[Proposal] New ETHv2 Vault strategy with StakeWise

Summary

New strategy for ETH v2 vault, that stakes ETH in Stakewise DAPP, a non-custodial tokenised ETH2 staking pool solution. ETH is staked by minting sETH2, with rewards being awarded in rETH2 through PoS. The current APR is around 6%, typically much higher than the ETH vault provides.

Background

The Ethereum Network is transitioning to Proof of Stake (PoS) validation mechanism, a much more efficient and environmentally friendly technique to achieve what Proof of Work (PoW) has been doing until now making GPUs so costly and melting the polar ice cap. Just like PoW, PoS yields earnings for validation and can be done in pools. The PoS pool we propose to use in this strategy is Stakewise’s pool, because it features dual-token design and offers competitively low fees. Dual-token design features a set of advantages, among which the possibility to compound rewards. The PoS rewards currently provide an APY that would yield higher APY than the current ETH v2 vault, therefore granting better returns to all yearn ETH vault users.

Motivation

Yearn strategy for ETH v2 vaults can have up to 20 strategies, and this can be one of them, granting a higher APY than the current ETH strategy and not being reliant on Ethereum’s health, as yield does not depend on trading/loans volume. The strategy’s APY at time of writing is ~0.58% and the 6%, which after strategist fees and management fees respectively becomes about 6%-0.16%-0.026%=5.48% makes this a far higher yield strategy. Stakewise is the chosen staking platform because it features dual-token design, which allows for compounding now that the sETH2/ETH and rETH2/sETH2 pools are up and running on Uniswap (sETH2/ETH pool, rETH2/sETH2 pool: ttps://info.uniswap.org/#/pools/0xa9ffb27d36901f87f1d0f20773f7072e38c5bfba).

This strategy, therefore, not only allows for higher yield, but will help and prepare in the transition to PoS, as well as provide value to the DeFi ecosystem with exposure to Stakewise’s advantageous dual-token design.

Specification

Basic strategy: given balance of x ETH in the vault, approx x ETH is staked in Stakewise PoS pool, minting x sETH2. This provides ~5.48% APY in the form of rETH2, already greater than the current ~0.58% yearn ETH vault’s APY at time of writing. The accrued can then be converted to more sETH2, allowing for the rewards to compound since rewards are simply awarded to sETH2 holders. Withdrawing it is simply a matter of converting the sETH2 back to ETH via the uniswap liquidity pool.

Possible add-on strategy: if convenient (exact numbers to be determined after incentives are decided by DAO, and fees APY somewhat stabilizes), given x ETH provided in vault, ½ x can be staked to obtain ½x sETH2, and provided with the other ½ x ETH in the 50/50 sETH2/ETH Liquidity Pool. This will grant fees from sETH2/ETH exchange of people wanting in on the staking (skipping activation period) and people wanting out of it. At time of writing LP’s APY is ~48.6% (Trading Fees ~42.49% + ETH2 Staking ~6.11 %)

For:

  • APY in the StakeWise pool is currently around 6.10%, which leaves yearn staking APY (after strategist fees and management fees respectively) at about
    6%-0.16%-0.026%=5.48%, higher than the current ETH vault strategy APY of about 0.58%. So the simplest strategy will already yield a better APY than the current ETH strategy, along with the possibility of compounding.
  • The StakeWise staking scheme featuring dual-token design allows staking and compounding of the rewards back in the staking pool upon accrual.
  • Half of the staked Eth (sETH2) can be put in liquidity pools, this add-on strategy can be adopted in higher trading traffic periods, and turned off whenever trading fees are not enough to improve overall APY. (exact threshold to be determined based on gas too)
  • APY of this strategy does not depend on the economy or health of Ethereum Network, as rewards are produced in rETH2, 1:1 with ETH, and are not reliant on loan demands (like other strategies may).
  • PoS will become the only validation mechanism in Ethereum, making miners obsolete, resulting in higher PoS rewards.
  • Stakewise has proved to be an incredible team with high potential and will likely be willing to help get the strategy up and running.

Against:

  • The Staking APY will slowly decrease over time as more Ethereum PoS stakers join the game.
  • Possibility of loss due to slippage, due to the reliance of liquidity in liquidity pools at various stages of this strategy
  • Add-on strategy may be not very cost efficient and require a lot of gas.
  • Risk of slashing

Poll:

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