Default risk assessment framework and fees parameters for Lido V3 (stVaults)

Proposals Lido V3
3

Force Rebalance Threshold (FRT)

As mentioned in the initial Risk Assessment Framework for stVaults post, there should be

a tech, ensuring collateral / minted stETH balance for defined risk scenarios - rebalancing mechanism

as one of the invariants, supporting the first principle:

Vault users don’t negatively affect stETH users

Details on technical implementation could be found in Lido V3 — Design & Implementation Proposal, with two risk thresholds:

  • Reserve Ratio (RR): Minimum reserve percentage (e.g., 10%) - blocks new mints when breached

  • Force Rebalance Threshold (FRT): Critical reserve level (e.g., 5%) - enables forced rebalancing

With the Reserve Ratio logic and values described above, it is suggested to determine Force Rebalance Threshold (FRT) as an offset to Reserve Ratio, sufficient to cover:

  • Randomness in the level of rewards (mainly derived from block proposals)
  • Possible operational problems within the stVault staking setup

Given that, it is suggested to operate on the most negative conditions, assuming

  1. Continuous Lido Core APR of 4%
  2. Zero proposals for the stVault validators
  3. Moderate to high share of vault validators being offline
  4. Lowest possible RR = 2%

image
image1046×517 90.1 KB
Under this assumption, even considering 100% stVaults validators being offline, the time to trigger rebalancing would be:

  • 65 days at 1% offset

  • 32 days at 0.5% offset

  • 16 days at 0.25% offset

  • 6.5 days at 0.1% offset

Given that, the suggested values for FRT are RR - 0.25% (e.g, 5% Reserve Ratio and 4.75% Force Rebalancing threshold), providing:

  1. Sufficient collateral volume for the risk scenarios defining Reserve Ratio values

  2. Reasonable buffer for operational any inefficiency (or effect of rewards randomness), ensuring more than two weeks until the rebalance mechanism thresholds activation

6 Likes