Introducing baoETH: An ETH-Pegged Stablecoin to unlock lower ETH borrow rates

Unleash the power of your staked ETH with market-leading borrow rates, amplified staking returns, and the freedom to spend while you earn!

Welcome back, Dumplings! This is article number two in our two-part series dedicated to unveiling our fresh, innovative products designed to supercharge your staked ETH. Missed the first one about our staked ETH basket, bETH? No worries! You can catch up right here: https://medium.com/baomunity/bao-finance-unleashes-beth-the-ultimate-power-up-for-your-eth-staking-game-48c75d9858bd

The Liquid Staked Derivative (LSD) market has been a hotbed of action of late. Thanks to the recent Shanghai upgrade, which activated the withdrawals for staked ETH, we’re seeing a tidal wave of liquidity flooding into LSD providers. But, there’s a roadblock standing in the way of the true potential of ETH LSDs. Let’s dig into that.

The Problem

With withdrawals now in play, the risk of an ETH LSD (like stETH and rETH) depegging has significantly diminished as LSD tokens can now be redeemed for the underlying ETH.

This has sparked a rise in the ETH borrow rate — yield hunters have narrowed the gap between the ETH borrow rate and LSD yield rate to a sliver, making it challenging to leverage staking yield with minimal risk.

The limited supply of ETH for deposit creates a dynamic where a small gap between the ETH staking APR and the borrow APR is inevitable. Why would anyone deposit ETH to lend when they can just as easily stake it and earn more?

The Solution: baoETH

baoETH addresses the liquidity crunch for ETH deposits by removing the need for users to deposit before someone else can borrow. Unlike traditional ETH borrow rates, baoETH’s rate remains undeterred by the fluctuations of ETH deposits. This is because the volume of baoETH available for borrowing is governed by our Bao community. They strive to maintain a borrowing rate that’s more attractive than other lending markets to incentivise borrowing and maximize value for veBAO holders, who earn the interest paid from borrowing.

Instead of staking via stETH or rETH then borrowing ETH, deposit ETH into bETH — our innovative, diversified basket of LSDs, and use it to mint baoETH. It’s like a cheatcode for DeFi, bypassing the conventional limitations of lending and staking. The bonus? You get to enjoy this with minimized risk, courtesy of the diversified nature of bETH.

With baoETH, you get to enjoy the fruits of your labor (in the form of staking rewards) and also borrow against them. You can now leverage your staking yield without worrying about the narrowing gap between the ETH borrow rate and LSD yield rate.

baoETH Strategies

• Multiply staking rewards. Deposit bETH into the vault, borrow baoETH, and swap it for more bETH. Repeat to increase your multiplier. With a Maximum collateral factor of 90%, bETH holders can multiply their staking rewards up to 10x!
• Earn a yield on ETH you spend. Deposit bETH, earning around 4% APR. Borrow baoETH at 1% vAPR and spend it. Congratulations, you are now earning 3% yield on the ETH you just spent. Nothing stops you from doing this with all the value you ever spend and earning a yield on a lifetime worth of spending! (of course, use caution when trying out new defi products such as baoETH!)
• Earn a yield while you short ETH. Deposit bSTBL earning around 2.5% APR and borrow baoETH to sell. With your proceeds, you can purchase more bSTBL to increase leverage.
• Earn a yield while you earn a yield. Deposit bSTBL or bETH and borrow baoETH to deposit in the baoETH/ETH liquidity gauge and earn additional Bao tokens.

You can mint baoETH here: https://app.bao.finance/vaults/baoETH/

As we wrap up this exciting journey, remember, the recipe for success in this space involves a good helping of innovation, a sprinkle of risk management, and a dash of fun. baoETH is our latest culinary creation to help you get more out of your staked ETH — Step into our kitchen and give it a whirl.

We’ll continue to cook up more delectable solutions — so stay tuned! There’s already more simmering on the stove. Whether you’re a newbie still navigating the DeFi universe, or a seasoned yield farmer, we’re here to make your journey more efficient and exciting. As always, remember to stay safe and ‘Bao On’, Dumplings!