[RFC] Proposal to onboard ETHplus to the Lower Risk ETH Fleet (Ethereum Mainnet)

General Discussion Request for Comment [RFCs]
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[RFC] Proposal to onboard ETHplus to the Lower Risk ETH Fleet (Ethereum Mainnet)

Summary

A proposal to onboard ETHplus, an asset indexed to the ETH staking ecosystem, to the Ethereum Mainnet Lower Risk Fleet. The proposal aims to improve both the diversity and yield profiles of the fleet by increasing ETH staking exposure and reducing reliance on lending market yields with a minimal increase in the risk layer.

Context

ETH+ is a safety-first diversified ETH staking index launched in April 2023 on Reserve Protocol, the largest index protocol. ETH+ is backed 1:1 by its collateral assets and is permissionlessly mintable and redeemable onchain. ETH+ is fully decentralized and governed by Reserve Rights (RSR) stakers who also provide overcollateralization in the form of staked RSR that acts as first loss capital to automatically recollateralize the basket in the event of loss.

The ETH+ basket is currently composed of wstETH (50%), rETH (21%), sfrxETH (21%), and ETHx (8%). However, this may change in the near future as governors consider the inclusion of weETH into the basket in order to improve the diversification, liquidity and yield profiles of the index. As mentioned previously, ETH+ can be permissionlessly redeemed for these underlying assets permissionlessly in a single transaction. The dual exit, protocol vs DEX liquidity, is important as it creates first order liquidity for the index which significantly reduces the risk of holding ETH+ since the asset is exitable in size far beyond its DEX liquidity with minimal slippage.

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Over the past year we have seen tremendous adoption of ETHplus across DeFi, currently boasting ~$24m in DEX liquidity across Curve and Uniswap, the 6th largest market on Morpho’s Mainnet instance with a total market size of $144m and the second most utilised asset in the new KPK curated ETH v3 vaults on Gearbox, links below.

Quarterly Reporting

For the past year ETHplus has submitted quarterly reports to the Reserve forum containing metrics on growth, governance, social media metrics and on-chain metrics such as DeFi supply and token holders. It is an excellent resource to quickly update the community and communities of its partners on the activities of ETHplus and the latest can be found here.

ETHplus has also more recently started publishing Quarterly Liquidity Reports and aims to be a comprehensive analysis of both ETHplus minting and redemption curves but also its on-chain liquidity and the liquidity of its constituent collateral assets. The latest Liquidity Report can be found here and will help guide discussion and BlockAnalyticas reccomendations.

All ETHplus reports can be found here.

Oracles

ETH+ has a market rate oracle from Redstone deployed in April 2024 and an exchange rate oracle built in-house and deployed in July 2024 which is used in several lending markets.

Security and Risk

Since its inception, Reserve has placed the utmost priority on security. Nine audits and a bug bounty of $10M with Immunefi (top 3 in the industry) contribute to ensuring the safety of the Reserve Yield Protocol, which has been live since October 2022 without any security incidents.

Additionally, ETH+ has been subject to several professional risk analyses in the past year. Most notably, LlamaRisk published an in-depth report on ETH+ in July 2024 as part of a series of comprehensive risk assessments on RTokens. A detailed overview and historical tracking of ETH+’s risk metrics can also be accessed through IntoTheBlock’s professionally-curated Risk Radar dashboard for ETH+.

Motivation

Enhanced yield

The TVL growth of the Lazy Protocol’s Lower Risk ETH Vault on Mainnet has been nothing less than monumental since its inception. However, at present the vault has a heavy allocation to lending market yields which are underperforming the liquid staking token, LST market rate. For example, 30d ETH yields for Compound, Aave and Fluid sit at 2.28%, 1.95% and 1.82% respectively whereas ETHplus has a blended 30d yield of 2.77%.*

ETHplus is a valuable addition to the Lower Risk Ethereum Mainnet Fleet given its superior yield profile which alongside OETH will help set a yield baseline for the vault which is competitive with the LST market rate, a necessity for the Lower Risk ETH Vault as it continues on its growth trajectory and scales towards and past the 9 figures mark.

It’s also worth mentioning the events of the last few weeks in which we have seen some vault allocations incur bad debt and the likely socialisation of losses as in the case in Lazy Summer Protocol’s own USDC Vault on Arbitrum. A scenario which is best avoided given not only the loss to capital but also the reputational risk and governance burden occurred alongside. A point which is especially prudent when these allocations in the Lower Risk Fleet are currently under-performing the LST market rate.

*Yield data taken from DeFiLlama.

Increased Diversification

Currently the Lower Risk Vault on Ethereum Mainnet has an impressive diversification ratio of 75% when each strategy is weighted in isolation. However, when these strategies are grouped based on their DeFiLlama category the diversification drops to 50% with 64% of the vault being allocated to lending markets and only 29% allocated to staking.

By including ETHplus in the Lower Risk Ethereum Mainnet Fleet governors are able to not only expand the number of whitelisted curators but with a single integration expand into the ETH staking ecosystem. While the risk analysis by BlockAnalitica may take some time to complete the integration of ETHplus reduces the burden on the SummerFi engineering team as only a single integration is required to rapidly expand the vaults exposure into the current under allocated LST ecosystem rather than on-boarding each of ETHplus’ constituent collaterals individually.

Diversification Ratio calculations can be found here.

Proposal

We invite the SummerFi DAO to:

  • Deliberate on the performance and risk profiles of the current strategies in the Lower Risk ETH Vault on Mainnet and consider aiming for a baseline rate matching the LST market rate.

  • Consider the inclusion of ETHplus as a way to gain rapid and diversified exposure to the Ethereum staking ecosystem, improving both the vault’s yield and diversification profiles while reducing reliance on lending market yield.

Next Steps

The next steps will be to gather feedback and suggestions from the SummerFi DAO and iterate on this proposal. If consensus is achieved we will proceed with a SummerFi Improvement Proposal (SIP).

Informal Support Indicator

Would you support onboarding ETHplus to the Lower Risk ETH Mainnet Fleet as outlined above?

  • YES, I support onboarding ETHplus on Ethereum Mainnet
  • NO, do not onboard at this time (continue discussion)
0 voters

Tagging @Recognized_Delegates for a review and feedback.

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Welcome to Lazy Summer DAO, @Ham!

We’ve been working alongside Reserve Protocol for 18 months now and the level of attention and care that Ham has brought to ETH+ is a sight to behold.

Highly recommend anyone check out the liquidity analysis that go into making this token accessible at size.

The overcollateralization via staked $RSR is also an additional insurance here, and the collateral basket is pretty much blue chip.

Supported

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Thanks @Ham its great to see you here and appreciate the thorough RFC. ETHplus looks like a well-designed, risk-aware index that could fit nicely within the Lower Risk ETH Fleet, especially as we continue to diversify away from pure lending exposure.

From a quick review, I see several positives:

  • Diversified LST exposure (wstETH, rETH, sfrxETH, ETHx, soon weETH) packaged efficiently.
  • Strong security and transparency track record with 9 audits, Immunefi bounty, and independent risk coverage from LlamaRisk and IntoTheBlock.
  • Improved yield baseline that helps the Fleet stay competitive with the broader LST market, a clear need right now.

That said, before moving to a SIP, I’d like to see @BlockAnalitica risk scoring for ETHplus and its collateral dynamics (esp. redemption liquidity and dependency on Reserve Protocol governance) to confirm it meets the “lower risk” profile in practice; as well as the poll’s outcome!

Overall, I’m supportive in principle, as this looks imo directionally aligned with the Lazy Summer Protocol DAO’s goals.

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Just hopping in here to say thank-you to @jensei for adding the Informal Support Indicator and for both yours and @rspa_StableLab early comments and kind words <3

With regards to redemption liquidity, as mentioned in the original post two methods of entering and exiting ETHplus positions exist: either by swapping into or out of positions using ETHplus own DEX liquidity or directly minting or redeeming through the protocol.

I suspect if onboarded to the Lower Risk Fleet the Lazy Summer Protocol will chose the latter as the benefit of aggregating the liquidity of ETHplus’ constituent collaterals for a more efficient operation at scale outweighs the moderate increase in gas costs.

If we use the latest reported data on the ETHplus liquidity curves and use OETH’s ~5,000 ETH allocation as an example of size it’s estimated we’d see 0.4% slippage entering the position (minting ETHplus) and 0.85% exiting (redeeming ETHplus). Although, I’d be inclined to view the redemption slippage as the maximal impact as I think it unlikely we’d see the vault exit the entire ETHplus position in a single rebalance so in practice we’d likely see much less slippage when exiting the position as it is gradually scaled down.

Happy to answer any further questions around this and if anyone would like to discuss this less formally you can reach out to me on TG @hamdefi.

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