Summary
The April 2026 ETHplus Liquidity Analysis highlighted a growing misalignment between the current collateral basket and the ETHplus mandate. Most notably, ETHx has become the primary bottleneck to redemption liquidity, causing basket slippage to exceed the mandated 0.5% threshold at approximately 5,000 ETH, while the recent increase in the ETHplus take rate from 5% to 10% has pushed holder yield below the benchmark stETH rate. At the same time, increasing concentration within individual collateral assets requires closer monitoring to ensure compliance with the mandated 10% dependency limits.
This proposal seeks to address these issues through a rebalance which removes rETH, reduces ETHx exposure, increases weETH and frxETH allocations and maintains stETH at 50%. The proposed basket improves redemption capacity, improves the holder yield profile while remaining diversified across multiple ETH staking protocols.
While the rebalance temporarily places ETHplus above the mandated dependency threshold for frxETH, this is expected to normalise as externally incentivised looping positions continue to unwind and ETHplus supply contracts further over the coming weeks. Given this dynamic, execution of the rebalance is recommended only after these positions have largely exited.
| Metric | Current Basket (April 2026) | Proposed Basket | Reason for Change |
|---|---|---|---|
| Redemption Slippage Threshold Breach | ~5,000 ETH Redeemed | ~7,000 ETH Redeemed | Improved Redemption Capacity |
| Holder Yield | 2.30% | 2.39% | +9bps |
| Blended Basket Yield | 2.55% | 2.65% | +10bps |
| stETH Allocation | 50% | 50% | Unchanged |
| weETH Allocation | 22% | 25% | Increased (+3%) |
| rETH Allocation | 10% | 0% | Reduced (-10%) |
| frxETH Allocation | 10% | 20% | Increased (+10%) |
| ETHx Allocation | 8% | 5% | Reduced (-3%) |
| Diversification Profile | 0.68 | 0.65 | Slight Reduction |
| Basket Share of frxETH TVL | 5.45% | 10.89% | Increased dependency risk (likely transient as incentivised LPs exit ETHplus positions) |
| Mint Slippage Threshold Breach | Within mandate past tested range | ~2,500 ETH Minted | Slight deterioration versus mandate amid weaker market-wide liquidity |
Problem Statement
The April 2026 Liquidity Analysis highlighted three areas of concern with the current ETHplus collateral basket composition:
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ETHx has become the primary bottleneck of the ETHplus redemption curve, causing basket slippage to exceed the mandated 0.5% threshold at approximately 5,000 ETH redeemed. With ETHplus supply currently sitting at ~21,000 ETH, the basket remains within the mandate requiring 20% of supply to exit below the slippage threshold, but would likely fall out of alignment under further supply growth.
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Increasing the ETHplus take rate from 5% to 10% has negatively impacted the holder yield profile, which now sits at 2.29%, below the mandate benchmark of stETH at 2.46%.
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The percentage of constituent TVL held within the ETHplus basket continues to rise and requires close monitoring during future rebalances to ensure compliance with the mandated 10% dependency limit.
The following proposal seeks to rebalance the ETHplus collateral basket to restore closer alignment with the mandate and methodology ratified onchain in January 2026, while addressing the issues outlined above.
Proposal
A collateral basket change which completely removes rETH (-10%), reduces ETHx (-3%), increases weETH (+3%), increased frxETH (+10%) and maintains stETH at 50%.
Rational
The proposed basket rebalance attempts to balance liquidity, yield and dependency risk while bringing ETHplus back into closer alignment with its ratified methodology and mandate.
Reducing ETHx from 8% to 5% improves the ETHplus redemption profile. As identified in the April 2026 Liquidity Analysis, ETHx currently acts as the primary bottleneck during large redemption events, causing total basket slippage to breach the mandated 0.5% threshold at approximately 5,000 ETH redeemed. Lowering the ETHx allocation shifts the redemption curve to the right, increasing available redemption headroom and restoring a more comfortable buffer relative to the mandated 20% exit capacity.
At the same time, the rebalance improves the blended basket yield profile. Increasing exposure to higher yielding assets such as frxETH and weETH partially offsets the reduction in holder yield caused by the increase in the ETHplus take rate from 5% to 10%. While the proposed basket still marginally underperforms the current stETH benchmark, the holder yield profile improves by approximately 10bps relative to the current basket and moves ETHplus closer to benchmark parity without concentrating the basket in its highest yielding constituents.
Achieving these improvements required reassessing the role of lower yielding and structurally weaker liquidity profiles within the basket, most notably rETH. The decision reflects both its weaker relative yield profile and growing concerns around the resilience of its secondary market liquidity during stressed conditions. A significant proportion of rETH liquidity remains concentrated within Balancer boosted pools with underlying dependency on Aave market health through aETH exposure. The rsETH incident demonstrates that they are vulnerable to broader deleveraging and liquidity withdrawals during periods of market stress. Additionally, rETH liquidity deteriorated significantly following the Balancer exploit in October 2025 and has shown limited recovery since. The apparent dependency on a small number of aligned allocators to restore execution depth, e.g the RockSolid rETH Vault, further increases the fragility of the liquidity profile relative to other basket constituents.
The decision to not include OETH in the collateral basket was not taken lightly. However, OETH was ultimately excluded given its backed supply currently sits at approximately $65m and its AMO mechanics remain relatively untested during periods of direct protocol or broader market stress, likely warranting only a cautious allocation size. At present, such an allocation would not significantly improve either the yield or liquidity profile of the basket relative to the additional structural complexity introduced.
The proposal does however temporarily place ETHplus above the mandated 10% dependency threshold for frxETH. While this would normally be viewed as outside acceptable methodology constraints, it is expected that ETHplus supply will continue to contract over the coming weeks as externally incentivised positions continue to unwind. Under current estimates, I expect a further 40-50% reduction in ETHplus supply bringing ETHplus back within the mandated dependency limits without requiring further basket adjustments.
Given this dynamic, it is recommended that any onchain vote and subsequent execution of the rebalance is delayed until the majority of these externally incentivised positions have exited. Current expectations are that this process will largely conclude by the end of the month. If this unwind does not occur as anticipated, an updated collateral basket proposal will be presented to governors based on the prevailing ETHplus supply and dependency metrics at that time.
Risks
The proposed rebalance increases concentration within the remaining basket constituents. The removal of rETH alongside the reduction in ETHx results in larger allocations to weETH and frxETH, increasing exposure to their associated smart contract, validator and governance risks. This is partially mitigated by the fact these protocols are among the most established and battle tested within the Ethereum staking ecosystem, with audited smart contracts and multi-year operating histories securing billions in total value locked without major loss events.
The proposal also introduces temporary dependency risk by placing ETHplus above its mandated 10% constituent TVL threshold for frxETH. While this would normally fall outside methodology constraints, execution is expected to occur only after a further unwind of externally incentivised ETHplus positions. If ETHplus supply does not contract sufficiently by month end, an updated basket composition should be presented to governors before execution proceeds to mitigate this.
Delaying execution until these positions unwind also introduces timing risk. Collateral yields, liquidity profiles and ETHplus supply may change before implementation, potentially requiring updated analysis or amendments prior to execution.
Finally, while the rebalance improves the ETHplus redemption profile by reducing ETHx exposure, there remains a risk that ETHx liquidity continues to deteriorate. Should execution depth weaken further, ETHplus may again exceed its mandated redemption slippage thresholds during elevated exit activity, reducing the protocol’s ability to efficiently rebalance or exit positions under normal or stressed market conditions. Continuous monitoring of ETHx liquidity will be required for the next few months to mitigate this.
Conclusion
Overall, this proposal represents a pragmatic step toward restoring closer alignment between the ETHplus collateral basket and its ratified mandate. The rebalance improves the basket’s redemption profile, strengthens the holder yield profile and reduces reliance on ETHx liquidity, while maintaining exposure to large, established and battle tested ETH staking protocols.
The proposal does introduce temporary dependency and concentration trade offs, particularly around frxETH exposure, however these are expected to self-resolve as externally incentivised ETHplus positions continue to unwind. Delaying execution until this process is further advanced provides governors additional flexibility should market conditions, liquidity profiles or ETHplus supply materially change before implementation.
Governors are encouraged to weigh the improved liquidity and yield characteristics of the proposed basket against the temporary increase in dependency and execution timing risk when considering this proposal.
Poll
Given the proposal recommends delaying onchain voting and execution until externally incentivised ETHplus positions have further unwound, it would be premature to advance to IP off the back of a poll at the time of posting. As such, this poll is intended only to gauge the current directional sentiment of governors.
An updated liquidity analysis, dependency assessment and governance poll will be presented at month end. If governor sentiment remains favourable and dependency metrics return within acceptable limits, the proposal will then progress to the IP stage.
- YAY, directionally in favour of the proposed basket
- NAY, directionally against the proposed basket