[RFC] Adjusting swETH Target and Maximum Weight in unshETH

Summary:

Swell Network joined unshETH with UWP-01 ~2-3 weeks ago: Snapshot. As written in UWP-01, our risk framework is “no more than 10% target weight for new additions” and “no more than 10% of LST TVL can be in unshETH”.

Since the time of the posting, swETH TVL has “swelled” to $44m: https://defillama.com/protocol/swell. Given that, 10% of swETH TVL would be equal to $4.4m, which is ~14% of unshETH tvl today. swETH deposits in unshETH sit at >1000 ETH and swETH is already above it’s target weight of 5%.

Per the already approved UWP-01, from a risk management standpoint swETH target weight is eligible for increase to 10% target weight (and correspondingly, 14% maximum weight). This configuration change does not require a full governance vote - however; in the interest of transparency, posting this RFC topic to solicit feedback and questions from the community prior to enacting the change.

Swell’s Support for unshETH Community:

Swell has used it’s vlAURA influence by voting for the USH/WETH pools which have helped deepen liquidity for the core protocol asset and has otherwise been working closely with the unshETH team to support the protocol’s growth in other ways. The Swell Voyage is off to a great start with a good number of unshETH community members participating in staking on Swell, all of whom will be able to direct their swETH towards unshETH deposits. Swell also intends to continue directing our vlAURA towards gauges which are part of the unshETH ecosystem, for the remainder of the proposed 3 months, in order to get most efficient outcome for the the community in terms of yields / rewards which will carry downstream benefits to Swell Network.

Additional considerations:

At this time, Swell does not have withdrawals live. Given the deep on-chain liquidity swETH relative to its TVL and overall strength of its backing and community - this isn’t necessarily a blocker to increase its target weight up to the maximum for newly whitelisted LSTs (10%). Prior to pursuing further target weight increases, swETH should have withdrawals live.

At this time, swETH is trading below its ETH backing in the swETH-ETH dex pools (i.e. it is slightly depegged), whereas unshETH will be accepting swETH deposits at its mint price, creating a small arbitrage opportunity where ETH can be swapped into swETH at a discount, swapped out for another LSD in unshETH, and converted by to ETH at a profit. This isn’t necessarily a bad outcome, as it will help rebalance the unshETH index into a more diversified mix, while at the same time improving the health / liquidity of swETH in the ecosystem (i.e. unshETH will be making swETH more liquid, which is a core value proposition). Additionally, Swell is actively adjusting their bonus voyage program to discourage users from “looping” swETH deposits which directly drives the de-peg: https://twitter.com/swellnetworkio/status/1669711233728249856?s=20.

Points for discussion:

  • Are there any additional considerations or questions?
5 Likes

Pearls to Unsheth LPs and holders BROTHER PLEASE MY FAMILY IS STARVING - HH

3 Likes

Seems like a no-brainer win-win situation.

1 Like

If the Voyage ends before withdrawls are enabled - there could be additional sell pressure that could add further depeg risk. But I still broadly support this.

As an unshETH holder and vdUSH staker, as well as swETH holder (since the guarded launch last year) and LP, I am supportive of increasing the weight of swETH in unshETH. With that said, given other LP venues for swETH are receiving pearls, and given that unshETH holders are both providing substantial liquidity for swETH and also are swETH holders, I think unshETH holders should be included in the Swell voyage in some capacity.

2 Likes

Both unshETH and Swell are aligned in their respective missions to help decentralize Ethereum liquid staking by providing best-in-class offerings to the staking market.

swETH’s inclusion into unshETH products has been positive to both communities as well as Ethereum at large.

Overall, Swell considers the signal to increase the swETH target weight in the unshETH index as a step in the right direction.

Swell supports this recommendation.

1 Like

Very much support this proposal – it represents another step in decentralizing the unshETH basket, and continues to drive utility / use-case for swETH.

Combined with our other business activities in the Aura / Hidden Hand vote markets I think we can continue to drive significant value and mindshare to unshETH across DeFi.