Ecosystem Proposal: Vector Reserve (The LST Liquidity Layer for Metis - vETH and vMETIS)

Introducing Vector Reserve - The LST Liquidity Layer for Metis

Vector is a recently launched LST/LRT liquidity layer launched on Ethereum. Vector issues a new type of LST called a Liquidity Position Derivative (vETH). Our intention is to bring vETH to Metis AND launch an equivalent vMETIS LPD in order to become the de facto liquidity layer for LSTfi (and LRTfi) on Metis for both ETH and METIS LSTs (and LRTs). To explain how this would work for vMETIS we have provided an overview of vETH (as the mechanics would be the same).

How Vector Works:

vETH is an ETH-pegged token (like Lido's stETH for example) that is backed not by ETH, not by stETH (or any other LST) but by a mix of them, paired with each other as LP positions. Since the entire backing is made up of ETH and ETH-denominated assets, vETH cannot be left undercollateralized by ETH volatility. It is a product designed for people who want diversified, risk adjusted, optimized ETH yields, without sacrificing ETH exposure or risking Impermanent Loss (IL). What makes vETH so special is the diverse sources of yield it accrues:

1. The yield from the LP positions that underly it (trading fees, arbitrage and emissions).
2. The yield from the LSTs within the LP positions.
3. Superfluid Staking yield (when enabled by EigenLayer)

Because vETH derives yield not only from restaking but from LP positions, the yield on vETH should drastically outperform a standard LST or LRT, whilst also creating a highly liquid, tightly pegged and fungible asset for use across DeFi. Given the upcoming Metis sequencers and Metis LST adoption, the vETH model can be easily replicated for vMETIS creating a highly liquid, high yielding METIS derivative that can power LSTfi on Metis.

Regarding the Vector token (VEC), it acts as a value accrual token for the entire platform. VEC maintains a perpetually growing intrinsic value, similar to past iterations of "reserve currencies". However, unlike traditional reserve currencies, VEC accrues revenue from additional sources beyond merely bonding.

1. VEC is backed by vETH/ETH LP (and other relevant ETH denominated LPs) - meaning the intrinsic value is perpetually growing with yield accrued.
2. VEC sells bonds to acquire more vETH/ETH LP (or other accepted ETH denominated LPs) - growing the backing more rapidly.
3. VEC has a transaction tax that goes towards bribing for LP provision across various DEXs - rapidly scaling VEC liquidity.
4. 20% of yield generated by the vETH collateral reserves goes towards the VEC token, either as perpetual buyback-and-burn or by staking yield.

The future introduction of veVEC will enable veVEC holders to vote on and direct liquidity for the LST/LRT market controlled by Vector, leading to a strong liquidity and bribes market for liquidity akin to examples like Curve, Convex and Conic.

Vector On Metis:

We are proposing 2 things that can be very powerful on Metis. The migration/replication of vETH on Metis, and the creation of vMETIS. Both of these are well within our capabilities and we bring with us a number of significant partnerships to rapidly scale LSTfi on Metis.

1. We understand that the Metis team currently has a big focus on bringing LSTs (and LRTs) over to Metis to make it the home of Layer 2 LSTfi. To prevent fragmented liquidity this will require a solid liquidity layer that can build robust and sticky liquidity and DeFi (LSTfi) utility. On the side of ETH this is exactly what Vector and vETH can replicate on Metis as we have done on Ethereum mainnet.
2. Also the upcoming sequencers will create “METIS staking” and in turn a number of METIS LST derivatives. These two will need a robust liquidity layer to avoid liquidity fragmentation, help incentivize, acquire and direct liquidity and ensure it is sticky and scalable to create the platform for METIS LSTfi. Vector will replicate the vETH model by creating vMETIS, acting as a liquidity blackhole locking in deep, sticky liquidity for METIS LSTs etc., a market akin to an omnipool/bribes model for METIS LSTs, and a platform for the growth of LSTfi utility.

Benefits For The Metis Ecosystem:

Launching vETH and vMETIS brings a number of benefits:

• Bringing established partnerships with LSTs, LRTs and DeFi platforms to help rapidly scale LSTfi on Metis
• Solving the issue of liquidity fragmentation for ETH and METIS LSTs (and LRTs) by aggregating one liquidity layer under vETH and vMETIS respectively.
• Creating deep sticky, protocol owned liquidity to lock and rapidly scale TVL for Metis, with lowered risk of capital flight.
• Introducing an omnipool/bribes model to incentivise liquidity growth and create a robust set of liquidity pools for ETH and METIS LST trading.
• Creating a highly liquid ETH and METIS LST platform for adoption across DeFi including lending markets etc. enabling further TVL growth and scale.

Current Partnerships and Integrations:

Within one month of launch we have built an ecosystem with a number of blue chip partnerships and integrations across liquidity venues, LSTs, LRTs, and DeFi utility with plenty more to come:

• https://x.com/vectorreserve/status/1760339213294403913?s=20

This includes a high level of support from some key players in the space such as Balancer and Redacted:

• Balancer - https://x.com/Balancer/status/1760673085131518220?s=20
• Redacted - https://x.com/redactedcartel/status/1760045645585686697?s=20

Rapid TVL Growth

TVL breakdown can be viewed on the DeFi Llama link below, with a brief summary outlined below:

• Defi Llama: https://defillama.com/protocol/vector-reserve
• vETH TVL: $11,500,000
• vETH Cumulative Volume: $22,000,000
• VEC Treasury Backing/POL: $12,000,000
• Staked VEC: $22,000,000

We also have a detailed Dune dashboard giving an in-depth view on all protocol stats (please note this is in the process of being updated as add new collaterals and liquidity pools):

• https://dune.com/whale_hunter/vector-reserve

Security First Approach With Rigorous Audits

Please see the links below for our current Ethereum mainnet contracts as well as our current audits (with further audits and bug bounty campaigns planned). Note that any new contracts to be deployed on Metis would also be audited:

• Contract Addresses: https://vector-reserve.gitbook.io/vector-reserve/resources/contracts
• Quantstamp Audit: https://certificate.quantstamp.com/full/vector-reserve/68ff317c-7b13-4bdf-8245-9df1bc99f7cc/index.html
• George Hunter (Independent) Audit: https://github.com/GeorgeHNTR/portfolio/blob/main/reports/solo/Vector-Reserve-Security-Review.pdf
• Jacopod (Independent) Audit: https://github.com/JacoboLansac/audits/blob/main/solo/vector-reserve.md

Key Links:

See below for a list of important links with further information:

• Website: https://www.vectorreserve.com/dapp
• Docs: https://vector-reserve.gitbook.io/vector-reserve/introduction/what-is-vector-reserve
• Github: https://github.com/vectorreserve
• Twitter: https://twitter.com/vectorreserve