unshETH Index Whitelist Proposal for ankrETH

Summary

This uWP is for the whitelisting of the Ankr Staked ETH (ankrETH) token into the unshETH Index. It includes relevant information on the ankrETH token, proposed parameters for Index weight, and a discussion of the benefits of the unshETH Protocol.

Abstract

Ankr is the leading Web3 infrastructure company. It has a set of different products for building, earning, gaming, and more — all on blockchain. Ankr allows users to easily stake 5+ tokens on a secure, decentralized network and to earn rewards on tokens without needing technical knowledge - among other services.

Ankr’s Liquid Staking products are among the most trusted in the industry. These portable Liquid Staking tokens, such as ankrMATIC, ankrETH, and more, can be utilized on additional DeFi platforms to earn further rewards or instantly swap them for other assets.

Ankr proposes the including of its Ethereal Liquid Staking token, ankrETH, into the unshETH Index.

Motivation Statement

ankrETH is a tokenized representation of staked Ethereum (ETH) that brings several significant benefits to ETH holders. The key advantages of ankrETH:

  1. Liquidity and Flexibility: ankrETH allows ETH holders to stake their assets and earn staking rewards while maintaining liquidity. By tokenizing staked ETH, ankrETH enables users to freely trade, transfer, or utilize their staked assets within the Ethereum ecosystem, unlocking liquidity and flexibility.

  2. Non-Custodial Solution: ankrETH operates as a non-custodial solution, meaning users retain full control over their staked ETH. This reduces reliance on third-party custodians and enhances security by eliminating the need to trust external entities with the custody of assets.

  3. Earnings Potential: By staking ETH through ankrETH, users can earn staking rewards in the form of additional ankrETH tokens. These rewards accrue continuously, allowing participants to grow their ETH holdings over time. ankrETH is currently the liquid staking provider with the biggest yield due to Node optimization and MEV distribution.

  4. Simplicity and Accessibility: ankrETH simplifies the staking process, making it accessible to a wider range of users. Participants can easily convert their ETH into ankrETH tokens and benefit from staking rewards without the need for technical expertise or complex setup procedures.

  5. DeFi Integration: ankrETH seamlessly integrates with the decentralized finance (DeFi) ecosystem, opening up a world of possibilities. Users can utilize ankrETH as collateral in lending platforms, participate in yield farming, or engage in other DeFi protocols to maximize their earnings potential.

  6. Regulatory Compliance: ankrETH operates within the bounds of regulatory compliance, ensuring transparency and adhering to legal requirements. This commitment to compliance provides users with a secure and regulated environment for their staked assets.

  7. Interoperability: ankrETH is compatible with various Ethereum-based platforms and applications. Users can interact with ankrETH seamlessly across different services, enhancing its usability and expanding the range of possibilities for utilizing staked ETH. On top of this, ankrETH is on many other chains like Avalanche, Binance Smart Chain, Fantom, Polygon and Arbitrum with the help of our native Bridge.

  8. Community Governance: ankrETH incorporates a governance model that allows holders of ankrETH tokens to actively participate in decision-making processes. This community-driven approach ensures that stakeholders have a voice and can contribute to the development and direction of the ankrETH ecosystem.

In summary, ankrETH offers ETH holders a range of benefits, including liquidity, flexibility, non-custodial control, earning potential, DeFi integration, regulatory compliance, interoperability, and community governance. These advantages make ankrETH an attractive option for those seeking to stake their ETH while enjoying the benefits of liquidity and participation in the broader Ethereum ecosystem.

The Ankr team believes that a collaboration with unshETH will bring more utility to ankrETH holders, via increased yield opportunities and greater liquidity available on-chain, and supports the inclusion of ankrETH via the whitelisting process.

Benefit to the unshETH Protocol

Integrating ankrETH as a whitelisted asset within the unshETH Index offers several key benefits.

  1. Risk Mitigation: By accepting ankrETH as collateral, unshETH can further diversify the unshETH Token holders’ risk exposure.

  2. Expanded User Base: Integrating ankrETH will attract a broader user base unshETH. ETH holders who have staked their assets using ankrETH would now be stakeholders in the unshETH Protocol and incentivized to participate in various DeFi activities related to unshETH including minting, trading, and more. This inclusivity drives adoption and participation, contributing to the growth and sustainability of the unshETH project.

Risk and liquidity characteristics

Ankr was quick to enable withdrawals following the Shapella fork. Ankr Staking worked with Cubist to implement additional security infrastructure for ETH withdrawals that went into effect as soon as unstaking became available. Cubist is deployed several security upgrades to ensure Ankr has all bases covered when it comes to providing users with a safe process for unstaking and withdrawing ETH back to their wallet of choice. These upgrades include:

  • An extremely robust security backend to safeguard validator keys

  • Security features to enhance deposit and withdrawal protections

  • On-chain–verifiable deposit and withdrawal flows that let users see exactly what will happen before they stake

With the deployment of withdrawals we believe ankrETH to be one of the safest and lowest risk Liquid Staking protocols for users.

AnkrETH/ETH liquidity is available on:

Ethereum Mainnet: Uniswap, Curve Pancakeswap v2, Sushiswap

Liquidity figures and other data can be found here:

Links

Initial Target Weight

We propose an initial Target Weight of 10%. At the current unshETH TVL this would equate to $4,000,000 of ankrETH, which is 3.5% of the market cap of ankrETH. This is a very reasonable ratio that we feel will be well received by the community.

Maximum Weight

We propose a Maximum Weight of 14% (140% of the Target Weight)

Incentives for vdUSH Stakers

Ankr proposes to commit 1-2% of the value of the targeted TVL to incentives over the span of 6 months. These incentives will be split at our discretion between incentives for vdUSH lockers as part of the upcoming bribe market for alterations to Index parameters - specifically weighting - and incentives for unshETH depositors. This amounts to ~$10,000 per month. We see this as an investment in both developing deep ankrETH liquidity on-chain and in an emergent and exciting new DeFi use case for our users.

Other Notes

The Ankr team is committed to ongoing collaboration and growth initiatives with the unshETH Protocol and community. We are very eager to see the continued growth and expansion of the unshETH Protocol and to collaborate on integrations going forward.

By submitting this proposal, we hope to demonstrate the value that our liquid staking protocol can bring to the unshETH Index and the Ethereum Liquid Staking DeFi ecosystem as a whole. We look forward to working with the unshETH DAO community to advance the mission of decentralization and contribute to a more secure and resilient network.

For: Approve this UWP and empower the unshETH Core Team to undertake the necessary changes to the unshETH Protocol parameters.

Against: Do not approve this UWP. No changes made.

9 Likes

Well thought out proposal from the fellas at ANKR, 3.5% is very conservative and ankr seems like a fantastic partner and addition to the unsheth basket
- HH

4 Likes

Great proposal here from Ankr, Swell applauds adding more staking products tothe Index. Ankr especially as it’s quite well along in it’s growth trajectory. I have questions around liquidity – it would be great to get a sense of slippage on $4M ankrETH.

4 Likes

I like this proposal. I appreciate Ankr investing in the unshETH community and a good place to start a relationship. Expanding the whitelist with quality partners is very important to scaling to maintain diversification without running the risk of over-concentration in individual assets.

2 Likes

I like it a lot. Looking forward to voting for the introduction of both ankrETH and swETH. Good projects and most welcome.

2 Likes

Looks good to me - excited by many of the things Ankr are working on and the potential of unshETH and Ankr working together. This proposal should be of mutual benefit to both unsHETH holders and vdUSH stakers as well as AnkrETH holders.

Overview

ankrETH is a respected incumbent in the LST space and we are very excited to see them broadening their DeFi integrations through a proposal to integrate into unshETH. The benefits of ankrETH joining the unshETH index are clear: decentralizing Ethereum staking, diversifying the index and the proposed co-incentives for vdUSH stakers.

We are totally onboard with the proposal apart from one aspect: the initial target weight and the maximum weight proposed.

Liquidity Risk

Initial Target Weight

We propose an initial Target Weight of 10%. At the current unshETH TVL this would equate to $4,000,000 of ankrETH, which is 3.5% of the market cap of ankrETH. This is a very reasonable ratio that we feel will be well received by the community.

Maximum Weight

We propose a Maximum Weight of 14% (140% of the Target Weight)

Whilst ankrETH were quick to enable ETH withdrawals post-Shapella fork with their Cubist implementation, we believe that if the time came where unshETH had to quickly derisk the proposed weighting of ankrETH in the index, they would struggle.

The withdrawal mechanism is great and each ankrETH is safely able to claim it’s representative ETH on the Beacon chain, however, in the event of left-tail risk in staking whereby unshETH would have to quickly withdraw ETH from the beacon chain, there may be issues with timeliness.

Although there is currently no exit queue, we have seen periods of time where the queue of exiting validators were extremely high and there was a long wait for validators to claim their ETH from the Beacon chain. Further, we anticipate this queue will be the longest when unshETH mosts needs it (i.e. if there were issues due to smart contract risks or mass slashing events which could lead to long queues as users rush to exit)

We believe that having adequate on-chain liquidity is essential, so that if a situation were to arise, there are multiple ways to de-risk the index.

The issue here is that, with a target weight of $4M (10% of unshETH’s total TVL, including internal farms and partner farms), the slippage from executing this $4M ankrETH to ETH sale at the market on DEX’s would result in a ~33% slippage (according to https://defillama.com/liquidity, which routes trades through multiple aggregators and liquidity venues for the best fill)

If the target weight was $3.28M, 10% of unshETH’s TVL (excluding internal and partner farms), the slippage from executing at market would result in a ~21% slippage.

Compared to other tokens in the index (stETH, cbETH, rETH, sfrxETH, wstETH) and other proposed LSTs (swETH), this represents orders of magnitude more risk and slippage (swETH proposal resulted in 0.01% slippage).

Proposal

We would recommend that either:

  • ankrETH has lower weighting in the unshETH index. At around 3% of unshETH TVL $1M, when executed at market, the slippage would be 1.36%, which is more suitable.
  • ankrETH team finds avenues to increase on-chain liquidity.
4 Likes

well thought out. agree

i hope its on a chain where ankrETH liq is thicc

Fully agree with ASR.

I am very much in favor of this sensible approach.

Personally I think that the lack of on chain liquidity for Ankr is not a major issue, for a few reasons. Let’s first consider the question: what is unshETH’s value proposition? As well as helping decentralize validator dominance, and providing best in class yields to unshETH holders, a part of our value proposition is directed towards LSD protocols themselves. We can say to LSD protocols: don’t worry about finding liquidity for your LSD; we will handle that for you, and you can focus on building your product.

unshETH should not, IMO, be a consumer of liquidity, it should be a provider of liquidity. Yes, that involves taking on some risk, yes it involves being a buyer of last resort at times. But it allows unshETH to offer a valuable service to LSD protocols, and allows us to deliver higher yield to unshETH holders.

AnkrETH’s relatively high slippage is in my opinion an opportunity to unshETH. AnkrETH can vastly improve the liquidity of their LSD at a low cost. We can showcase how unshETH offers liquidity and TVL for LSD’s at a much more cost efficient rate than, say, incentivising a curve or uniswap LSDEth/ETH pool (which would also involve LPs keeping 50% of their ETH unstaked, compared to only 5% for unshETH). This will show that unshETH has a powerful, unique value proposition, and also strengthens the case for aggregator integrations of our vdAMM.

Based on the above I am in favour of Ankr’s proposed 10% weight.

2 Likes

Great discussion. Look forward to having ankrETH join unshETH, and I’m for the proposed 10% weight.

From a risk management standpoint, I think it makes most sense to evaluate LST protocols on the basis of their track record, centralization vectors, and technical ability to process withdrawals smoothly. We also have backstop guidelines based on their overall TVL, specifically to align incentives the recommendation is no more than 10% of the LST’s TVL should come from unshETH, especially for higher target weights in unshETH.

I think post Shanghai upgrade, on-chain liquidity is much less of a concern vs the ability to process withdrawals smoothly. The whole premise upon which unshETH is built is that post Shanghai it won’t be a game of who which LST has the most liquidity on Curve, but who can grow their TVL while still having baseline utility and liquidity for their LST.

What will happen in the case where ankrETH withdrawal queue gets clogged and users aren’t able to exit in time? Consider two cases:

  1. Withdrawals are happening due to a immediacy liquidity need: in this case, excess amounts of ankrETH will be deposited into unshETH and swapped for other LSTs, up to the proposed maximum weight of ankrETH (14%). The vdAMM will collect dynamic fees as this is occurring. When the liquidity needs resolve, ankrETH’s market price would resolve to its “peg” as the withdrawal queues clear. unshETH holders will have benefited from the swap fees by acting as a liquidity provider taking the other side of the de-pegging
  2. Withdrawals are happening because something went wrong with ankrETH and the ETH isn’t there for whatever reason: in this case, excess amounts of ankrETH would be swapped in up to the proposed maximum weight (14%). vdAMM will collect dynamic fees. But that ankrETH is essentially worthless so unshETH has lost 14% of its value.

Case #2 is obviously bad. But on-chain liquidity has nothing to do with it! This loss would still occur even if ankrETH had a ton of Curve liquidity.

unshETH’s entire value proposition is growing LST protocol liquidity and TVL - in my mind, it wouldn’t make sense to turn away LSTs from unshETH because they’re not spending enough on liquidity incentives on venues that are not unshETH. We want them to spend those liquidity incentives with unshETH! We will help aggregate the fragmented liquidity for all these LST protocols.

With all this said - there is some consideration for on-chain liquidity. After all unshETH is a basket of “liquid” staked tokens. Taking the extreme case: a LST with 0 on-chain liquidity probably shouldn’t make up a meaningful chunk of the unshETH basket, because it’d severely affect the liquidity profile, reducing unshETH’s viability as a collateral in lending protocols, etc. Probably makes sense to have some backstop rule like no more than 10% weight unless you can be liquidated with < 5% slippage.

Will make a grand unified theory proposal on how to evaluate all of the follow metrics together for the purpose of target weight settings in the coming week:

  • vdUSH votes
  • Incentives
  • LST staking APR
  • On-chain liquidity
2 Likes

We acknowledge the concerns raised by the community, and it is essential to emphasize the following points:

  1. Firstly, we are introducing new pools on Balancer that are expected to attract a significant amount of liquidity, totaling a few million against sfrxETH and wstETH pairs.

  2. Secondly, it is worth noting that not all of our pools are listed on DeFiLlama, where the slippage calculations were derived from. Therefore, the reported slippage may not accurately reflect the performance of all our pools.

  3. Thirdly, one advantage we offer is the ability to redeem ankrETH for ETH. This means that you can utilize this feature to convert and redeem your Ethereum, resulting in fewer liquidity requirements compared to other protocols. Additionally, we are excited to announce the upcoming launch of Flash Unstake, which will provide you with the option to instantly redeem your ETH. This eliminates the need for an extended unbounded period, offering greater flexibility, and convenience but most important 0 slippage even for large amounts of ETH. This feature makes ankrETH way less risky than other liquid staking providers even if you don’t have on-chain liquidity.

With this said, we believe that you also need to take into consideration these factors when analyzing Ankreth’s risks although we will have such pools live in 1-2 weeks which will deepen ankrETH on-chain liquidity.

3 Likes