Strategic Expansion of Ether.fi’s weETH on Fluid

Governance
1

Summary

This proposal outlines the strategic expansion of Ether.fi Ether (eETH) on Fluid. These changes will enable greater usage and improved APRs on the weETH markets, increase the weETH/wstETH borrowing limit and bring 2.5x Ether.Fi points boost for Fluid depositors. This proposal also enhances APRs through Lite Vault deleveraging.

Proposal

By maintaining Ether.Fi’s eETH asset as the primary LRT asset on Fluid, users will receive 2.5x Ether.Fi points on their weETH deposits. Ether.fi deep liquidity and live withdrawals makes it the safest choice for the Fluid protocol and the following changes will expand and improve the weETH markets and utilization on Fluid. In addition we plan to propose support of weETH/USDC and weETH/USDT vaults in coming weeks. The Instadapp Lite vaults will utilize and move stETH funds into Fluid allowing to grow the weETH market further.

Deleveraging Lite Vault and APR Enhancement

Direct withdrawals from Lido have commenced for Lite Vault deleveraging, with this the Lite Vault can shift up to 25k stETH into Fluid over the forthcoming weeks. This transition can significantly elevate the APR for Lite Vault users to up to 20%, capitalizing on the higher wstETH yields available through Fluid Vaults.

Vaults

Update weETH/wstETH Vault

  • Current Borrowing Limit: 10k
  • New Borrowing Limit: Variable (85% of wstETH total supply)

In the previous proposal, there was some criticism received around increasing the borrowing limits. Its important to understand that the borrow cap is there to ensure security and not meant to restrict rates. As the caps are increased the borrowing rates will be decided by user demand, keeping borrowing limits low creates artificial rates and makes the protocol less competitive.

Maintaining the current rates while increasing borrowing limits may produce a situation where utilization is beyond the second kink at 80%. Once this occurs borrowers will face losses, this is avoided by enabling larger caps so the market can adjust. Therefore its important to both enable more borrowing and update the rates.

Update wstETH/USDC Vault

  • Current Supply Rate Magnifier: 1x
  • Proposed Supply Rate Magnifier: 0.8x

Update wstETH/USDT Vault

  • Current Supply Rate Magnifier: 1x
  • Proposed Supply Rate Magnifier: 0.8x

To maintain balance between ETH and wstETH rates, we propose making the supply magnifier 0.8x for wstETH/USDC and wstETH/USDT. This ensures that wstETH collateral remains aligned with ETH supply rates. This will help prevent any massive disruptions between these two markets. Furthermore, this enables wstETH lenders to earn an attractive APR on both the lending protocol and as collateral in the wstETH/ETH Vault.

Liquidity Layer

Rate Curve Adjustments for ETH & wstETH Markets

These adjustments are proposed in response to market demand with considerations for similar markets on Pendle and Gearbox, we propose rate curve adjustments for the wstETH market to align borrowing rates between 25-35%.

Current wstETH Rate Curve

  • Utilization 0%: 0% Rate
  • Utilization 50%: 15% Rate
  • Utilization 80%: 30% Rate
  • Utilization 100%: 150% Rate

Proposed wstETH Rate Curve

The new wstETH rate curve adjustments are as follows:

  • Utilization 0%: 0% Rate
  • Utilization 70%: 20% Rate
  • Utilization 90%: 40% Rate
  • Utilization 100%: 150% Rate

In conjunction with enabling wstETH on the lending protocol (See below) These proposed rates aim to better align the market to similar competitors while improving rates for suppliers.

We also propose updating the fee in the wstETH market to 10%.

Current ETH Rate Curve

  • Utilization 0%: 0% Rate
  • Utilization 70%: 2% Rate
  • Utilization 90%: 3.6% Rate
  • Utilization 100%: 100% Rate

We propose making the ETH Market fee 0%.

Proposed Rate Curve for ETH Market:

  • Utilization 0%: 0% Rate
  • Utilization 70%: 15% Rate
  • Utilization 90%: 25% Rate
  • Utilization 100%: 150% Rate

The proposed ETH Curve is aligned to mirror the rate curve of wstETH. This maintains that supplying ETH will remain attractive and profitable.

Lending

Enable wstETH on the Lending Protocol

We propose the activation of Wrapped Staked ETH (wstETH) within the lending protocol, this will enable wstETH liquidity to be supplied on the lending protocol.

Proposed wstETH Lending Configs

Base Withdraw Limit: 4000 wstETH
Expand Percentage: 25%
Expand Duration: 12 hrs

Pausing ETH Vault Rewards

In light of the proposed rate curve adjustments, which could potentially double the current supply APR, we propose pausing the ETH rewards to make best use of incentives.

Reason

This proposal strategically aligns Fluid with Ether.fi and enables Fluid users the opportunity to amplify their EtherFi points accumulation by 2.5x and benefit from increased APRs. The proposal to update the Supply Rate Curve, in combination with deleveraging the Lite vault, will bring increased revenue and improve APRs for both the protocol lenders and borrowers.

Result

This proposal deepens integration of the weETH market by making the following changes:

  • Enables wstETH on the Lending protocol
  • Updates the Rate Curve for wstETH and ETH on Liquidity Layer
  • Increases the weETH/wstETH Vault to variable Borrowing Limit
  • Pauses ETH Rewards on ETH/USDC and ETH/USDT vaults
  • weETH users will receive 2.5x Ether.fi Points

Proposal on Atlas

Passed :white_check_mark:

IGP#16 - Strategic Expansion of Ether.fi’s weETH on Fluid and Related Market Updates

1 Like
3

Strategic adjustments to borrow costs and utilization thresholds are critical for the evolution of new products on Fluid. The decision to implement a 40% borrow rate at a 90% utilization threshold is a focal point for analysis, given its implications for protocol security, lender compensation, and the potential for sustainable growth.

Analyzing the 90% Utilization to 40% Borrow Rate Decision: The adoption of a 40% borrow rate at this high utilization level merits scrutiny within the competitive DeFi leverage landscape. At face value, such a rate positions Fluid at the upper end of the market, potentially affecting its appeal for LRT leverage. The primary concern is to balance protocol protection with the need to offer sustainable and attractive returns to both lenders and borrowers.

Rethinking a More Conservative Borrow Rate: Market analysis indicates that a more moderate borrow rate, perhaps to 35% APR at 90% utlization, might better serve Fluid’s expansion objectives. This approach is supported by several considerations:

  • Competitive Positioning: A lower rate could enhance Fluid’s attractiveness in the DeFi leverage market, broadening its appeal to borrowers seeking more affordable leverage options.
  • Sustainability and Growth: Adjusting the borrow rate to align with market standards and user expectations could lead to a more sustainable growth path for the protocol, intertwining financial goals with strategic expansion aims.
  • Risk and Reward Equilibrium: It’s vital to align the borrow rate with both the risk profile of the protocol and the expectations of lenders, fostering a balanced ecosystem that supports active participation.
  • Adaptability to Market Dynamics: The fast-paced evolution of the DeFi sector necessitates a flexible rate adjustment strategy to keep pace with market trends and competitive dynamics, ensuring Fluid remains a relevant and appealing option for users.

The discourse on borrow cost and utilization adjustments, particularly the choice of a 90% threshold leading to a 40% borrow rate, presents a strategic challenge. This requires a comprehensive evaluation of competitive positioning, user demands, and the balance between risk management and growth facilitation. A shift towards a more conservative borrow rate, informed by market review and strategic planning, may open new opportunities for Fluid’s growth and market presence. This approach aims not only to solidify Fluid’s competitive position but also to promote its continued development within the fast-evolving DeFi leverage ecosystem.

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Hi @MaraDefiDojo thank you for your comment and let me try to clarify some of your doubts

I assume that the main competition comes from the Gearbox, let’s break down the competitiveness of the Fluid new interest rate curve for wstETH market:

With the new interest curve rate, wstETH borrowing rate would be 35% at maximum utilization of 85%

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On Fluid, borrowers will be getting 25% more EtherFi points than on Gearbox or any other protocol.

Fluid enables 10.5x leverage, allowing to farm 26x EtherFi and 10.5x EigenLayer points.

On Gearbox, the maximum leverage is 9x, allowing to farm 18x EtherFi and 9x EigenLayer points.

At the same time, the cost of leverage on Gearbox is 37.3% at the time of writing.

image

As you can see, users on Fluid are earning 45% more EtherFi points and 17% more EigenLayer points while paying lower interest rates for the leverage.

Given the information I provided above, could you please tell me how even lower rates could enhance Fluid’s attractiveness in the DeFi leverage market if the lending rates are not competitive? May I ask would you, as an advanced DeFi user, provide liquidity in a lending market that pays you less than others?

Could you please share what in your opinion are the market standards? In my opinion, there should be no caps and the market should determine the equilibrium itself, but given that Fluid is a relatively new protocol and points markets are sometimes irrational, the team decided to propose safety measures to prevent extremely high interest rate volatility.

I agree with you and as I said above there is no better system to find equilibrium than to remove the caps and let the market discover it. Do you think it would be more beneficial for you, as a borrower, and the protocol overall in prevailing circumstances and conditions?

That’s true but unfortunately, it is not that easy to adjust the rates every time especially because it takes governance approval to do so. Fluid team is in a state of continuous search for the most optimal conditions for the lenders and borrowers which is much more difficult when the rates across the board are heavily influenced by various incentive programs by different protocols.

However, I believe the team is doing its best to find the most balanced approach and best possible deals for Fluid users such as an extra 25% EtherFi rewards and the lowest interest rates for the borrowers.

I hope I was able to clarify some of your concerns and I am looking forward to your thoughts!

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This proposal is live on atlas, please take a moment to vote!

IGP#16 - Strategic Expansion of Ether.fi’s weETH on Fluid and Related Market Updates

6

Voted Yes for this proposal

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