[BIP-735] Enable lpETH/wETH Gauge [Ethereum]

BAL Gauges
1

PR with Payload

Summary:

We propose enabling a Balancer gauge for the lpETH-WETH Stableswap pool on Ethereum Mainnet. This pool will serve as the primary liquidity venue for lpETH, Loop’s yield-bearing ETH derivative.

References/Useful links:

Link to:

Protocol Description:

Loop Finance is a specialized lending protocol designed to optimize leverage strategies for DEX LP tokens, with an initial focus on Pendle LP tokens. A key protocol innovation is lpETH, a yield-bearing ETH receipt token that captures revenue from Loop’s lending activities and is collateralized by a diversified index of LRTs.

When users deposit ETH into Loop, they receive lpETH which can be:

  1. Staked to earn lending yields
  2. Locked in dLP (Loop’s governance token based on Balancers ve80/20 model)
  3. Provided as liquidity in AMM pools

The lpETH token is designed to always be backed 1:1 with ETH, while growing the Net Asset Value (NAV) through various protocol mechanisms including:

  • Compounding revenue distribution from lending activities
  • Arbitrage opportunities between direct minting/redemption and AMM trades
  • Collateralisation by a diversified basket of high yielding LRT restaking strategies
  • Swap Fees

Motivation:

Establishing a gauge for this pool will catalyse deep, stable liquidity for lpETH-WETH which serves multiple purposes:

  1. Capital Efficiency: Enables seamless entry/exit for ETH lenders with low slippage
  2. Price Stability: Helps maintain lpETH’s peg through arbitrage
  3. Yield Enhancement: Provides additional revenue for lpETH holders through swap fees
  4. Protocol Growth: Facilitates broader adoption of Loop’s lending markets
  5. Benefit Balancer Treasury: A portion of the pool fees will be directed to the Balancer treasury, in line with protocol revenue-sharing standards.
  6. Strategic veBAL Accumulation:
    Loop is committed to becoming a significant veBAL holder to align long-term incentives with the Balancer ecosystem. Our protocol plans to integrate Balancer Pool Tokens (BPTs) as supported collateral, creating a synergistic relationship where veBAL voting rights will be used to direct liquidity incentives toward these integrated pools. This strategy serves multiple purposes:
    1. Ensures sustainable liquidity for lpETH-WETH and future Loop-related pools
    2. Creates additional yield opportunities for Loop users through BPT collateralization
    3. Demonstrates long-term commitment to the Balancer ecosystem
    4. Enables collaborative governance participation in both protocols

Specifications:

Governance:

Loop operates under a dual governance structure:

  • Technical Administration: 2/3 Multisig (addresses to be provided)
  • Protocol Parameters: dLP token holder voting
  • Admin capabilities include:
    • Emergency pause functionality
    • Collateral parameter adjustments
    • Fee distribution updates
  • Timelock: 24 hours for parameter changes, no system upgrades possible
  • Future plans include transitioning to full DAO governance with TGE of LOOP by Q1 2025

Oracles:

  • Primary price feeds: Chainlink ETH/USD
  • Secondary price feeds: Time-weighted Balancer pool prices
  • Collateral pricing: Combination of constituent asset oracles and pool pricing
  • Failsafe: Circuit breakers on extreme price movements

Audits: (Security | Loop)

  • Audit 1: Watchpug completed
  • Audit 2: Code4rena completed
  • There is an ongoing bug bounty for $100,000 on code4rena

Centralisation Vectors:
No centralisation vectors

Market History:

Protocol information and market history can be found here on the Loop Dune dashboard:
https://dune.com/rangonomics/loopfi

Value:

The lpETH-WETH pool will serve as the primary liquidity venue for lpETH with several value drivers:

  • Strategic Value:
    • Essential infrastructure for Loop’s lending markets
    • Complementary to Balancer’s existing ETH-based pools
    • Potential integration with other Balancer pools through composability
    • With TGE of the LOOP token, Loop will introduce dLP tokenomics which means that locked LOOP tokens will be sent to Balancer similar to Radiant Capital.
  • Growth Potential:
    • Targeted TVL growth to $20 million within 6 months
    • Integration with major lending protocols planned
    • Super-chain expansion roadmap (Scroll, Optimism)

Request for Support & Contact
We welcome feedback from the Balancer community to strengthen this proposal. Our core team is available for discussion through the forum or via Discord.

We value the community’s guidance and look forward to collaborative moving this proposal forward in a manner to best serves both ecosystems.

Specification

Transaction: The Balancer Maxi LM Multisig eth:0xc38c5f97B34E175FFd35407fc91a937300E33860 will interact with the GaugeAdderv4 at 0x5DbAd78818D4c8958EfF2d5b95b28385A22113Cd and call the addGauge function two times with the following arguments:

1st addGauge function call
gauge(address): 0xb7bb16b58b04fe4f8d270430ce57d2a4753993de
gaugeType(string): Ethereum

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https://snapshot.org/#/balancer.eth/proposal/0x2fb5430efb587a4c7895d8b3f6712201592e98c4b2495585c0434578b074f1fa