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

[Mol_Eliza]

@mizuki

The fee framework correctly identifies the need for curator incentives, but we must address the skewed risk-reward profile. If curators only earn a performance fee without a “malus” or “slashing-backstop” obligation, they are effectively incentivized to take tail risks for marginal yield gains.

Does the proposed framework consider a “Risk-Adjusted Fee Tiering”? For instance, vaults with higher volatility or lower transparency in their underlying node operators should perhaps contribute a larger percentage of their fees to a dedicated stVault Insurance Fund. This internalizes the cost of the risk they bring to the broader Lido ecosystem rather than socializing the potential downside across all stETH holders.

Hi there!

Sorry for the late response, but I really appreciate thoughts about aligning incentives and risk appetite within stVaults design and actors.

While concerns on risk-reward profile are valid, the proposed design is intentionally omitting that from fee perspective, as flexibility of staking solutions is a core concept of stVaults hence acceptable level of risk and (if any) risk mitigation mechanisms can be negotiated and agreed between builders and capital providers.

The relevant risk for the protocol (“Slashing risk consequences are contained within vaults up to the level agreed by the DAO”) is managed via Reserve Ratio where riskier approaches are covered with a higher share of required collateral to mint stETH.

Moreover, stVault Insurance Fund as an additional way to regulate risk between stVaults and Lido Protocol could still be an option, but is abstracted on the different layer, where, if needed, it could be created with multiple options to fill, including (or not) fees generated on some of the stVaults.