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Lido + Idle: Leveraged Yield and Deposit Protection on stETH

Lido and Idle collaboration to launch stETH Perpetual Yield Tranches.

Lido and Idle have collaborated to launch stETH Perpetual Yield Tranches (PYTs). This DeFi primitive provides users with two risk-adjusted financial products for ETH staking.

With more than 9 million ETH already staked and 280k+ active validators, and staked amount is constantly growing. ETH has now almost 20x more staked ETH than the amount required by the Ethereum Foundation at launch.

Lido represents one of the most popular and widespread liquid staking solution for ETH, and the integration of stETH into Idle’s PYTs now empowers Ethereum stakers to join protected staking or leverage staking yields. The bootstrap phase will initially last 4 weeks, with the distribution of 10,000 $LDO tokens per week to stimulate liquidity provision on stETH Senior Tranches.

The current stETH APR is approximately 1.8% on Senior Tranches and 8% on Junior Tranches. With the upcoming 40,000 $LDO incentives provided by Lido, returns will be higher than 5% APY with $20m in Senior Tranches TVL.

PYTs Overview

Perpetual Yield Tranches is a novel primitive developed by Idle DAO, released in production in late December after 2 audits (Consesys Diligence and Certik) and 4 months guarded launch phase.

Depositors into the Junior Tranches receive a higher proportion of the yield generated via Lido, but also take on extra smart contracts and financial risks. Inversely, the Senior Tranches receive a smaller portion of the generated yield but they’re in line to be repaid first in case of default.

This new DeFi product is flexible, with no locking period or epochs, and fully fungible — this makes it easy to be integrated into other structured products or protocols. Integrators now have the opportunity to offer different products to their final users depending on their preferred risk level.

PYTs are fully automated. The yield generated by stETH is accumulated and auto-compounded by the PYT directly. Users receive Senior/Junior Tranches Tokens which represent their share of the Tranches’ deposits.

Senior Tranches as an innovative solution to deposit protection

While insurance services are becoming popular among institutional and conservative DeFi users, they require payment in advance, users need to know how long they will deploy liquidity for, and they even might end up losing money if the generated yield is lower than paid premium.

Senior Tranches can be considered an innovative and more flexible way to receive protection on deposits, with no upfront payments and without the risk of negative returns.

DeFi protocols that integrated Lido as underlying yield source, current stETH holders, and ETH owners interested to generate passive income can benefit from the built-in protection feature on Senior Tranches with incentivized APY, or deposit into Junior Tranches to overperform the Lido yield.

What’s next

stETH PYTs is the first ETH product with a built-in protection mechanism, targeting a market segment with a conservative risk profile. With the rising interest of institutional capital for ETH in sight of the Merge in 2022, the need for a secure and sustainable yield will increase, thus the need for protection features.

The initial bootstrap phase will represent the first of a long series of potential joint initiatives, with the aim of working with DAO treasuries, collateralized stablecoin protocols, or CeDeFi applications, as integration partners for PYTs.

As part of the PYTs release plan, Idle organized a contest (aka, the Tranches Battle) to allow $IDLE token holders to select the next 5 assets to integrate, using Convex as the underlying yield source. And stETH is currently running as a potential candidate.

While the native integration via Lido enabled single-sided stETH deployment, the eventual integration of stETH via Convex would represent an additional gateway to provide liquidity into Curve and Convex, reducing slippage and improving the resilience against asset fluctuation.

Tranches Battle Finals started on January 31st.

Last but not least, Idle DAO is now discussing to route 990 IDLE/day into Senior Tranches, distributed using the Gauges model (Curve-like). stETH PYTs will also benefit from these incentives, strengthening the relationship between Lido DAO and Idle DAO.

About Idle

Idle DAO is a decentralized organization that builds financial infrastructure for Web3. Businesses of every size — from brand new DeFi protocols to public companies — use our protocol to optimize capital efficiency and manage their treasuries with DeFi.

We believe that everyone deserves the best for their idle funds, both in terms of returns and risks. Over the past three years, Idle has rolled out the features and services that now define a new category that we call ‘automated yield services’.

To learn more about our products and services:

About Lido

Lido offers simplified and secure staking for digital assets and liquid staking on Ethereum, Terra and Solana with more chains to come.

Lido users can stake their assets for daily rewards whilst also using staked tokens throughout the various DeFi mechanisms within the ecosystem for further compounding yields.

Lido also lets you use your staked assets to gain yield on top of yield. Use your tokens (which earn daily staking rewards) as collateral, for lending, yield farming and more.

Lido is governed by Lido DAO with an ever increasing number of contributors, participants and proposals about how to take the protocol into the future.

Get in touch

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