Stakewise FLI/sETH2 Liquidity Pool (LP)

Owners: @Mringz / @BigSky7 / @ansteadm

Thanks for feedback: @Jo_K / @MrMadila / @puniaviision / @overanalyser / @snasps / @bweick / @Metfanmike

Channel: DeFi partnerships and integrations

Hypothesis:

We have an opportunity to increase the AUV FLI-2xETH (FLI) and trading volume of FLI/ETH LP by creating a FLI/sETH2 LP on Uniswap in collaboration with Stakewise.

The LP pool enables users to:

  1. Gain 2x exposure to ETH through FLI
  2. Earn passive staking rewards in rETH2 (reward ETH) for staking ETH by holding sETH2 (staked ETH)
  3. Earn high trading commissions from triangular arbitrage opportunity
  4. Earn liquidity mining rewards

Context:

Stakewise is an ETH2.0 staking platform with 19,450 ETH currently being staked on their platform representing a total of $44,822,400 TVL. Stakewise has a unique value proposition as users of their platform are issued with two tokens to represent their ETH2 staking deposit namely sETH2 (staked ETH) and rETH2 (reward ETH) with the latter being accrued to the users wallet through a staking module.

Stakewise are in the process of launching their governance token (SWISE) and their team has expressed interest in incentivising FLI/sETH2 LP by creating a staking module that rewards rETH and SWISE.

For Stakewise this pool offers the following benefits:

  1. FLI used as a tool to maintain a strong peg between their ETH/sETH2 LP on Balancer V2
  2. Increase the extrinsic productivity sETH2

For Index Coop this pool offer the following benefits:

  1. Increase the extrinsic productivity for FLI
  2. Unique product exposure to ETH2 staking community
  3. Nature of innovation allows us to explore new areas of value creation for our products

How FLI can be used in triangular arbitrage to maintain the sETH2/ETH peg:

Risks:

  1. Fragmenting the liquidity for FLI/ETH pool

Risk is dependant on the following factors:

  • Liquidity for sETH2/ETH pool
  • Difference in risk profile for sETH2 and ETH
  • Trade sizes

Technical Requirements:

  1. FLI/sETH2 LP contract deployed on uniswap
  2. Staking module for FLI/sETH2 LP tokens to reward rETH potentially SWISE - Stakewise team

Marketing Requirements:

  • Social media announcement about the campaign through both parties’ media channels
  • Article and twitter thread about FLI’s value proposition as a tool to take advantage of mispricing between two assets

Stakewise marketing channels:

Twitter: 1.2k Followers
Telegram: 524 Members
Discord: 1288 Members
Medium: 363 Followers

Analytics Requirements:

KPIs:

  • FLI/sETH2 liquidity
  • FLI/sETH2 daily volume

Targets:

  • $2.5 million FLI/sETH2 liquidity
  • $0.625 million FLI/sETH2 daily Volume

Additional Remarks:

  • Awaiting FLI supply cap removal
  • This LP has potential to indirectly drive volume for FLI/ETH Uniswap LP
  • Arbitrage opportunity exists if mispricing occurs between any of the three above LPs
  • FLI as a trading product can be used for various triangular arbitrage opportunities with staked ETH assets see below
  • FLI product variations can be used in the same way to maintain the pegs of other assets i.e BTCFLI

Way forward:

  1. Work with Stakewise to create a campaign around this LP

Feedback is most welcome as to how we should proceed with this campaign.

8 Likes

Idk much about Stakewise specifically, but I’m of the opinion that every product we have should be as productive as possible (safely) to capture as much value for the Coop and holders as possible

2 Likes

Provided there’s limited downside to the Coop (and I believe that’s the case here), then we should push as many partnerships like this as possible. We want protocols to view our products as solutions for liquidity and bundling and should encourage these kind of use cases at every turn. Huge kudos to @Mringz for pulling this together!

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@Mringz this is incredible work. I hope every community member who reads this is inspired to drive innovation at this level.

Triangular leverage is an incredibly important tool for bringing yield earning assets back to peg. I see $FLI and other flexible leveraged products being used across the ecosystem by every protocol that wants to maintain a peg. I am excited to work with Stakewise and other staked Eth providers to further this use case.

I see 2xWBTC becoming incredibly valuable for stabilizing the various BTC products that exist on chain. We are only starting to scratch the surface here and each of these use cases has the potential to drive $100s of millions of revenue to the Coop.

Very impressed with the Stakewise team. This is a great use case for our products and I hope this is the start of a long and successful partnership.

Next steps

  1. Craft IIP outlining plan around launching this pool. Assuming no major revisions are needed we should aim to have that IIP published by the middle of next week.

  2. Decide which incentives are needed to support liquidity on this pool. Based on the success of $FLI and the strong value proposition of $FLI<>ETH2 even light incentives will draw a massive amount of liquidity.

  3. Set a target launch date ( lets say Wed 28, April) and make it happen!!!

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Right on @Mringz! Nice work here. Lets get after it :rocket:

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Have you thought about doing a collab with BadgerDAO around building an ibwBTC/2xwBTC LP? I think that would go quite well with their community. I’m not as a plugged into their commuinty as you are, so you might want to see if that’s something they’d want to do :eyes:

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Still wrapping my head around this and the potential but first off great work @Mringz, really creative idea!

Arb bots will always eat up the arb opportunity so I’d be interested if you still see pitching this as a trade idea to us mere mortals? The good news is that it might not really matter. The benefits would be a tight efficient market, strong pegs and hopefully a great deal of trading activity for FLI resulting in increased mint and redeem fee revenues.

On the fragmenting liquidity front… Every iteration of an additional ETH type product (aETH, cETH, sETH, stETH etc etc) creates further and further fragmentation. My thoughts are thus:

Uniswap: “You can only have 2 assets in 1 pool.”

Balancer: “Hold my beer”

Interested to hear @Kiba 's and other’s take on this?

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Eth permabull pool is a must have, great memetics.

I don’t know Stakewise or how good/reliable their staking service is but there’s really not much work on coop side except marketing so I think this is good to move forward with.

On @MrMadila 's point about multiple staked ETH options: Stakewise is providing all the rewards here so I think a uni pool with just their stETH and FLI is best.

There is a pretty big price disparity between the different stETH flavors. Last time I checked Cream’s stETH was at a 13% discount meanwhile Lidos stETH is exactly one ETH because of the curve pool. I’m sure part of it is different tokenomics but part of it might just be a happenstance. It would be a cool DeFi experiment to if we collate all the assets and see how their relative prices change. Creating a Pool together that takes a balancer pool with ETH-FLI and all the stETH flavorsbas deposit and gives rewards in INDEx, LIDO, CREAM, SWISE, etc. would be a great collab campaign

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Hi @Mringz great proposal and a good opportunity to collaborate with others.

I’m not yet convinced that it’s a great idea for the coop:

  • ETH2-FLi is still supply capped - which will be dropped over time.
  • Given the success of ETH2-FLI, I’m not convinced that it needs any liquidity incentives to grow AUM - Although it could be interesting to see the effect ( :rocket: )
  • Should we be incentivising leveraged products that are intended for short term trading?
  • Given the $6 M UIniswap liquidity I don’t think we need to incentivise it further. - At what point does exchange issuance become cost effective?
  • If I understand it correctly, sETH2 should follow ETH prices (the staking rewards are split off), so this is effectively a pair between ETH2-FLI and low liquidity ETH with additional smart contract risks.
  • I don’t understand enough of the behaviour of ETH2-FLI issue / redemption / arbitrage to assess whether triangular arbitrage is preferable to a single ETH pool. - i.e. how do standard market price discovery methods compare to index fund behaviour?

I can see it’s a great idea for Stakewise as they are opening up new routes for their users to use sETH2. However, other than getting liquidity rewards, I’m not seeing much benefit for our users - There will be some trading fees as ETH price changes, but LP’s in the ETH pool will get more.

So, I think the proposal has marketing benefits, but I’m not seeing a huge benefit from a product point of view.

Two questions:

  1. Can anyone explain why I would like to hold sETH2 in my wallet vs holding ETH?

  2. If this proposal was to incentivise Sushiswap ETH2-FLI:ETH pool while we have $6 M unincentivised liquidity on Uniswap would we support the idea?

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@fallow8 @BigSky7 @0xModene @ansteadm @Kiba Thanks for the positive feedback

We will only need to draft an IIP if we are going to allocate incentives to this pool. We also need to be careful because we need to also look at LM opportunities with LIDO as well. What ever incentives we are planning to give for this pool we will have to allocate the same for a LIDO pool.

This is reasonable. We would have to relay with Stakewise and find out when the ETHFLI supply cap will be lifted.

I believe we should always be experimenting with ways to grow AUM with our products.

Correct. The added risk gives sETH2 a unique risk profile. ETH2-FLI/ETH and ETH2-FLI/sETH2 pairs should trade at the same price but this is unlikely because it is dependant on sETH2/ETH maintaining a peg. LIDO curve LP pool is already suffering from this problem you can see the reddit post.

Staked ETH gives you 6-7% annual yield on your ETH. With Stakewise you claim the 6%-7% yield in the form of rETH2 on their platform.

Good question. We wouldn’t because it is the same pool as the Uniswap pool with incentives. It will fragment liquidity. Personally, I believe this opportunity will lead to more ETHFLI being minted to become a sETH2/ETH2-FLI LP because of SWISE incentives and INDEX incentives (if we choose to add incentives). I do not believe ETH/ETH2-FLI LP will migrate because sETH2/ETH2-FLI LP will increase their trading fees because of triangular arbitrage opportunity.

I’m still not sure about this.

From what I understand:

  1. You deposit ETH to Stakewise. → stETH2 and rETH issued in return.
  2. stETH2 will be redeemable 1 to 1 for ETH when the staking bridge [???] opens (i.e. in the future), as it’s less useful than ETH, it is likely to trade at a discount to ETH.
  3. rETH captures the staking rewards (to be paid in the future then the bridge opens). rETH has an unknown future value and availability date, but value should grow over time.

The proposed LP pool is ETH2-FLI : stETH2 - so there is no staking reward income going to the LP’s.

I don’t see how trading volume will be greater on this pool than the standard ETH2-FLI:ETH pool. So it’s just going to capture some volume from arbitrage as the prices change.

I don’t see how this pool adds any value to the product / coop as a whole.

https://docs.stakewise.io/tokens

A sushiswap pool for ETH2-FLI:ETH could also have double (Sushi and INDEX) rewards. If Sushi swap is not promoted, how is stETH pool superior. (or am I failing to grasp the benefits of triangular arbitrage?).

You are overthinking it @overanalyser. This doesn’t even require input or funds from IC. Stakewise can go do this on their own they’re just asking us to help promo with a tweet or two.

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