[Deployment Notice] kETH and the LST Optimizer
Introduction
The LST Optimizer is an innovative decentralized application (dApp) introduced by Blockswap, designed to maximize the potential of all Ethereum LST tokens. It introduces a new primitive kETH which represents a basket of Liquid Staking Tokens (LSTs) and Liquid Staking Derivatives (LSDs). From the onset, the protocol will offer three distinct vaults - LST Vault, dETH Vault, and kETH Vault - this user-friendly platform facilitates the optimization of yields in the DeFi space while accommodating diverse asset classes and risk profiles. The LST Optimizer presents a new avenue for generating consistent returns, exploring the broader DeFi ecosystem, and transforming how users engage with blockchain-based financial instruments.
Background
Blockswap protocols have always intended to be open and accepting of all infrastructure in the Ethereum stack. Stakehouse is by default compatible with all Ethereum clients and infrastructure including DVT. In a similar way, Blockswap Cloud will is planned to be inclusive of all Ethereum validators regardless of how they are staked. Up until the LST Optimizer, there was a lack of inclusion within Blockswap for other LST tokens such as rETH and stETH. This protocol will look to serve the wider LST and LSD networks.
Furthermore, LSTs do not offer a smart contract path back to ETH and create an inventory risk to protocols that utilize them. By using Stakehouse’s redemption guarantees, kETH provides an opportunity for those using LST tokens a path back to ETH that does not require deep liquidity or swapping.
kETH has been community tested and is ready for mainnet deployment.
Important Note: LSTs refer to synthetic representations of staked ETH. LSDs refer to liquid staked ETH which can be accounted for 1:1 with staked ETH.
Protocol Description
The LST Optimizer is a powerful tool that utilizes LSTs and LSDs which can be deposited to receive kETH or kwETH. kETH provides a stable, optimized ETH staking yield and reduces liquid staking risk. kETH is a new primitive that can be seen as a risk-neutralizing primitive to be reused in DeFi protocols and LST Optimizer vault strategies. The LST Optimizer uses an automated asset manager (AAM) to maintain a target yield rate for both kETH and kwETH.
There are currently three available strategies:
LST Vault - A repository that represents a collection of liquid staked Ethereum tokens (LSTs) and liquid staking derivatives (LSDs), consolidated into the kETH ERC20 token. Users can deposit their LSTs and LSDs into the LST Vault, automatically receiving kETH in return, and the value of this kETH increases proportionally with the staking yield these deposited assets generate.
dETH Vault - Users deposit dETH and receive kwETH. The strategy automatically curates high-performing validators into an index that provides a yield for kwETH holders. This is an easy UI that allows those who have removed their dETH from the protocol to find validator yield again. It also gives users a path back to ETH from their dETH.
kETH Vault - This allows those holding kETH to find extra yield by receiving BSN tokens
BSN Token Distribution
The Community has voted to provide 50,000,000 BSN tokens to incentivize the LST Optimizer and kETH (previously Unified Benchmark Rate). Find the Tally vote here. Now that the tokens are out of the treasury and the protocol is launching, these tokens will be distributed with the input from the Liquidity Council. The original proposal outlined two methods of distributing BSN tokens. One for kwETH and one for kETH. To encourage deposits from the broader ecosystem, it is open for feedback that these tokens be allocated to only stETH and rETH deposits. See the outline below.
15,000,000 BSN will be allocated to the kETH Vault for the first 45 days. BSN rewards will only be given to those who deposit stETH and rETH.
The Future
The LST Optimizer has a few intended upgrades.
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Accepting more LST tokens.
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Additional strategies such as K2 an economic restaking protocol that utilizes kETH.
Deployment
Now that there has been sufficient user testing and feedback. The LST Optimizer will be moved to mainnet.
Conclusion
As Blockswap continues to expand its reach and capabilities within the DeFi ecosystem, the LST Optimizer emerges as a powerful tool, encompassing a diverse set of Ethereum LSTs and LSDs under one intuitive platform. Through the creation and utilization of the kETH and wkETH primitives, the LST Optimizer offers a unique solution to the inherent complexities of the DeFi space, improving efficiency and inclusivity. This progressive approach sets the stage for future improvements and the integration of additional LST tokens, ensuring the LST Optimizer remains adaptable and relevant. It embodies Blockswap’s commitment to pushing boundaries, fostering inclusion, and shaping the future of DeFi.