Summary
The proposal introduces the stETH Redemption Protocol on Fluid, enabling direct deleveraging of stETH positions at a 1:1 rate, reducing costs by 10x and improving Lite Withdrawals.
Proposal
This proposal aims to deploy the stETH Redemption Protocol on Fluid. This can be viewed as a extended protocol on Fluid. Extended protocols are mini protocols with specific functions. The stETH Redemption protocol will allow leveraged stETH positions to deleverage directly from Lido to get the best rate redeeming stETH 1:1, saving on the on-chain slippage costs of deleveraging stETH on the open market.
stETH is directly redeemable from Lido at1:1 with no loss. Leveraged stETH/ETH DeFi positions are generally low-risk positions, but deleveraging large positions can create losses of 0.5% to 2% depending on the size. The stETH Protocol will allow users to save up to 10x by leveraging a short-term loan. By utilizing stETH Redemption Protocol on Fluid users can reduce deleveraging costs by 10x, offering a cost-effective solution for unwinding leveraged positions.
How it works:
- stETH/ETH positions are refinanced into the stETH Redemption protocol
- The protocol initiates a withdrawal from Lido by sending all stETH for redemptions.
- The stETH Redemption Protocol receives a redemption receipt NFT from Lido; this is held as collateral until the redemption resolves.
- Once the ETH is withdrawn from Lido, the position is unwinded using the newly released ETH to pay back the ETH debt (deleveraging the entire position) and sending the remaining ETH back to the user.
Whitelisting
On-launch, the stETH Redemption will use a whitelist to enable protocols and users to access. The first protocol enabled on the stETH protocol will be the ETH Lite Vault. This will enable the Lite Vault to deleverage at a more cost-effective rate and improve the ETH vaults withdrawal pool. Later in the near future the protocol will be opened for all users.
Benefits to Lite users
Lite Vaults currently maintains 50% of its total assets evenly split between funds for immediate withdrawal and funds held to deleverage from Lido. With the deployment of the stETH Redemption Protocol the need to maintain 25% reserve for Lido redemptions is eliminated. This will allow Lite Vaults to utilize an additional 25% of its assets in the strategy, increasing returns by 30-50%.
Reason:
The stETH Redemption Protocol significantly reduces the costs associated with deleveraging stETH/ETH positions. By taking short-term loans against ETH in Fluid, protocols/users can unwind their leveraged positions at a fraction of the cost compared to traditional on selling on the market. In addition this protocol builds additional utilization for the ETH Liquidity Layer of Fluid. This proposal will go live in 2 on-chain votes:
- Adding stETH Redemption Protocol to Fluid.
- Supporting stETH Redemption Protocol on Lite.
Part 1:
- Enable debt ceiling of 5k ETH on liquidity layer for the stETH protocol.
- Whitelist Lite vault’s DSA.
Part 2:
- Support stETH protocol on Lite. (Requires on-chain vote to be queued after part 1)
Conclusion:
Deployment of the stETH Redemption protocol will introduce the most cost efficient solution for unwinding stETH/ETH positions on chain. Instadapp Lite will be the first protocol to be able to access this protocol improving the cost of deleveraging as well as improving the withdrawal pool of the ETH Lite Vault.
Proposal on Atlas
Status: Passed 
IGP#9 - Deploy stETH Protocol on Fluid
