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.