sxETH: A Unified LRT Index
Litepaper
Abstract
In this section, we delve into the StakeEase vault, a novel solution for unifying the fragmented liquid restaking landscape. StakeEase simplifies DeFi participation by creating a single vault backed by a diversified pool of LRTs, LSTs, and ETH, represented by sxETH. This vault simplifies the restaking experience for the user, gives them access to diversified rewards, opens up new yield-generating avenues, and reduces LRT fragmentation in the L2s. With an efficient liquidation strategy and an insurance pool to underwrite small losses in peg, sxETH vault aims to curb losses in case of any individual LRT/LST going down.
1. Problem Statement
The restaking domain is characterized by a plethora of options, making it challenging for users to navigate and optimize their restaking strategies. Fragmented liquidity across numerous LRTs hinders seamless engagement on DeFi platforms across chains. Furthermore, this fragmentation leads to inefficiencies, such as significant price impacts on decentralized exchanges like 1inch on L2s, where a small swap can result in a substantial price change due to the illiquidity of specific LRTs.
2. Intro to sxETH
StakeEase consolidates LRTs and LSTs into a single vault and mints sxETH as a representation asset. This approach simplifies DeFi operations by providing users with a single token that represents their stake in multiple protocols. The platform's allocation mechanism, controlled by veEASE holders, optimizes returns and mitigates risks by spreading the user deposit across a number of different restaking and staking protocols.
3. Working
3.1 Depositing ETH
During each epoch, users deposit ETH into a StakeEase vault. At the end of each epoch, the vault automatically allocates the funds across various staking and restaking protocols based on the allocation parameter set by the veEASE holders. Users receive sxETH in return, which represents their stake in the protocols. sxETH becomes a yield-bearing asset, representing the value of LRTs and LSTs in the StakeEase vault. This process ensures that sxETH will be completely backed by a number of staking and restaking protocols, ensuring:
LRT and LST yields will be passed onto the sxETH holders
Reduced fragmentation via StakeEase’s unified LRT, sxETH, for DeFi operations on L2s.
Users get access to multiple types of loyalty points (Kelp Miles, Ether.fi Points, Genesis Gems, Renzo Points)
Users get access to additional yield. How? Some part of the vault will be used to add liquidity to various Uniswap pools (such as wstETH/ETH). The fees earned from Uniswap pools will also add to the yield within the sxETH vault.
3.2 Depositing LST/LRT Assets
Users can deposit their existing LST/LRT assets into the StakeEase vault. At the end of an epoch, StakeEase contracts will calculate the percentage of ETH deposit that needs to be staked into a particular LST/LRT in that epoch. The LST/LRT deposited will be offset against the amount of ETH that needs to be staked into that LST/LRT.
Consider the following deposits in an epoch:
50 stETH (~ to 51 ETH based on the stETH oracle while restaking),
150 eETH (~ to 164 ETH based on the eETH oracle while restaking),
80 ezETH (~ to 85 ETH based on the ezETH oracle while restaking), and
600 ETH
Suppose the target allocation weights are set as 0.2 for stETH, 0.3 for eETH, 0.2 for ezETH, and 0.3 for ETH. In ETH equivalent terms, a total of 900 ETH gets split into the following:
180 ETH into Lido (stETH)
270 ETH into Ether.fi (eETH)
180 ETH into Renzo (ezETH)
270 ETH remains as is
In terms of actual (re)staking, only (180-51) = 129 ETH gets staked into Lido, and (270-164) = 106 ETH gets restaked into Ether.fi, and (180-85) = 95 ETH gets restaked into Renzo.
3.3 Allocation Parameter
veEASE (vote-escrowed EASE) holders set the parameter that determines the percentage of ETH, individual LSTs, and individual LRTs in the vault. This optimizes returns and mitigates single-point-of-failure risks. This parameter can be changed via governance. The allocation parameter will consist of two sub-parameters - target weight and max weight.
3.4 Capital Efficiency
The LRTs, LSTs, and ETH lying within the vault will be used for various operations to boost yields and ensure there’s no idle liquidity:
A chunk of the vault will be used to add liquidity across various Uniswap v3 pools. Let’s say 70% of all LSTs, LRTs, and ETH within the vault are deployed on Uniswap; the remaining 30% will be used to fulfill any withdrawal requests. If there’s a withdrawal request for more than 30%, we will withdraw liquidity from Uniswap and fulfill that request (it will be an atomic process).
In addition to facilitating withdrawals, the undelegated liquidity in the vault will also be used to facilitate swaps between different LSTs and LRTs. The cost for these swaps will depend on how close the percentage of the LSTs/LRTs being swapped is to their target allocation.
3.5 Insurance Pool
Part of the yield from various vault operations, such as the fees earned from Uniswap, the fees earned from the swaps facilitated within the vault, and the sxETH redemption fee, will be directed to an insurance pool, which will be used in case any LST/LRT is compromised and sxETH loses its value.
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