This is a proposal to enable a 10% capped Balancer gauge for a wstETH/WETH pool on Beethoven Optimism. The pool is a custom pool from Gyroscope built on top of Balancer’s pool architecture that will bring a new kind of concentrated liquidity to BeethovenX that is much more efficient and customizable compared to all other existing pool types. The pool is an E-CLP or Elliptic Concentrated Liquidity Pool.
- stETH is a token that represents staked ether in Lido, combining the value of initial deposit + staking rewards. stETH tokens are minted upon deposit and burned when redeemed. stETH token balances are issued 1:1 to the ethers that are staked by Lido. stETH token’s balances are updated when the oracle reports change in total stake every day. - Lido
- wstETH is a wrapped version of regular stETH, while wETH is a wrapped version of Ethereum.
- The E-CLP uses an internal conversion to avoid a unit drift of yield-accruing tokens.
The pool is an Elliptic Concentrated Liquidity Pool (E-CLP) which enables trading along the curve of an ellipse. This pool type is ideally suited for liquid staking tokens and it could generate significant trading volume. This pool will provide liquidity for the following pair: wstETH/wETH
The pool shall be a ‘Core’ pool with a swap fee of 1 basis points, i.e., 0.01% at pool inception. The fee split is as follows: 50% of all collected fees will go to liquidity providers, while the remaining 50% will go towards BeethovenX. At pool inception, no fees will go towards Gyroscope.
This pool will be launched in cooperation with BeethovenX. With the core pool designation it would be possible to recycle protocol fees.
We expect the E-CLP to be 1.67x as efficient as the comparable, live StableSwap pool with an amplification factor of 500. The E-CLP’s efficiency gains are possible due to:
- Customizable liquidity profiles: Using the curve of an ellipse enables highly customizable liquidity profiles. E-CLPs can be calibrated to approximate most trading curves that would be desired. E-CLP curves can be tailored to have certain regions of low price impact and other regions of high price impact.
- Price bounds: The E-CLP concentrates liquidity within price-bounds that enable the E-CLP to be highly capital-efficient. Functionally, this works by enabling arbitrary truncation of liquidity profiles from a given trading curve. In effect, the capital efficiency comes from bounding the trading curve to an expected trading range of the assets.
The E-CLP’s efficiency gains are illustrated by the recently deployed stMATIC/wMATIC E-CLP. The below box plot shows stMATIC/wMATIC liquidity utilisation. The stacked area chart, shows how the E-CLP already reached up to 55% of the total market share of stMATIC on Polygon very quickly after inception, with only a fraction of the total TVL.
Notably, the currently deployed stMATIC E-CLP is more oriented towards swap fee revenue for LPs. It features a higher swap fee than comparable pools. As such, stMATIC E-CLP volume is subject to some fluctuations, and it is often the dominant pool on high volume days (as aligns with the stacked area chart).
The wstETH E-CLP on Optimism, however, has a lower swap fee of 1bp and is more oriented towards becoming a core trading pool with the potential to take a significant share of the total wstETH volume on Optimism.
E-CLPs have been developed for stablecoin pools that include the Gyroscope stablecoin, GYD. However, they can find broader application, whenever the expected trading range of the included assets can be informed by external business logic (e.g. from arbitrage loops of mints/ redemptions in the case of LSTs)
As a new pool design with more customizable concentrated liquidity, this pool has the potential to significantly expand the BeethovenX offering. The pool design even supports asymmetric liquidity concentration. Current LSTs may be locked on Curve and Balancer, but are disproportionately traded on Uniswap and KyberSwap (c.f. below graphic).
Gyroscope’s E-CLPs could change the LST landscape of BeethovenX by becoming low-slippage trading pools. However, some initial incentives may be required to bootstrap the pool and get to a minimum TVL that unlocks the pool’s potential. As demonstrated by the stMATIC E-CLP, this amount, although necessary, does not need to be that large for the pool to be competitive, after which the pool can grow organically.
Snapshot data for Ethereum as per 02/23/2023 including LSDs of Lido, Rocketpool, and Coinbase
The Gyroscope Protocol is in limited production live on Polygon. The Gyroscope Protocol will be governed by a DAO and relevant stakeholder with the full launch on Ethereum. For now, the FTL Labs multi-sig can pause the pool, change the swap fee and set the protocol fee. As a custom pool by Gyroscope, the E-CLP will be controlled by Gyroscope governance upon its launch.
- rateProvider0 (for WETH): 0x0 (none)
- rateProvider1 (for wstETH): 0x9aa3cd420f830E049e2b223D0b07D8c809C94d15
- (ETH per stETH wrapping rate)
Audit reports by Nethermind, Trail of Bits, and Runtime Verification can be accessed here (the E-CLP is called the “CEMM” in these reports). In addition, the E-CLP code has been live in production on Polygon since November 2022.
No centralization vectors. The FTL Labs team’s multi-sig can - currently - pause the pool, change the swap fee and set the protocol fee.
This pool has just been created. As such, there is no relevant market history for this pair in this pool. Ample historic data is available for this asset pair in different pools, e.g. on BeethovenX on Optimism or on Balancer Ethereum. For contract addresses of the wstETH E-CLP refer to the below ‘Contracts’ section.
As per “Motivation”. Other Optimism pools with LSTs exist, but none of them feature asymmetrically concentrated liquidity. Asymmetric concentrated liquidity for these assets could become a substantial driver of trading volume and total value locked.
- Factory contract E-CLPs: 0x1a79A24Db0F73e9087205287761fC9C5C305926b
- wstETH/WETH E-CLP: 0x7ca75bdea9dede97f8b13c6641b768650cb83782
- Gauge on Optimism for wstETH/WETH E-CLP: 0x9f9f8d58496691d541c40dbc2b1b20f8c43e8d8c
- Rootgauge on Ethereum for wstETH/WETH E-CLP: 0x730A168cF6F501cf302b803FFc57FF3040f378Bf
The Balancer Maxi LM Multisig
eth:0xc38c5f97B34E175FFd35407fc91a937300E33860 will interact with the
0x5DbAd78818D4c8958EfF2d5b95b28385A22113Cd and call the addGauge function with the following arguments: