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
- Stake ETH with Lido and get stETH.
- Wrap stETH to bETH (holder gets staking rewards on bETH in Terra).
- Deposit bETH as collateral to Anchor and borrow UST on that collateral.
- Pay borrow APR and receive rewards in ANC, distributed as incentives to borrowers.
- Get bETH back and continue gathering staking rewards on it.
Motivation
- Increase TVL by bringing more liquidity to Anchor by onboarding stETH holders who will use it as collateral.
- Allow Ethereum stakers to lever up on stETH.
- Receive rewards in ANC (~31% APR in total) distributed as incentives to borrowers.
- Increase UST demand (by converting stETH staking rewards to it).
- 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:
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.
