[RFC] Proposal to onboard Kelp’s hgETH to the Mainnet Higher Risk ETH strategy

[gonemultichain]

1. Summary:

This RFC proposes integrating Kelp’s High Gain (hgETH) vault as an additional strategy for Summer Fi’s High-risk ETH (mainnet) vault. Adding hgETH would broaden yield sources for risk-tolerant ETH depositors, increase diversification, allow SummerFi to tap Kelp’s high-conviction yield opportunities and significantly boost the APR.

2. Context & Motivation:

Summer Fi’s Higher-Risk ETH vault currently captures lending spreads majorly through Morpho markets leaving room to lose out on restaking and DeFi yields that can be easily leveraged using Kelp’s hgETH vault and can enhance the overall yield for the vault.

What is the High Gain vault?

Curated with seasoned strategy managers including Edge Capital and UltraYield - High Gain vault is an automated multi strategy defi yield aggregation mechanism made with the sole purpose of generating top tier rewards and maximising user returns.

Why the High Gain Vault Makes Sense

Kelp is a multichain liquid restaking platform with over $1.5 B in Total Value Locked (TVL). The team is focused on building Liquid Restaking Solutions for public blockchain networks. From its suite of automated yield aggregating vaults, Kelp presents High Gain (hgETH) vault made for capturing the best APRs on ETH across strategies including Dex liquidity, Lending markets, Basis Trade Arbitrage and more. Why we think that hgETH is the perfect fit for SummerF’s high risk ETH vault

1. Diversification of yield across blue chip DeFi protocols

• The High Gain Vault deploys capital across trusted protocols including Aave, Compound, Morpho, etc through intelligent dynamic allocation, optimizing returns while maintaining diversified risk exposure.​ The strategy not only captures restaking rewards on multiple lending markets but also maximizes returns through leveraging high APR opportunities on newly launched L2s along with other strategies including basis trade arbitrage.

2. Battle tested strategy

• The vault’s strategy is powered by Edge Capital and UltraYield, managing over $700 million with a proven track record of 10%+ APR returns.

3. Consistent returns—one of the highest in the markets available

• hgETH has been the best performing vault at 1-month & 3-month time framework through automated multi-protocol strategy, significantly outperforming traditional staking and positioning within the upper tier of available DeFi yield opportunities

Vault Specifics

Security

Detailed audit report by Sigma Prime - Link

Transparency

Weekly strategy allocations can be directly checked on the Gain Dapp under the ‘Strategy Reports’ section - Link

Weekly disclosures of strategies can also be found on Kelp’s X account - Link

hgETH vault addresses

1. 0x1f0df950095269c602eaa46d91e664e7c2b3770f

2. 0x72dbfd4989b68b8b4efc27c6272d7586f1f0d483

3. 0xbcaf70ef342378755e82c9f374225604f04a36e3

4. 0x457adb2c68214d7dd2d1e89fcc10e4cce27e2608

5. 0x02efaa6a4e6abefd0f376bcffdb3988a6e55fb82

6. 0xd8495b95a3a6a85f4e3baa003e8b7ed1ed85562d

7. 0x08b6470e62235947b766ac63f584a52d25cb14e6

Further info: https://kerneldao.gitbook.io/kernel/getting-started/gain/high-growth-gain

Addendum: rsETH due diligence

Smart Contracts Overview

rsETH is built via modular smart contracts governed and maintained by KelpDAO across Ethereum and major L2s:

Ethereum Mainnet

• LRT Config: 0x947Cb49334e6571ccBFEF1f1f1178d8469D65ec7

• rsETH: 0xA1290d69c65A6Fe4DF752f95823fae25cB99e5A7

• Deposit Pool: 0x036676389e48133B63a802f8635AD39E752D375D

• Oracles:

  • LRT Oracle: 0x349A73444b1a310BAe67ef67973022020d70020d

  • Chainlink Price: 0x78C12ccE8346B936117655Dd3D70a2501Fd3d6e6

  • EthX Price: 0x3D08ccb47ccCde84755924ED6B0642F9aB30dFd2

  • Other Chains

• Arbitrum, Optimism, Base, Linea, zkSync

  • rsETH, wrsETH, and Deposit Pools are deployed with unique proxy addresses

  • Full list available here

[Themind]

I support integrating hgETH vault, as it effectively diversifies yield beyond lending spreads to capture significantly higher returns from restaking. The institutional expertise of Edge Capital and UltraYield is appreciated here and their returns have been consistently high since inception.

[DecentraLord]

Full support for this proposal. Diversifying the High-Risk vault beyond just lending markets (Morpho) is a smart move. Integrating hgETH allows us to capture restaking yields and boost the overall vault APR significantly.

[Justemilyr]

Integrating hgETH makes sense given the high return and the reasonable risk considering what Kelp and Edge Capital have disclosed in this post.

[jensei]

thank you @gonemultichain for bringing up this RFC and welcome to the Lazy Summer DAO.

I am in support of this ark to be added, at the same time I am curious about the technical implementation need, …maybe @halaprix would have some thoughts around this?

I am also curious about other @Recognized_Delegates thoughts, as well as risk assessment from the @BlockAnalitica before this can be promoted to an SIP.

[samehueasyou]

love it - greeat to see new folks on the forum!

[NoMoneyNoProblem]

Does anyone even do any due diligence around here? There are so many red flags with this ‘asset’, which is more of a tokenised cowboy hedge fund than anything else. In my opinion, it is only a matter of time before this vault incurs severe ETH losses.

My main question is: why does an ETH vault take directional bets on Hyperliquid on non-related assets? Why short ZEC and UNI? Why trade Fartcoin and other non-ETH assets?
Can you explain why there was a $250k (unrealized) loss just ten days ago?

In the past 10 minutes, over 300 orders were placed and closed on hyperliquid by the main wallet with hgETH user funds. This is very very risky behavior, imo. Not very different from Alameda taking user funds and trading with them.

Additionally, these vaults are upgradeable proxies (behind a 7 day timelock, but still). And then you have the exit queues and LRT de-peg risk, and various positions which are leveraged to the tits. A disaster waiting to happen.

Strong DISAGREE to add this to Summer.fi

---

Debank of main wallet

Hyperliquid explorer

[samehueasyou]

@NoMoneyNoProblem this is exactly what we love to see in the RFC process, excellent points raised here.

[telegin]

Hey, I’m leading UltraYield (part of Edge Capital) and the team is currently preparing a comprehensive response to all of these points. In short - you don’t see the full exposure of the positions, and Hyperliquid trades have a corresponding ones on other venues/CEXs, so there is no directional exposure taken.

We’ll provide all the details shortly, and are happy to answer any questions. Also to point out, we are one of the few curators on the market that never had any exposure to Stream finance and other affected markets that touched it, in fact we’ve been actively avoiding it in all the vaults and markets we curate. We have rigorous DD Process and allocate only to the protocols we fully understand and teams that we can trust.

[Eren_DAOplomats]

Valid concerns raised, but I’m keeping an open mind here. If the Edge team can effectively prove the hedging mechanism and safety checks in their response, this could still be a solid addition to the platform. Looking forward

[telegin]

Thank you for the feedback. We appreciate the scrutiny as due diligence is critical for any vault onboarding. However, I want to correct a few misconceptions regarding the strategy’s nature and risk profile. The hgETH vault is not a directional hedge fund taking “cowboy” bets; it is a systematically managed, Delta Neutral ETH strategy designed to generate ETH-on-ETH returns. While the vault maintains exposure to ETH (as it is an ETH-denominated product), the underlying strategies (such as Basis Trades and Incentivized Liquidity Provisioning) are structured to be ETH-market-neutral.

The “short” positions you observed (e.g., ZEC, UNI) are standard components of Basis / Funding Rates Arbitrage strategy or hedging rewards which can’t be sold immediately (e.g. vesting rewards such as LINEA, FLR, XPL etc.), not directional shorts betting on asset depreciation. In a basis trade or funding rates arbitrage strategies, the fund holds the spot asset and shorts the perpetual or, alternatively, can open a short perpetual position on one leg and long perpetual position on another to capture funding rates difference, maintaining a net-neutral exposure.

It is important to note that positions on Hyperliquid often may represent only one leg, while the second one can be on Bybit or Binance, i.e. offchain and not visible through the onchain screeners. The vault operates under a strict Risk Control Framework that does not allow any material directional exposure, ensuring it does not become a directional trading vehicle as suggested.

Regarding the “lindyness” and track record, this vault is effectively a tokenized version of the ETH-on-ETH strategies that Edge Capital has been successfully managing since August 2020. The strategy has a proven and fully audited history since 2021, generating consistent returns through various market cycles (including a 31.8% return in 2024 and maintaining positive performance in the 2022 bear market). It is not a new or experimental “cowboy” fund but an institutional-grade strategy with over $650M in total assets under management and 4+ years of live performance data.

We also employ rigorous risk parameters, including strictly defined LTV ratios to manage liquidation risk and diversification rules that limit exposure to any single protocol or chain. The team has 24/7 coverage for the vault. The strategies are “Active Management” but within a “Conservative” risk profile defined by these hard limits. We believe hgETH fits the “Higher Risk” category of Summer.fi purely due to the sophisticated nature of the underlying DeFi strategies, not because of reckless directional trading. We are happy to provide further transparency on specific recent trades to clear up any remaining doubts.

Answers

1. Context on Specific Assets

The vault operates under a delta-neutral mandate, which does not allow it to carry any material directional risk to any asset. Spot and derivative positions on Hyperliquid reflect basis or funding-rate arbitrage strategies that are fully hedged. In some cases, arbitrage positions may be distributed across different venues, for example, a short position on Hyperliquid and a long position on Bybit, or vice versa, but the key point is that all positions are continuously monitored, and no directional exposure is permitted.

2. Hyperliquid Activity

For trading execution we use our partner solution - CoinRoutes, which provides tools for precise control of the execution process and allows us to place smart orders that manage both legs of an arbitrage position simultaneously, ensuring no directional risk at any point. Orders are sometimes executed in smaller sizes, which enables more accurate control of execution costs and slippage.

3. Drawdown Clarification

Since you are referring only to the Hyperliquid leg and not taking into account for the offsetting positions on venues such as Bybit or Binance, drawdowns on Hyperliquid alone may appear confusing and could give the false impression that the vault incurred losses from a directional bet. To answer your question: this was a mark-to-market equity fluctuation, fully offset by the PnL on the corresponding leg, which is typically held on a CEX.

4. Leverage Risk Management

The portfolio team employs a comprehensive risk framework and modeling approach for various spot and derivative markets in order to set up trading positions in the most efficient way from both a liquidity and risk perspective. The team analyzes market parameters such as open interest, order book liquidity depth, trading volume, index composition (for perpetual markets), ADL and liquidation mechanisms, and other relevant factors.

When the team opens a trading position, one of the most important factors is the “distance” between the mark price and the liquidation price, which effectively defines the maximum position size we are comfortable maintaining. For example, for the ZEC–USDC perpetual market, despite using 5x leverage, given the current level of margin on the cross-margin account , the position can withstand at least a 4x immediate price movement without being partially or fully liquidated. Decisions regarding the acceptable liquidation-price threshold are based on many considerations, one of which is the historical price deviation within very short time intervals (including 10/10 black-swan scenarios).