Reallocation of ETH into LSTs

SUMMARY

This proposal is to start deploying the majority of OETH’s ETH holdings into liquid staking tokens. This reallocation will allow the protocol to start earning a higher percentage of its yield from native staking rewards instead of OGV incentives.

BACKGROUND

The vision for OETH is to allow holders to stack extra DeFi yield on top of the native yield available with liquid staking tokens (LSTs). This DeFi yield should come from trading the LSTs on AMMs, lending LSTs on lending platforms, or harvesting the incentives that are offered by various DeFi protocols. In addition, the Curve AMO allows the protocol to more efficiently incentivize growth, maintain the peg, and grow its TVL. While we love the AMO and view it as a competitive advantage, it is clear that we have begun to rely too heavily on OGV incentives instead of the native yield that is readily available.

As of today, 76.73% of OETH’s TVL is held on the Curve AMO. This is way too much. Not only are we putting undue sell pressure on OGV, but we would actually earn more yield by deploying those funds into alternative strategies. The primary source of yield for OETH should not be from native yield instead of OGV incentives. Given the meteoric growth of OETH, you would reasonably expect that OGV would be performing well in the market. Instead, we have seen the price of OGV decline due to excess sell pressure from liquidity miners dumping their rewards. It is clear that governance intervention is necessary to drastically reduce our reliance on the Curve AMO and make the yield more sustainable.

OVERVIEW

If approved, this proposal grants the Strategists the authority to start moving ETH out of the AMO and deploying those funds into a mixture of the three supported liquid staking tokens. The Strategists will take into consideration the current centralization concerns around Lido, the superior yields available on Frax, and the market prices and expected yields available at the time of conversion. Given the current state of the market, it is highly likely that the Strategist will deploy the majority or all of the ETH into sfrxETH for maximum yield.

At the discretion of the Strategists, we will gradually reduce the vault’s ETH holdings to 25% or less of the total TVL over the period of 4 weeks. This move will cause a temporary drop in the TVL as funds are removed from the AMO. While this is unfortunate, it is critical that we take this step to move towards more sustainable yield sources.