Forum Discussion

https://tribe.fei.money/t/fip-9-staking-eth/3331

Basic Summary

The following is a proposal to invest 10,000 ETH from PCV into stETH (represents ~4% of PCV).

Lido allows users to stake ETH on the Ethereum beacon chain to earn daily rewards. The stETH is a token that represents staked ether using Lido and is pegged 1:1 to the ETH. Its value is the result of initial deposit plus staking rewards less penalties. The daily staking rewards are paid in stETH.

Motivation

The main purpose of this initial investment into stETH is earning yield to grow PCV, which can help FEI Protocol to protect the peg and drive FEI utility and adoption.

Deploying a portion of PCV in a yield-bearing asset like stETH will provide PCV with another source of value appreciation, while remaining long in ETH and will strengthen our positioning in the stable coin business.

Liquid staking protocols, such as Lido, allow users to earn staking rewards without locking assets or maintaining staking infrastructure. Users of these protocols can deposit tokens and receive tradable liquid tokens in return. With Lido, users receive rewards (subject to penalties, if any happen) in the form of increased/decreased stETH balance in their wallets.

ETH2 staking rewards are appealing as the yields are interesting and reasonably predictable. From the available options for Fei Protocol to participate in ETH 2.0 staking, stETH has the following benefits: liquidity, low technical requirements for implementation, competitive fee structure, community governance, and increasingly, proven stability.

Lido has established itself as the third largest ETH depositor to the Beacon chain, only behind the centralized exchanges, Kraken and Binance.

The current APR after Lido’s fees in stETH is 5.9%, with ETH2 validator rewards currently sitting at 6.4%.

Our scenario and risk analysis of stETH are available in the forum post: https://tribe.fei.money/t/fip-9-staking-eth/3331

Specification

This proposal will add a new contract to the protocol: the EthLidoPCVDeposit. This PCVDeposit manages the movement between ETH and stETH. On deposit, it will choose the most advantageous between:

A. Direct staking on Lido (1:1 stETH for each ETH deposited), or B. A swap in the Curve steth pool (that can potentially give more stETH than ETH on trade).

Should we need to recover the ETH invested before ETH2.0 goes live, this PCVDeposit allows us to swap stETH back to ETH, again using the Curve pool. Today, a 10,000 stETH swap to ETH on the Curve pool gives 9,987 ETH, or 13 ETH of slippage, which should be around 10 days of yield farming from stETH.

The exact steps executed by this proposal would be the following :

• Move 10,000 ETH from the EthPCVDripper (currently holding ~140,000 ETH that stay idle) to the new EthLidoPCVDeposit.
• Deposit the 10,000 ETH to stETH either by direct staking on Lido or a Curve swap, depending on what’s more advantageous at the time of execution of this proposal.

Voting Rules

Voting will last 2 days. This is a non-binding signal vote. Please keep in mind that snapshot votes can be changed but not withdrawn until the end of the voting period.

The two options to vote on are:

• 10,000 ETH @ LIDO stETH
• No deployment on LIDO stETH

This is a single choice vote, if option 1 wins the majority, we will submit a DAO proposal 24h after the end of the snapshot vote.