Summary
This proposal seeks community support to introduce weETHs LRT from the EtherFi team built on top of Symbiotic protocol. and launch weETHs<>wstETH vault within the Fluid Protocol and to update wstETH market rates. The initiative aims to expand product offerings on Fluid to enhance the protocol’s competitiveness and market positioning.
Proposal
The Instadapp team proposes to add weETHs to the liquidity layer and add weETHs<>wstETH vault to Fluid.
Recap of Fluid Vault Parameters
Fluid’s vault protocol features some familiar as well as some new concepts for understanding the vault’s limits and parameters. See the following below:
C.F (Collateral Factor): Limit till which user can borrow.
L.T (Liquidation Threshold): Limit at which the user starts to get liquidated.
L.M.L (Liquidation Max Limit): Limit above which the user gets 100% liquidated.
L.P (Liquidation Penalty): Penalty at liquidations. Applied between L.T to L.M.L.
W.G (Withdrawal Gap): Extra gap on Liquidity Layer limits reserved for liquidations.
Liquidation Max Limit or L.M.L which denotes a level at which a position is fully liquidated. While most positions will incur liquidations over time the Liquidation Max Limit prevents the debt from becoming undercollateralized in a sudden downfall.
weETHs/wstETH Vault Parameters:
The proposed vault will feature the following initial parameters:
- Collateral Factor (C.F.): 80%
- Liquidation Threshold (L.T.): 85%
- Max Liquidation Limit (L.M.L.): 90%
- Liquidation Penalty (L.P.): 2%
- Withdrawal Gap (W.G.): 5%
- Borrowing Magnifier: 1x
- Borrowing Limit: 5000 wstETH
Supply Configuration
- Class: 0 (Guardian enabled)
- Mode: 1 (with interest)
- Expand Percent: 25%
- Expand Duration: 12 hours
- Base Withdrawal Limit: 1250 weETHs
Borrow Configuration
- Class: 0 (Guardian enabled)
- Mode: 1 (with interest)
- Expand Percent: 20%
- Expand Duration: 12 hours
- Base Debt Ceiling: 2000 wstETH
- Max Debt Ceiling: 5000 wstETH
Liquidity Layer
Proposed weETHs Rate Curve
(Not in use as weETHs can’t be borrowed so utilization will always stay 0%)
- Utilization 0%: 0% Rate
- Utilization 50%: 20% Rate
- Utilization 80%: 40% Rate
- Utilization 100%: 100% Rate
Proposed Token Config for weETHs:
- Threshold: 0.3%
- Fee: 10% (not relevant as no borrowing)
- MaxUtilization: 0 (token can not be borrowed)
wstETH Rate Curve Adjustments
Current Rates:
- Utilization 0%: Rate 0%
- Utilization 50%: Rate 10%
- Utilization 90%: Rate 10%
- Utilization 100%: Rate 100%
Proposed Rate Curve Adjustment (preview):
- Utilization 0%: Rate 0%
- Utilization 90%: Rate 5%
- Utilization 100%: Rate 100%
Summary of Changes to Fluid:
- Add weETHs to the liquidity Layer
- List weETHs<>wstETH as a Vault
- Update wstETH interest rate curve
Motivation
Symbiotic LRTs have a very high interest from the DeFi users and demand for leverage for Symbiotic is currently higher than for Eigen Layer.
Fluid users will also benefit from the same points as in the Liquid Super Symbiotic vault:
- 3x EtherFi points
- 1x Symbiotic points
- 3x Veda points
With the updated wstETH interest rate curve, Fluid users will get the cheapest leverage on the market.
Risks
Symbiotic is a neutral coordination framework that introduces novel primitives for modular scaling. It serves as a thin coordination layer, empowering network builders to control and adapt their own restaking implementation in a permissionless manner.
Symbiotic is backed by the top VCs and Lido contributors. Symbiotic founders Misha and Algys are also the founders of Statemind, a top auditor with a close working relationship with Lido, Curve, InstaDapp, and others.
Symbiotic has been audited and together with the founders’ experience we assume that it is a safe protocol.
weETHs LRT is built by EtherFi which is the biggest LRT built on top of Eigen Layer. They have shown their expertise in the space and high security standards.
weETHs has a very small on-chain LP so the liquidations will be mainly executed through a native withdrawal function from the Liquid vault and use contract backing as an oracle. The withdrawal process takes up to 7 days, even if we estimate that wstETH reaches the high borrowing rate of 100%, there will be more than 35 days to liquidate the position before Fluid accrues bad debt. Together with the borrowing caps, the risks from this market to Fluid are very low.
Another risk we have to take into account is the deleverage risk. Users will not be able to deleverage without significant losses as long as the liquidity pool stays thin. To allow users to deleverage, Instadapp team will build weETHs redemption protocol in the future, similar to the stETH redemption protocol, if the liquidity pool does not grow to allow liquidations/deleverage. Users who take the leveraged position must be aware that deleverage might not be available for a long period of time.
Result
This proposal updates wstETH market rates on the Fluid liquidity layer, ensuring that the rates are competitive and reflective of the broader market conditions, thereby promoting a healthy balance between borrowers and lenders on the platform.
The successful addition of the weETHs to the liquidity layer and weETHs<>wstETH to the Vault protocol, with the aforementioned parameters an on-chain vote is required from governance to finalize and approve this proposal.