from the graphs that slippage when minting and redeeming ETH+ has improved significantly throug-out the transition and will continue to improve with competition of the second step. Key to note is sfrxETH is still the limiting factor with redemptions at redeems >25,000 ETH and ETHx with mints >35,000 ETH. Given the current ETH+ token distribution I believe these are at acceptable levels but will need to be continuously monitored if ETH+ continues to grow at or faster than it’s current rate.
The previous price impact of mints and redemptions before step 1 was complete
Figure 1
Figure 2
Figure 1 and 2 show the price impact of mints and redemptions up to 30,000 ETH for the previous basket composition of stETH (33)/rETH (33)/sfrxETH (33). As you can see from the graphs a price impact of >0.5% occurred at redemptions for ETH+ >15,000 for sfrxETH and of ETH+ >12,500 for mints for rETH.
The current price impact of mints and redemptions
Figure 3
Figure 4
Figure 3 and 4 show the current collateral basket which is composed of stETH (42)/rETH (27)/sfrxETH (27)/ ETHx (4) showing a clear improvement of the price impact for both mints and redemptions.
Price impact of mints and redemptions after step 2 is completed
Figure 5
Figure 6
Figure 5 and 6 show the proposed collateral basket composed of stETH (50)/rETH (21)/sfrxETH (21)/ ETHx (8) demonstrating further improvement of the the price impact on large ETH+ mints and redemptions, we now only see significant price impact with redemptions greater than 25,000 limited still be sfrxETH and with mints greater than 35,000 limited now by ETHx. The price impact is much improved from the initial collateral basket (figure 1 and 2) when we saw significant price impact on ETH+ redemptions >15,000 and mints >12,500.
Basket
| Previous Basket | Current Basket - Step 1 | Final Basket - Step 2 |
|---|---|---|
| 33% wstETH | 41.67% wstETH | 50% wstETH |
| 33% rETH | 27.17% rETH | 21% rETH |
| 33% sfrxETH | 27.17% sfrxETH | 21% sfrxETH |
| 0% ETHx | 4.00% ETHx | 8% ETHx |
Diversity Ratio
Diversification Ratio = 1 - Sum of the square weights
Ratio for the current basket = 0.6771
Ratio for the proposed basket = 0.6554
Risks
Given this is the second step of the plan outlined in the previous RFC, additional risks to ETH+ holders and RSR stakers are minimal.
As stated in the previous RFC ETH+ is the largest rToken by TVL and when changing the collateral basket of this size slippage and liquidity constraints, if not considered, can lead to under-collateralization of the rToken leading to losses for RSR stakers. We understand this and have mitigated the risk of slippage with the two step approach, the benefit of this being the second step is we now have a deeper understanding of how the change will be executed via the trading bot and are confident no loss to RSR stakers will be incurred.
As previously expressed, the addition of ETHx to the collateral basket and the subsequent increase in allocation comes with additional counterparty risk. However, However, Stader’s ETHx has 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 and has demonstrated a strong commitment to smart contract and oracle security as shown by their past audits, bug bounty and oracle security mechanisms. To date ETHx has been audited by three renowned auditors: SigmaPrime, Halborn, and Code4rena and currently has an active $1M ImmuneFi bug bounty.
Conclusion
In conclusion, by completing this second phase, we aim to mitigate liquidity constraints and slippage concerns, while completing the slow introduction of ETHx. The conservative introduction of ETHx, backed by proven audits and a solid security track record, minimizes counterparty risk, further enhancing the basket’s resilience. With the backing buffer restored to over 70%, we are confident that this proposal can be executed without significant risk to RSR stakers, reinforcing the long-term health and yield potential of the ETH+ basket.
Poll
- Yes, I am for completion of the second step
- No, I am against completion of the second step at this time
- I need more information to vote either for or against