Diversify liquidity pools to boost stETH integrations

Background

The stETH:ETH pair is the biggest pool on Curve with over $1.76b in liquidity, which makes stETH one of the most liquid tokens in crypto. 76% of stETH supply and 96% of trading volume is allocated on Curve.

We have a price feed that works on top of the Сurve pool price and the time-shifted price oracle.

We’ve had multiple parties (e.g. Chainlink engineers) confer that one source of liquidity is not something that sounds safe to them, even if it’s a very deep market.

Problem

Currently, we have our own price feed based on Curve. Having only one liquidity pool and price feed based on it is a red flag for the DeFi protocols risk assessment teams. We need more liquidity pools for sustainable price feed.

Motivation

To make stETH/wstETH more productive we need more integrations in DeFi. To get more integrations we need to reduce market risks by diversifying liquidity to multiple liquidity sources.

Solution

Increase the number of liquidity pools that will allow getting sustainable and reliable price feeds including Chainlink, remove blockers for DeFi integrations, and increase stETH/wstETH productivity.

Proposal

We propose to kickstart several pools:

  • 1inch - stETH to DAI
  • Sushi - wstETH to DAI (to be converted to Kashi when there’s a reliable price feed)
  • Uni v3 - wstETH to ETH, using David Mihal’s LP + incentive contract
  • Uni v3 - wstETH to DAI, using Omar Bohsali’s incentive contract
  • Curve v2 stETH:wBTC:DAI

We propose incentivization with LDO and looking for co-incentivisation (values per month)

  • Sushi - 200,000 LDO
  • 1inch - 200,000 LDO
  • Curve v2 stETH:wBTC:DAI - 100,000 LDO
  • UniSwap v3 - 100,000 LDO each pair

Starting carefully with 100,000 LDO per month as the smart contracts for that are not yet battle-tested.

We propose to keep track and measure the effects of these pools to stETH trading volumes, peg and usage, to rebalance liquidity incentives to the most beneficial liquidity pools out there.

Some of the proposed venues are hanging on audits and deployments, so might come in production later after the vote.

3 Likes

I agree that it’s beneficial to start adding more sources of liquidity, but isn’t this a bit of an overkill?

Whats the rationale for having so many new liquidity pools being rolled out at once?
Two Uni v3 pools, with the same stETH/DAI pool on 1inch and Sushi (DAI)?

Won’t this fragment liquidity too much? E.g. too many venues but shallower liquidity won’t really help with price stability, it will just create unnecessary arb opportunities.

Doesn’t it make more sense to start adding liquidity pools more slowly?

3 Likes

How about also adding Balancer V2 wstETH-ETH and wstETH-DAI?

2 Likes

Definitely would welcome Balancer v2 wstETH-ETH pair, but not sure about wstETH-DAI.

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Uni v3 pools are experimental (as you see by low incentivization) and use very different incentivization smart contracts. If we had a battle-tested best practice for Uni v3 incentivization, it’d be easier to choose what to use here.

Sushi’s pair is a step on the path to get integrated into Kashi (marginal trading protocol on Sushiswap) that will allow people to be irresponsibly long ETH and get staking rewards at the same time.

As for amount of incentivized pairs, it’s a difficult choice - we don’t quite know how many different liquidity spots are enough for the protocols to integrate stETH, because these requirements are more or less arbitrary.

Balancer is evaluating incentivizing a stETH pair with BAL rewards to hopefully bootstrap the pair with both BAL and your Lido rewards. Balancer first wants to better understand what makes the wstETH-ETH pair a higher priority pair for Lido to mitigate the current oracle risk compared to say a wstETH-DAI or USDC pair? Again, trying to make sure we are targeting the right pair to make it a win-win for both teams. Thanks!

Has anyone suggested using G-UNI pools for liquidity mining on v3? Instadapp is already using it for theirs: https://twitter.com/Instadapp/status/1405231665882882052?s=20

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Hey Dave! That’s interesting and we reached out to talk.

Diversify liquidity pools to boost stETH integrations

(updated with a pairs and co-incentivization plans confirmed with liquidity pools)

Background

The stETH:ETH pair is the biggest pool on Curve with over $2b in liquidity, which makes stETH one of the most liquid tokens in crypto. 76% of stETH supply and 96% of trading volume is allocated on Curve.fi.

We have a price feed that works on top of the Сurve pool price and the time-shifted price oracle.

We’ve had multiple parties (e.g. Chainlink engineers) confer that one source of liquidity is not something that sounds safe to them, even if it’s a very deep market.

Problem

Currently, the absolute majority of stETH liquidity is allocated to Curve. We have our own price feed based on Curve. Having only one liquidity pool and price feed based on it is a red flag for the DeFi protocols risk assessment teams. We need more liquidity pools for sustainable price feed.

Solution

Increase the number of liquidity pools with co-incentivization and get more robust price feeds.

Motivation

Improving liquidity sources diversity will allow:

  • Getting more robust price feeds (Chainlink in perspective)
  • Removing blockers for DeFi integrations (one liquidity pool is a red flag) and increasing stETH/wstETH productivity
  • Increasing liquidity and trading volumes by co-incentivization programs for liquidity providers.

Proposal

The proposal is to kickstart several pools:

  • 1inch - stETH to DAI
  • Sushi - wstETH to DAI (to be converted to Kashi when there’s a reliable price feed)
  • Uni v3 - wstETH to wETH, using David Mihal’s LP + incentive contract
  • Uni v3 - wstETH to DAI, using Omar Bohsali’s incentive contract
  • Balancer v2 - wstETH to ETH
  • Balancer v2 - wstETH to DAI
  • Curve v2 - stETH:[ETH-WBTC-USDT] metapool

Proposed co-incentivization, plans confirmed with liquidity pools (values for the 1st month):

  • Sushi - 200,000 LDO + 6,000-13,500 SUSHI
  • 1inch - 200,000 LDO + 200k INCH
  • UniSwap v3 - 100,000 LDO each pair
  • Balancer v2 - 100,000 LDO + 10,000 BAL each pair
  • Curve v2 - 100,000 LDO with co-incentivization, value to be defined by weight-voting in DAO.

Starting carefully with 100,000 LDO per month as smart contracts for that are not yet battle-tested.

Will keep track and measure the effects of these pools to stETH trading volumes, peg and usage, to rebalance liquidity incentives to the most beneficial liquidity pools out there.

Some of the proposed venues are hanging on audits and deployments, so might come in production later after the vote.

3 Likes

For the Uniswap V3 pools, does the rewards only go to liquidity providers that use the custom incentive contracts developed by David and Omar? If yes, why not also give rewards to LP’s that directly provide liquidity to Uniswap V3 to the price range they believe is most appropriate based on market conditions or concentrated liquidity/leverage desire?

David’s contract does two things: 1) deposits the liquidity in two predefined ranges; 2) gives LPs ERC20 tokens, which could be used for “regular” rewards contracts. As far as I can tell, there’s no way to restrict Omar’s awesome contract to reward specific ranges only — which isn’t a thing we want in case of wstETH/WETH pool, so we’re planning to use “regular ERC20 LP rewards” contract for this.

2 Likes