UIP-8: Onboarding wstETH as New Collateral for ETH0

UIP-8: Onboarding wstETH as New Collateral for ETH0

Overview

This proposal seeks to expand the Usual Protocol by onboarding wstETH (Lido’s wrapped staked Ether) as underlying collateral for ETH0 – a new synthetic ETH asset (LDT). In line with the governance framework, the DAO has the authority to approve new collaterals for LDTs. ETH0 would be the first new LDT, backed 1:1 by wstETH deposits. Upon approval, users will be able to mint ETH0 by depositing wstETH, and redeem ETH0 back for wstETH, interacting directly with Usual DAO smart contracts. This addition is aimed at increasing protocol TVL, diversifying collateral, and capturing staking yield for the benefit of USUAL holders without introducing undue risks.

Motivation

Addressing Growth Limitations: The launch of ETH0 is driven by the need to unlock new growth and utility for Usual. USD0 and USD0++ offers no exposure to crypto market appreciation. This has left a gap for users who seek yield and upside exposure within the Usual ecosystem. By introducing ETH0, the protocol can attract new deposits and expand TVL. It gives users a way to stay in the Usual ecosystem while holding an ETH-aligned asset, thereby diversifying the product offering and addressing the demand for a yield-bearing, market-exposed asset.

Rationale for wstETH as Collateral: wstETH is proposed as the backing collateral for ETH0 due to its strong security and stable yield profile. It was selected by the Usual team as the initial and sole collateral for ETH0 launch. This asset adheres to the collateral standards outlined in the Usual whitepaper for new collateral onboarding, specifically meeting the criteria of security, integration, liquidity, and yield:

• Security: Lido’s stETH is a battle-tested asset securing the Ethereum network, with a robust track record and audits. It currently has a Total Value Locked of over $22 billion, reflecting broad adoption and a “Lowest risk” rating in DeFi evaluations.
• Yield: wstETH accrues Ethereum staking rewards (approximately 3–4% APR) automatically into its value. This means any wstETH held as collateral steadily grows in ETH value over time. By integrating wstETH, the protocol can capture this consistent onchain yield and contribute to Usual’s revenue streams.
• Integration Ease: wstETH is a token widely used across DeFi with many tooling, making it straightforward to integrate as collateral.
• Liquidity: stETH/wstETH is among the most liquid staking derivatives. This ensures fast minting and redemption operations – users can obtain wstETH or swap out of it in size, and in worst-case scenarios can directly redeem stETH for ETH via Lido.

In summary, wstETH offers a well-balanced collateral choice that aligns with Usual’s risk framework and growth ambitions. By approving wstETH as collateral for ETH0, the DAO will exercise its authority to broaden collateral eligibility in a responsible manner, fueling protocol growth while upholding the security and stability of the system. This move also reinforces the value proposition of the USUAL token by creating a new revenue source and synthetics.

Specification

Collateral Onboarding – wstETH: Upon approval, wstETH will be formally added as an eligible collateral asset in the Usual protocol. The DAO’s smart contracts will be configured to accept wstETH deposits and hold them on behalf of the DAO. WstETH will initially be the only supported collateral for ETH0.

ETH0 Token – Minting & Redemption: ETH0 will be a LDT that represents a claim on the deposited wstETH collateral, maintaining a 1:1 peg (in value) with staked ETH. The DAO will serve as the custodian of all wstETH collateral and the issuer of ETH0. The mechanics of minting and redeeming will mirror the framework used for USD0:

• Minting ETH0: Users will send wstETH to the designated collateral contract. For each 1 ETH worth of wstETH deposited, 1 ETH0 will be minted and delivered to the user. This increases the circulating supply of ETH0 and simultaneously increases the DAO’s wstETH holdings. Minting is not subject to any fees.
• Redemption of ETH0: Users can redeem ETH0 at any time for the underlying collateral, invoking the reverse process. When a holder returns 1 ETH0, the DAO will burn that ETH0 token and release the equivalent amount of wstETH back to the user. A redemption fee (5 bips) is applied to protect the treasury from oracle update exploits.

USUAL Reward Distribution: Importantly, ETH0 holders will earn USUAL token rewards, aligning with the protocol’s incentive model. Initially, ETH0 will receive USUAL distributions in parallel to USD0++, drawing from the same allocation that was originally set aside for USD0++ stakers. In practice, the total daily USUAL emission for locked assets will be split proportionally between USD0++ and ETH0 based on the collateral dollar value of each asset.

ETH0 rewards paper

Currently, ETH0++ is not yet launched, so all ETH0 in circulation will be liquid and eligible for these rewards. Once ETH0++ is introduced in the future, the reward scheme will be adjusted – direct USUAL rewards for ETH0 will cease, and instead users will be able to opt-in for ETH0++ to continue receiving rewards. This approach has been deemed a simplified, conservative interim solution to incorporate a second asset into rewards without delaying ETH0 launch. It bootstrap the ETH0 TVL, paving the way to Usual ETH future products.

**Revenue Handling ** By onboarding wstETH, the protocol will begin accruing staking yield. This revenue (in ETH0) will eventually be distributed to USUALx stakers through the existing revenue-sharing model, similar to how revenue from USD0’s interest is shared. Initially, to ensure stability, the team may hold off on immediately distributing the ETH0 yield. Once fully integrated, USUAL stakers would effectively earn a share of ETH staking rewards on top of RWA yields, increasing the attractiveness of staking USUAL.

Implementation

Please find the implementation plan:

• Contract Updates: The development team will update the DAO Collateral Contract (or deploy a new Daocollateral contract if required) to support wstETH and future LSTs. This involves whitelisting wstETH as an accepted collateral token and setting up the necessary oracle feed for its price (utilizing Lido's onchain oracle to compute the primary wstETH/stETH/ETH rate ). Smart contract parameters such as may be introduced according to the risk team’s recommendations (ex: setting an initial caps for wstETH and switch to no limits). All contract changes will be thoroughly tested and audited before deployment.
• ETH0 Token Deployment: The ETH0 token contract will be deployed (if not already pre-deployed by Usual Labs) and configured to be mintable/burnable by the DAO’s systems. ETH0 will follow the ERC-20 standard. The token’s metadata (name, symbol, etc.) will be set to reflect it is a Usual product (likely “ETH0”). The contract will enforce that only the DAO can mint or burn ETH0 against wstETH collateral.

Audit (final versions coming in next days)

• FO/BE Integration: The Usual app and backend services will be updated to add a new ETH0 product interface.
• Initiation of Mint/Redeem Flows: After deployment and integration, the minting and redemption functionality for ETH0 will be activated. The DAO will call the necessary functions to begin accepting wstETH deposits and issuing ETH0 with a bigger cap.
• USUAL Reward Distribution Setup: The governance token distribution module will be updated to include ETH0 in the daily reward calculations. The team will implement the proportional split of the USUAL rewards pool between USD0++ and ETH0. This may require deploying a minor contract upgrade or simply configuring an existing allocation controller.
• Revenue Capture & Distribution: The DAO Treasury module will begin capturing the staking yield from wstETH. Initially, the additional ETH value gained may simply accumulate within the wstETH. Periodically, the DAO will mint the ETH0 amount corresponding to the yield into a reserve or treasury address. The first distribution including ETH0 will take place when ETH0 end its bootstrap phase.
• Risk Management and Monitoring: The risk team will continuously monitor the health of the ETH0 system. This involves tracking the peg of ETH0, the liquidity of ETH0 on exchanges, and the performance of wstETH. Any anomalies, such as a significant deviation of ETH0 price or issues with wstETH withdrawals, will be reported to governance. The DAO may introduce additional safeguards, like pausing, if needed.

By executing the above steps, the Usual DAO will successfully onboard wstETH as a new collateral asset that can be converted to an LDT. We recommend YES on UIP-8 to activate wstETH as collateral for ETH0 and start the next phase of growth for Usual Protocol and its stakeholders.

Voting Procedure

Eligibility

• Both USUALx and USUAL* holders are eligible to vote, with each group holding a 50/50 voting share on this proposal.

Voting Mechanism

• The proposal will be decided by a simple majority vote.

Vote Options

• Yes – Approve the proposal
• No – Reject the proposal
• Abstain – Participate in the vote without expressing a preference

Voting Period

• The vote will be open for 24 hours.

Proposed by

Usual Labs Core Contributors 2025-06-09