Proposal to Diversify stETH Liquid Staking Tokens
Summary
Given the approaching risk tied to stETH (Lido Staked ETH) nearing a 33% share of all staked Ethereum (ETH), this proposal outlines a balanced risk mitigation and yield maximization strategy. The approach entails diversifying our stETH holdings, allocating them equitably between RETH (Rocket Pool’s Staked ETH) and Diva Early Stakers stETH vault, which upon Diva’s mainnet launch will convert stETH into divaETH, in addition to yielding DIVA rewards. The choice of RETH as a diversification asset is supported by its comparable Annual Percentage Rates (APRs) to stETH and a swap slippage of ~0.05%.
Motivation
1. Mitigation of Protocol Risk
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33% Staked ETH Share Concerns: Close proximity of stETH to a 33% share of all staked ETH is concerning given its potential to delay finality on the Ethereum 2.0 network, and moreover, the risk of transaction censorship if this share reaches 50%.
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Decentralization Principle: Upholding Ethereum’s foundational tenet of decentralization necessitates diversifying staked assets to prevent undue influence or control by a single staking protocol.
2. Preservation and Maximization of Staking Rewards
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Comparable APRs: Maintaining similar APRs between stETH and RETH ensures that we preserve our current yield outcomes post-diversification.
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Minimal Swap Slippage: With slippage below 0.05%, the stETH to RETH transition costs are mitigated.
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Additional Rewards via Diva: Staking in Diva’s early staker vault not only allows for conversion to divaETH but also yields additional DIVA token rewards, enhancing our yield strategy.
3. Support for the Ethereum Staking Ecosystem
- Diverse Support: By diversifying our staking strategy, we support various staking protocols, encouraging decentralized growth and development across the Ethereum network.
Proposal
A. Diversification Strategy
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50% Allocation to RETH: Implement a structured swap from stETH to RETH, mindful of minimizing slippage and sustaining staking rewards.
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50% Allocation to Diva Early Stakers Vault: Allocate a portion of stETH to the Diva Early Stakers vault, ensuring conversion to divaETH upon Diva’s mainnet launch and accruing DIVA rewards.
B. Phased Transition
- Calculated, Incremental Swaps: Ensure the swaps (to RETH) are executed in phases, minimizing market impact and allowing for adaptability should conditions change.
C. Implementation Timeline
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Initial Phase: Begin the initial swapping and staking phase within 7 days post-proposal approval, ensuring timely action while maintaining risk awareness.
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Subsequent Phases: Execute further phases based on ongoing assessments of the initial phase and adjusting as per the evolving market and protocol conditions.
D. Stakeholder Communication and Voting
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Transparency: Maintain transparent communication with stakeholders throughout the implementation, providing updates and insights into the progress and outcomes of the diversification strategy.
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Engagement and Voting: The proposal will be active in the Floor Forum for 4 days, post which, a Snapshot vote will be enacted. All DAO members are urged to participate in discussions, share insights, and cast their votes.
Through the careful and systematic execution of this proposal, we aim to adeptly mitigate potential risks associated with the accumulation of staked assets in stETH, while steadfastly maintaining our staking rewards and supporting the broad Ethereum staking ecosystem.
This proposal will remain live in the Floor Forum for 4 days, followed by a Snapshot vote. DAO members are encouraged to comment and engage in discussion.
Full disclosure: the author of this proposal is a seed investor in the Diva protocol
- Approve FIP#62
- Amend FIP#62
- Reject FIP#62