bETH collateral onboarding

TLDR

Whitelisting bETH (wrapped stETH on Terra) as collateral to Anchor will allow Anchor to bring Ethereum staking rewards inside, and stETH holders access to collateralized lending and Anchor liquidity mining rewards. stETH is one of the most liquid token in crypto with ~$2b+ liquidity. This whitelisting would increase TVL by stETH liquidity and protocol cashflow by stETH rewards converted in UST, diversifying Anchor’s available asset bucket.

Background

Lido is a liquid staking protocol for Ethereum and Terra. In both cases, users who stake with Lido receive liquid tokens: stETH for ETH and bLuna for LUNA. Staking rewards are daily allocated increasing amount of stETH and bLuna on holder’s account. These tokens could be transferred, traded, used in DeFi applications to generate additional profit.

Currently, more than 80M Luna is staked with Lido (almost $1b) and 700000 ETH ($1.8b). 10% of all staked ETH is staked with Lido.

stETH amount is changing daily reflecting rewards and penalties of ETH staked on Beacon chain. The ETH deposited to Lido is pooled and staked on Beacon chain with node operators selected by the Lido DAO. When transactions are enabled on the beacon chain, stETH can be redeemed for unstaked ETH and accumulated rewards.

Introducing bETH

bETH is a wrapped version of stETH on Terra blockchain. Users are able to exchange (wrap) stETH to bETH and back (unwrap). While stETH is wrapped to bETH all staking rewards from Lido would be converted to UST and can be claimed by bETH owner. Once bETH is deposited as collateral to Anchor, all the staking rewards are accumulated by Anchor to be distributed to aUST holders.

Flow

  1. Stake ETH with Lido and get stETH.
  2. Wrap stETH to bETH (holder gets staking rewards on bETH in Terra).
  3. Deposit bETH as collateral to Anchor and borrow UST on that collateral.
  4. Pay borrow APR and receive rewards in ANC, distributed as incentives to borrowers.
  5. Get bETH back and continue gathering staking rewards on it.

Motivation

  1. Increase TVL by bringing more liquidity to Anchor by onboarding stETH holders who will use it as collateral.
  2. Allow Ethereum stakers to lever up on stETH.
  3. Receive rewards in ANC (~31% APR in total) distributed as incentives to borrowers.
  4. Increase UST demand (by converting stETH staking rewards to it).
  5. Increase the partnership with Lido and participate in improving ETH decentralization.
+----------------------+-----------------+-------------------------------+------------------------------------+
| % of stETH in Anchor | stETH in anchor | extra collateral in Anchor, $ | Yearly rewards flow in protocol, $ |
+----------------------+-----------------+-------------------------------+------------------------------------+
| 0.1%                 |             696 |                     1,798,464 |                            100,714 |
| 1%                   |            6960 |                    17,984,640 |                          1,007,140 |
| 5%                   |           34800 |                    89,923,200 |                          5,035,699 |
| 10%                  |           69600 |                   179,846,400 |                         10,071,398 |
| 25%                  |          174000 |                   449,616,000 |                         25,178,496 |
| 50%                  |          348000 |                   899,232,000 |                         50,356,992 |
+----------------------+-----------------+-------------------------------+------------------------------------+

Proposal

Whitelist bETH as collateral on Anchor to increase TVL by stETH liquidity and APY by stETH rewards converted in UST.

The proposed LTV is 60%.

Risks

  • Smart contract/technical risks: Lido faces smart contract risks. To mitigate these, Lido has been audited multiple times - by Quantstamp, Sigma Prime, and MixBytes (see Audits), with no critical issues, found.
  • Counterparty risks: Lido is a DAO. Decisions in the Lido DAO are made through proposals and votes - community members manage protocol parameters, node operators, oracle members, and more. The Lido staking infrastructure for stETH consists of 9 node operators, with a focus on decentralization. Lido relies on a set of oracles to report staking rewards to the smart contracts. Their maximum possible impact is limited by the recent upgrade (limit oracles report change by 10% APR increase in stake and 5% decrease in stake), and the operators of oracles are all well-known entities: Stakefish, Certus One, Chorus, Staking Facilities, and P2P. Read further in Lido documentation.
  • Staking risks: stETH faces staking risks, specifically validator risks including slashing and hostage risks. To mitigate these, Lido works only with best-in-class validators with a track record of success. So far no single slashing has occurred since launch.
    Withdrawal risks: Lido recently switched to a fully non-custodial solution, but 85% of deposits use a 6/11 threshold signature where individual key shards are held by notable members of the Ethereum community. Slightly more than 600k ETH in Lido is using these credentials and is under the risk of collusion between 6 out of these 11 signatories.
  • Price feed risk: stETH is not traded on CEXs yet and thus the oracle has to use the Curve pool price and ETH price feed to determine the current price.
  • Liquidity Risk: Until Eth2 merge upgrade takes place (expected in 2022), it will not be possible to redeem stETH for ETH. This creates the potential for price discounts on stETH if many users want to sell at once. Lending protocol liquidations could increase this risk as large quantities of stETH may be sold all at once to satisfy a debt. The risk of price discounts decreases as expected ETH2 merge gets closer.
  • Bridge risk: bETH is bridged to Terra through a Shuttle bridge and can lose all value if the bridge is compromised.

Analytics

  • 80,9 M Luna is staked with Lido ($952m)
  • 696,000+ ETH is staked with Lido ($1.8b).
  • ~10% of all staked ETH is staked with Lido.

stETH deposits:

Source: Duna Analytics

stETH liquidity on Curve:

amount of stETH liquidity on Curve

Source: Curve pool

Smart Contracts

Terra (Contract) Addresses

  • CW20 bETH Token: terra1dzhzukyezv0etz22ud940z7adyv7xgcjkahuun
  • bETH Reward: terra1939tzfn4hn960ychpcsjshu8jds3zdwlp8jed9
  • bETH mmCustody: terra10cxuzggyvvv44magvrh3thpdnk9cmlgk93gmx2
  • Shuttle (bETH Minter): terra13yxhrk08qvdf5zdc9ss5mwsg5sf7zva9xrgwgc

Ethereum (Contract) Addresses

  • stETH: 0xae7ab96520DE3A18E5e111B5EaAb095312D7fE84
  • ERC20 bETH Token: 0x707F9118e33A9B8998beA41dd0d46f38bb963FC8
  • ERC20 Wrapped UST: 0xa47c8bf37f92aBed4A126BDA807A7b7498661acD
  • bETH ShuttleVault: 0xF9dcf31EE6EB94AB732A43c2FbA1dC6179c98965
  • AnchorVault: 0xA2F987A546D4CD1c607Ee8141276876C26b72Bdf
  • BridgeConnectorShuttle: 0x513251faB2542532753972B8FE9A7b60621affaD
  • RewardsLiquidator: 0xdb99Fdb42FEc8Ba414ea60b3a189208bBdbfa321
  • InsuranceConnector: 0x2BDfD3De0fF23373B621CDAD0aD3dF1580efE701

Audits

The ERC20 bETH Token, AnchorVault, BridgeConnectorShuttle, RewardsLiquidator, InsuranceConnector contracts are audited by Mixbytes. Note that the audited version differs slightly from the deployed version, the audit for the updated version is coming along shortly (expected on Thursday).

Future plans

Anchor’s vision is that the Anchor rate is powered by a diversified stream of staking rewards from major proof-of-stake blockchains and therefore can be expected to be much more stable than money market interest rates. With the second type of collateral in, that vision is closer. Lido is working on more types of liquid staking: stSOL, stAAVE. This integration can pave the way to more collateral types in Anchor in the future.

23 Likes

Of note, Lido recently completed a 6/11 multisig test and was able to successfully get a full signature. This is important given what happened to StakeHound (lost 1 of their threshold sigs and lost all Eth).

QUESTION: What borrow % do you think ETH should have? AAVE does 80% max LTV and liquidates at 82.5%, I do not see why we can’t do this also.

2 Likes

So unlike Aave that using Eth, we are using stEth, which is staking derivatives of Eth 2.0 staking position.
Although we have 2.4 billion $ worth of liquidity on stEth and Eth , I think It makes sense to have little less max_ltv and increase it later. As we can always change our max_ltv by anchor proposal.

Sounds like a slam dunk to me. Can’t wait, let’s vote.

1 Like

One major reason to start catious here is the fact that the supermajority of stETH liquidity is on Ethereum, and liquidations happening on Terra will have harder time to arbitrage that.

  • Price feed risk: stETH is not traded on CEXs yet and thus the oracle has to use the Curve pool price and ETH price feed to determine the current price.
  1. How will the price feed use both the Curve stETH price and ETH price? Let’s assume a scenario where ETH and stETH price deviate by more than 5%.

  2. Will there be bETH liquidity on Terraswap or will the primary means for transacting/liquidating bETH be Lido’s bETH->stETH bridge? @vshvsh If the oracle will be coming from curve.fi where most of the stETH liquidity is, I do not see why low liquidity on Terra is a worry, unless the bridge is very slow.

@ryanology045 Sorry to bother, but has liquidation bidding been implemented yet in order to reduce the liquidation premium from 30%?

1 Like

Looks fantastic. Seems as though bETH borrowers will get the same APR as bLuna borrowers. Will this change in the future so that borrow APR is partially dependent on each derivative’s staking APR?

The liquidation queue is yet to be completed (but it’s in the final stages), hence why I think the max_ltv was set to a conservative value of 60%. This value could be increased as things things stabilize and the liquidation queue becomes fully operational.

Also due to a previous governance poll that updated liquidation parameters, the maximum liquidation premium is now set as 15%

4 Likes

Yes, we will use both curve stEth <> Eth ratio and Eth’s price for oracle price

Update: audit of the deployed version of the code is complete and can be found at audits/MixBytes bETH Vault Security Audit Report 08-2021.pdf at main · lidofinance/audits · GitHub.

2 Likes

I was asking if you could give us some detail as to how Anchor will handle price deviations (stETH is usually cheaper than ETH on the pool)? median, average, prioritize curve price over eth price?

1 Like

The end time of the vote is around: Tue, Aug 10, 2021, 2:45:05 AM. How much time will it take to go from vote end to bETH going live on Anchor?

IDK, curous myself also

I think it was 2-3 days for the LTV to be raised a few weeks ago so I would expect maybe by Friday the 13th or at latest the following Monday the 16th

What problem does this actually solve? Is there something unsatisfactory about Anchor as it is now? Diversification of assets is good but it obviously adds a lot more risk to the overall system. If there is a problem with the 3rd party tech could this cause serious problems that would be avoided by sticking with just one base asset (bLUNA)? If people already trust TFL and Terra, they would have to trust an entirely new ecosystem/team each time one is added to Anchor. I would like to see a comprehensive risk/reward outline to see if the potential benefits really outweigh the additional risks and an explanation of what a ‘worst-case-scenario’ would look like if bETH had a problem.

The same team for bETH is behind the bLuna asset.

The first post on this thread has a lot of information about motivation and risks outlined.

If Anchor wants to have a multi-chain future - and looks like the goal hasn’t changed since Anchor launched - staked Ether is the best asset it could onboard. Ethereum is the flagship of DeFi and a huge healthy PoS protocol.

The risks of stETH as a concrete implementation of staked Ether are listed up there.

Hello, I have some bEth in my Terra Wallet but I can not see the bEth in the collateral list in Anchor

Use Anchor and scroll down to reach the list of collaterals allowed on Anchor.
Click the “provide” button on the bETH line (assuming you have bETH on your Terra wallet)

Hello,

Yes, I saw it today. Yesterday the protocol was not live yet. Thank you. I got my bEth with Lido. Is there a chaeper way perhaps?