Gearbox LLSDs: 10x DeFi-Native Leverage on liquid staking derivatives
A sustainable ±5% yield, proven on $25B worth of TVL size, a linear growth trend on the TVLl and significant scope to grow further — unheard of? Wish that was Gearbox… but no, not yet. That’s what ETH staking has been so far over the last 2 years.
While the yields hold true, the unavailability of ETH withdrawals has left a significant number of stakers scared. Now, with ETH Shanghai in March 2023, the stakers who locked their ETH back in December 2020 will finally be able to withdraw their 16.3M ETH from the Beacon chain.
With these withdrawals, new possibilities come in — but the problem with vanilla staking still remains the same: Liquidity. While you will be able to withdraw your assets to get liquidity after Shanghai, vanilla staking still doesn’t offer any instant liquidity or the ability to use your staked ETH across the DeFi ecosystem. So what happens to these ETH after the unlock? How is Gearbox relevant to this? And how can you use Gearbox’s Credit Accounts to capture this opportunity? Read below…
This article by decrypt is also a great source of understanding Shanghai. You can read below if only want a quick round up.
Why LSDs are important.
A significant part of the details below use data from stakingrewards.com and their “Staking Ecosystem Report”, available here.
1. Native ETH stakers looking for liquidity: solo stakers roughly hold 10M ETH. With LSDs offering a liquidity solution — a belief is there that a significant chunk of these could flow to LSD protocols — is getting stronger by the day. This is likely to be a major source of growth post Shanghai unlock.
2. New Stakers preferring LSDs: If you look at the trends, ETH staking through LSDs has reached it’s highest share in recent months with ~34% of all ETH being staked coming through LSDs, worth around $11.2B. This was as low as 11% during early 2022. LSDs cemented their preference further when earlier this year LIDO became the biggest DeFi protocol and it’s dominance in DeFi TVL reached 25%+. Coinbase staked ETH or cbETH comes in second at $1.77B.
3. Organic growth of ETH staking: If you look at the below graph, you can see how ETH staking has been increasing over the years with a sustained upwards trend. This should further be boosted as ETH withdrawals open up, making investors more comfortable with locking their ETH.
A parallel for this can be drawn through other chains. SOL, ADA, BNB, AVAX all have more than 60% of the native asset staked. TRON, MATIC and DOT are all above 40% as well. Meanwhile, ETH staking is still at just 14%.
So to sum it up, a push from existing solo stakers, a growing organic preference for LSDs for liquidity, and an overall increment in staking due to ETH withdrawal availability — is why LSD protocols are likely to see growth in TVL and utility over the coming times.
But where does Gearbox fit in here? How can you use Gearbox to make 15%+ APY & what are LLSDs?
LLSDs and Gearbox Protocol
LLSDs = leveraged liquida staking derivatives
Gearbox Protocol enables users to take up leverage through borrowing assets from its lending pools. Since the assets the users borrow are real, they can then further stake them across other DeFi protocols to access native leverage and earn leveraged APYs.
When you combine this with with LSD protocols, you can in turn utilize this to natively stake up to 10x ETH of your collateral to earn the staking yields. Of course, all while paying a borrow fee on your ETH.
One of Gearbox LLSDs biggest advantages is that it isn’t a whole new vault or automated strategy based product. Gearbox LLSDs are leveraged staking with real ETH and can be verified on contract anytime, is as easy as checking your Credit Account address on Zapper. See more in here.
What’s the source of the yields?
Don’t worry, it’s not you. Or maybe it is… The 15%+ APY on LLSDs that is possible is purely basis the sources of yields that ETH generates. Below is the rewards breakdown and how they are generated.
While the above components generate an average of 5% APY, Gearbox let’s you multiple the generated yield and get you to 15%+ using the exact same sources but with leverage. And that’s effectively how LLSDs work.
Gearbox LLSD strategies availability
In terms of LSD protocols today, Lido Finance, Rocket Pool, cbETH and FrxETH are the 4 most prominent protocols. Since Gearbox lets you access leverage natively on other protocols, the limitation on which protocols and pools/vaults can be accessed depends on risk assessment. Most LSDs are straightforward staking based, the risk of bad debt for Gearbox is under manageable parameters(As per Risk DAO) for most. But since frxETH and rETH from Frax and Rocket Pool currently don’t have a mainnet Chainlink oracle, Gearbox will enable LLSD access for 2 key LSDs
- LIDO
- cbETH: subject to DAO vote
If at any instance a Chainlink oracle becomes available for rETH and/or frxETH, a vote can be held. Any DAO member could create a pre-GIP and move to add them if determined safe enough to be added.
Interestingly, while Gearbox Protocol enables leveraged liquid staking of ETH, it does not compete with any of the existing LSD protocols. Gearbox effectively works as a base layer of leverage on these protocols and thus LLSD is a collaborative approach and not a competitive one.
Coinbase ETH LLSD
Coinbase’s cbETH or Coinbase Wrapped Staked ETH Coinbase is an ERC20 based liquid representation of a customer’s staked-ETH. cbETH has grown over time to become the second biggest LSD service after LIDO and today has a TVL of $1.77B.
The yield on cbETH at the moment is 4.87%. While borrow rates for ETH on Gearbox are 3.45%. Which means a 7X leverage could generate an APY of 12.79% on your LLSD position.
The APY goes beyond 15% at 10x but the risks outweigh the benefits, you should read the Leverage Bible before taking any positions to understand CA operations in depth.
cbETH Pre-GIP
The discussion to propose cbETH as a new addition is already live. You can read up all about it here and be a part of the discussion to help move the DAO forward. The initial goal of the discussion is to add cbETH to the AllowedList while more strategies for cbETH based on Curve and Convex can be added later as and when it’s technically feasible.
LIDO LLSDs
Lido and the below strategies are already a part of the Gearbox AllowedList approved back in October. You can deploy to the below LLSDs by signing up for Credit Accounts access. In fact, $31M of liquidity has already been deployed to them through Gearbox CAs.
1. Pure leveraged staking on LIDO
The stETH is what you receive when you stake ETH, with the ability to deploy directly on the LIDO protocol. At the moment, there’s about 8.3B$ of ETH staked on LIDO with stETH trading at 0.9913ETH. Currently, $18M of capital has been deployed from Gearbox to LIDO directly with leverage.
NOTE: stETH ideally is supposed to maintain a peg against ETH but market conditions can make it lose peg which can lead to your health factor dropping, this has previously happened and you should manage your risk accordingly.
But there is even hotter stuff…
2. Curve -> Convex stETHCrv
Convex Finance allows users to stake steCRV LP tokens into their vault, to farm LDO, CVX, trading fees, as well as boosted CRV rewards — without the need for users to lock-up CRV themselves. This is on top of the staking APY of stETH (the portion that remains as stETH inside the Curve Finance pool). At the moment the APY on the same is 5.1% which enables a healthy source of yield on your directional trades. A total of $13m of liquidity has already been deployed from Gearbox CAs to this pool.
3. Yearn stETHCrv
The Curve stETH yVault at 4.41% is another avenue for staking steCRV LP tokens, which is pretty good for an ETH farming strategy. In comparison, the vanilla WETH yVault is currently yielding 0.47%. Yearn has very similar sources of yield to Convex but unlike convex it sells off the rewards earned to then redeposit ETH/stETH into the vault.
The above strategies and assets are not limited in any manner, new assets and contracts can be added to the AllowedList at any time (as long as the code has been written + it goes through governance approval). So if there’s an asset that you want added to the Gearbox AllowedList, let us know in discord, or even better, start building it yourself as a contributor for a grant!
Deploy the easy UX way
We know, we know. As great the above APYs and the strategies sound, Web3.0 UX often leaves a lot to be desired. Which is why we have two powerful tools(One under audit soon) to help you earn 15% APY on your leveraged positions more easily.
1. Single Click Ready Strategies
Given that Gearbox is based on native staking on other protocols, it’d inconvenient for a user to constantly manage between levering up on Gearbox and then going to the native protocol to actually deploy the position.
To help with the same, devs have come up with single click ready strategies. One-click strategies do what the name suggests: open leveraged positions in your preferred pool/vault/protocol in just one transaction. Multicall feature of Gearbox essentially bundles all the complex [swap->LP->deposit] operations into just 1 transaction, also saving you a bunch of gas.
2. Gearbots: Automated Account Management on Chain (WIP)
Gearbots are automation contracts that let users execute a certain pre-determined action on the CA without having to manually operate at the time of the execution. These actions are similar to what most of the CEXes offer but are now being brought on chain through Gearbots. Examples:
- Stop losses/Take profit Bot: Pick an exit price point for your position and once the oracle reaches the input value, your position will be auto closed.
- HF management Bot: Want to ensure your HF is above a certain threshold at all times? Just set it in and the bot will auto deposit your funds to the CA in order to avoid liquidations.
- Strategy management Bot: Strategy management bots effectively enable you to move your funds from a strategy to another basis your priorities. Want to only farm above 15%? Switch it on and the bot will move you to the pool with 15%+ APY if your strategy drops below it.
Gearbots are likely to go live once the code for V2.1 goes into audit. This should happen around beginning of Q2 2023. You can watch the stream below to learn everything about them.
Summary
- ETH shanghai enables withdrawals of ETH;
- But ETH staking rewards offer sustainable APYs;
- LSD protocols enable liquidity while ETH is staked and could capture significant TVL because of that;
- Gearbox’s CAs can further create Leveraged LSDs with DeFi-Native 10X leverage;
- Earn 15%+ basis ETH staking sources of yield;
- cbETH and stETH to be added to cohort initially. rETH and frxETH as per Chainlink oracle availability and additional voting;
- Ready strategies can help you deploy in 1 click;
- Gearbots coming soon to help improve UX.
That’s all folks!
If you would like to join — just get involved on Discord. Discuss, research, lead and share. Call contributors out on their bullshit and collaborate on making things better. Here is how you can follow developments:
- Website: https://gearbox.fi/
- dApp: https://app.gearbox.fi/
- User Docs: https://docs.gearbox.finance/
- Developer Docs: https://dev.gearbox.fi/
- Forum: https://gov.gearbox.fi/t/start-here-forum-rules/
- Blog: https://medium.com/@gearboxprotocol
- Github: https://github.com/Gearbox-protocol
- Twitter: https://twitter.com/GearboxProtocol
- Snapshot page: https://snapshot.org/#/gearbox.eth
- And, of course, the DAO working docs:
