This RFC suggests the inclusion of Pendle LP tokens for Swell ETH (swETH) as a part of the ETH+ collateral basket. Our goal is to enhance the attractiveness of the ETH+ and to broaden the diversification of its underlying assets. We are seeking the community’s feedback on whether this would be a desirable approach.
Background
ETH+ currently only contains Lido staked ETH and Rocket Pool ETH. Feedback and internal discussions have pointed to the current offering being uninspiring, with the value proposition of ETH+ being something users could large replicate on their own.
Specification
This proposal seeks the inclusion of swETH LP tokens on Pendle into ETH+.
Following is a comparison of the proposed changes:
Asset
Current Basket
Proposed Basket
wstETH
50%
33.3%
rETH
50%
33.3%
Pendle swETH
0%
33.3%
Pendle
Pendle Finance is a protocol that enables the trading of tokenized future yield on their proprietary AMM. Liquidity providers can supply a yield-bearing asset (e.g. wstETH) which serves as liquidity for traders to speculate on that asset’s fluctuating interest rates. In return, depositors earn swap fees and PENDLE incentives.
Swell
Swell is a liquid staking protocol whereby the value of the staked derivative swETH increases as rewards accrue on chain (similar to Rocket Pool ETH).
Rationale
Inclusion of Pendle swETH LP pushes the envelope and innovates on asset options provided amongst ETH LST index products. There is already broad coverage of LST options in Yearn and Index Coop’s products, but this proposal expands such indexes into uncharted waters.
Pendle swETH LP earns an attractive yield of 7.4%, plus whatever governance rewards Swell depositors earn at TGE. With the proposed changes, ETH+ would earn a market-beating APR of 5+%, compared to the previous 3.8%
We have observed at least some customer demand for Pendle swETH LP, as demonstrated by an LP who recently migrated their RToken positions to Pendle.
Risks
Complexity: Pendle, by its nature, is technically intricate. Building or interacting with it may require a higher engineering effort compared to other collateral plugins
Protocol Maturity: Both Pendle and Swell are relatively younger protocols compared to the incumbents of Lido and Rocket Pool. This may increase the perceived risk of ETH+
Novel Oracle: Swell’s usage of Redstone oracles may have less battle-hardened security assumptions compared to other solutions
Conclusion
This proposal aims to put the the “+” in ETH+ by going above and beyond the status quo. However, this opportunity does not come without risks. We invite the community to weigh in with their thoughts on this proposal, whether positive or negative.
Uhmm, I think it’s good to find a way to include more assets, in this case for ETH+, I agree with the proposal but it would be great if:
Since the protocols are young, it would be great to not give him so much weight in the basket, an ideal percentage would be in the range of 20-25% top.
I share the same concern/question from 0xJMG about the status of audits and stress tests towards these protocols.
In short, I agree only if:
Not much weight is given inside the basket.
If there is an acceptable increase in the total yield of ETH+ with the inclusion of this new asset in the basket.
The presented concept has captured my interest, particularly the idea of incorporating Pendle LP tokens as swETH into the ETH+ collateral basket. However, I believe it’s crucial for us to thoroughly address the potential risks and gather sufficient information about the source of the additional yields from swETH.
Understanding the game-theoretical design underlying it, taking into consideration the Total Value Locked (TVL) of the new protocol, and conducting a comprehensive assessment of its credibility would be valuable. Perhaps there might be someone available who could dedicate time to examining the codebase more closely?
Once these questions are adequately addressed, and the risks become more assessable, I am definitely in favor of including swETH. This initiative could potentially present an exciting and innovative avenue to generate additional interest yields with ETH+.
Moreover, it could positively impact many investors by sparing them the need to extensively engage with Pendle Finance.
Overall, I am for this proposal. Given the risks below:
Complexity: Pendle, by its nature, is technically intricate. Building or interacting with it may require a higher engineering effort compared to other collateral plugins
Protocol Maturity: Both Pendle and Swell are relatively younger protocols compared to the incumbents of Lido and Rocket Pool. This may increase the perceived risk of ETH+
Novel Oracle: Swell’s usage of Redstone oracles may have less battle-hardened security assumptions compared to other solutions
I believe that increasing the APY for ETH+ as well as diversifying the collateral basket outweigh the potential risks. Currently, Coinbase will allow you to stake your ETH and earn 3.23% APY. There are other options on the market that will roughly give you 4-5% APY on your ETH. With the addition of the Pendle swETH LP, ETH+ can become a market leader in terms of earned APY.
What is the estimated total yield improvement for ETH+given proposed backing changes?
New APR (with evenly weighted assets) would be 5+%, compared to the previous 3.8%
Would you recommend changing the % allocation to RSR stakers and why is this good or bad?
I would rather position ETH+ primarily as a product with competitive yield and some overcollateralization rather than the other way around and sacrifice yield. I would leave things as is for this reason
Whats the status of audits and stress testing on Pendle and Swell thus far?
Swell’s audit from Sigma Prime - launched in April 2023
@socopower@Crypto_Goku I hear you - we can definitely decrease the overall weighting of the new collateral in ETH+, and potentially slowly increase as the community becomes more comfortable with it. The risks for Swell are pretty well understood and similar to those of other LST projects. Pendle has outlined a number of their risks here.
There’s too much risk in adding these new protocols, and directly with the same weight (33%) sheesh.
Seems that we’re only looking to add the new shiny stuff. There are way better options, more liquid and w higher yields.
It’s a war of interests, and it seems Swell/pendle have positioned themselves well, which doesn’t mean the community has to go forward with it. Less BIAS and more actual concern about proper yelds and less risky protocols.
I think laddering in from 10% in 3 stages to allow people to feel comfortable with the higher risk. I’ll admit to not knowing the whole range of staked ETH offerings and their risk factors.
Do we know what the risk/reward volumes might be? For example of those already owning ETH+, who would be put off by the extra risk? Of those who have not minted ETH+, how many would with the additional revenue? It might be a case of throwing the baby out with the bathwater if those current holders think it’s too risky.
Do people not use the Yearn vault at 17% with their ETH+ or is that seen as too cumbersome / risky?
All that said, if the aim is to grow TVL then there’s a better chance including the swETH - it will have to get past governance anyway so let people vote on it.
Incorporating an ETH LST with the lowest APR is one thing, but integrating with a liquid staking protocol that brings great risks is a big no-no for me.
Why not go with other options that have been tried and tested over time?
If a huge basket is going to be given to a risky protocol like Swell, might as well do it for something more secure and has greater liquidity on Pendle. Frax, or even Ankr, are way better options imo.
Stop playing the hype game. Go for a less risky option with better yields.
Thanks for posting Larry! I think this proposal gets a lot right and has a ton to offer, definitely think it would make ETH+ a more diversified and differentiated product.
My main concern echoes some of the others in the thread regarding the sizing of the allocation vs the risk. I don’t think an even 33% split makes sense because stETH and rETH are far more established than Pendle swETH LP and the slight boost in yield doesn’t seem to meet the risk premium needed to make me comfortable with an even allocation. That being said, most of the LPs and funds that I’ve talked to are using Pendle to some degree, so I would support a smaller allocation within ETH+ while keeping stETH and rETH as the primary allocations.
Main questions on my end:
Some folks suggested more tested LSTs like ankrETH and/or sfrxETH would be better additions to the basket to start. Seems like a fair point, why start with Pendle swETH LP over ankrETH and/or sfrxETH in the ETH+ basket?
Do we have any ballpark figures on how much we can expect mint costs to increase if the proposed basket change were to happen?
I think I like it. Generally, I like a broader range of assets in the basket and a higher yield is also welcome. My only concern is the stability of Pendle. I don’t know anything about it other than what I read after reading this. It seems legit but I’m no expert here. Maybe a smaller allocation would be warranted here. Overall, I say go for it I think.
Incorporating these new protocols with an equal weightage of 33% is highly risky.
It appears that the focus is on integrating the latest innovations without considering better alternatives that offer higher liquidity and yields.
While Swell/Pendle seems to have strategically positioned themselves, it doesn’t necessarily mean that the community should proceed with it. There should be less bias and more genuine concern about optimizing yields and minimizing risks associated with the protocols.
Do you have any suggestions for alternative products that offer high yields while still being compliant with your risk profile? ETH+, as previously identified, yield is indeed too low. What yields would these additional tokens add? @Soham’s point about needing to know projected yields is an important one.