Simplify and strengthen OETH

Summary

Transition OETH from an LST aggregator to an LST focused on peg stability and composability.

Background

OETH launched approximately 10 months ago to help users stack ETH faster. After three months of rapid growth, OETH TVL remained relatively flat until becoming a supported asset on EigenLayer. This key integration has since been a catalyst for OETH's continued growth allowing users to opt-in to restaking to earn additional rewards.

Meanwhile, LST aggregators and index products are generally not growing on an ETH basis. The market has indicated that it prefers simplicity and optionality over productized diversification.

OETH shines due to its security, higher yield, and peg stability. However, these features are not attributable to holding LSTs. Most of OETH's yield premium is generated by the Convex AMO strategy, which also serves as its primary peg-keeping mechanism. For each new LST held by OETH, a new de-pegging risk is introduced. This prevents OETH from supporting more and more LSTs as collateral.

Recommendation

There is an opportunity for OETH to become the killer LST. Rather than hold LSTs+ETH, OETH should consist of only ETH deployed to the Convex AMO and direct staking using distributed validator technology (DVT). This would allow OETH to continue generating higher yield than other LSTs (e.g. stETH and rETH) while offering better peg stability. This would simplify the product to make it more integration-friendly.

As a holder of OETH, I should not be concerned with how funds get allocated and what new smart contract risks are being introduced. I want to know that there is minimal risk of a potential exploit and that I can exit to ETH at any time without incurring a loss. This is key not only to individual holders but even more so for integration partners. Other protocols must be able to get at least the same amount of ETH out that they put in.

Next steps

If approved, this proposal would authorize the following:

• LST-based minting is disabled
• Strategists begin responsibly divesting LSTs held in the vault
• Resulting ETH is allocated to the AMO and/or Morpho
• One DVT solution is chosen for the initial implementation
• LST strategies are removed
• Redeem fee is removed
• AMO becomes fully automated and decentralized

Note that these changes may not all be in scope for the next iteration of OETH and that all protocol changes will go through decentralized governance and require an on-chain vote.

Remember

The future is inevitable. It's so ETH.