Boost the wETH:wstETH Pool

[Matthew_Graham]

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Title: Boost the wETH:wstETH Pool
For Discussion
Created: 17.05.2022

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Summary

stETH ability to hold the ETH peg has come under pressure with recent market conditions. This discussion asks all veBAL holders, especially those Smart Contract addresses that were allowed access to the VotingEscrow whitelist, to direct BAL incentives to the wETH:wstETH Pool to help restore the peg and grow Balancer’s TVL.

Abstract

Earlier this week the stETH peg dipped as low as 0.95 ETH during turbulent market conditions and is currently trading around 0.97-0.98 ETH. The market demand for stETH is lacking a bid and major liquidity pools on Curve and Balancer are now majority stETH.

veBAL holders can vote to distribute up to 145,000 weekly BAL rewards to the wETH:wstETH pool liquidity providers. With many communities recently receiving access to Balancer’s VotingEscrow contract, the request here is for those communities to return the goodwill and vote to create a high yield wETH:wstETH pool. This will boost TVL for Balancer at a time when Curve has fragmented liquidity and stimulate stETH demand which is positive buyside pressure on the peg.

Single sided deposits enable wETH and ETH holders to deposit into the pool to earn yield. The high yield will stimulate demand for ETH and wETH which will help restore the wETH:wstETH pool to equilibrium. The more veBAL holders that vote BAL rewards to the better chance we have of restoring the peg and growing the strategic wETH:wstETH pool.

Discussion

The below image shows the stETH / ETH price. stETH is currently trading between 0.97-0.98 ETH after recovering from a dip to 0.95 on the 13th May 2022.

The new Curve Concentrate stETH pool, with 14.28% APY in LDO incentives, that was created earlier this week, has over $280m in TVL.

Liquidity in the main stETH/ETH pool on Curve has plummeted from $4.7B on the 5th May 2022 to $1.8B on the 17th May 2022.

The liquidity in these pools is majority stETH. The Balancer v2 pool is also majority wstETH.

The newly created concentrated pool on Curve shows that incentives can attract liquidity even in challenging market conditions. With the recent change in Balancer’s tokenomics, there exists an opportunity for veBAL holders to concentrate the BAL rewards onto the wETH:wstETH pool. An extraordinarily high APY is expected to attract TVL to Balancer v2. It will likely attract liquidity from the now legacy non concentrated Curve pool.

The time for Balancer to elevate rewards is now. There are several reasons for doing this.

1. Curve has fragmented liquidity and this will fragment veCRV and vlCVX holders votes.
2. Billions have been removed from the main Curve liquidity pool during turbulent market conditions. When the market settles, this capital will likely be redeployed. Balancer v2 wants to capture this TVL when it returns to liquidity pools.
3. Elevated BAL APY on the wETH:wstETH pool will create demand for stETH and wETH as liquidity providers will enter the pool chasing the BAL rewards.
4. Single side deposits and withdrawals enable wETH and ETH holders to enter the pool to earn a yield which will help restore the pool’s equilibrium.
5. veBAL voting influence converging on the wETH:wstETH pool is a great example of a community coming together to proactively help restore a tighter stETH peg and also boost Balancers TVL.

Given many communities have requested and were granted access to the whitelisted VotingEscrow contract, there is an opportunity for the Ballers to rally behind this proposal and ask those communities to support this initiative. This proposal does not cost veBAL holders anything and only requests veBAL holders vote to support the wETH:wstETH pool. The request is two fold, to help restore the stETH peg and to help grow Balancer’s TVL at a time when a competitor has seen great outflow and has fragmented its liquidity.

The next voting period starts on the 18th May 2022 and it is likely many have already voted this cycle. Those that haven’t already voted, have the ability to do so, and those that have already voted won’t be able to make any edits and will only be able to show support from the next voting cycle. Hopefully this grows the TVL now and then during the next voting cycle the additional veBAL votes and BAL rewards will be enough to further boost the BAL rewards and continue growing the pools TVL.

Next steps

Those that want to support this initiative, please reply in the comment section below. I am hoping to see a number of whitelisters rally at the opportunity given they only recently asked the community for access to the VotingEscrow contract.

The more communities that show support for this proposal, the more likely market participants will anticipate the boosted BAL APY and enter the liquidity pool. This is an opportunity to support Balancer grow TVL and help restore the stETH peg.

Sentiment Check

Should veBAL holders boost the wETH:wstETH pool ?

• For
• Against

Copyright

Copyright and related rights waived via CC0.

[solarcurve]

Lido can help themselves here by moving more or all LDO rewards to bribes instead of LM and publicly committing to a schedule of regular bribes on Hidden Hand. veBAL voters can only alter their votes every 10 days so having certainty that Lido will bribe on a weekly or bi-weekly basis with fixed amounts would likely lead to a lot more buy in from voters.

Also, don’t announce a bribe with two days to go until voting ends This is not enough time for voters to react and many are likely already on cooldown from earlier announced bribes.

[AaveCompanies]

The Aave Companies strongly support this proposal and want to take this opportunity to rally with the community to support the restoration of a tighter stETH / ETH peg and increase Balancer’s TVL. To demonstrate community support, the Aave Companies will direct a portion of their veBAL holdings toward the wETH:wstETH Pool.