Expanding Beyond stETH: How To Use A Wide Range Of Different LSTs With The Lybra V2 Protocol
The Lybra Universe Is Expanding…
One of the most exciting aspects of the upcoming V2 version of the Lybra protocol is that it will allow users to deploy a dramatically expanded range of different LSTs (Liquid Staking Tokens) to mint eUSD. Where previously only Lido’s stETH could be used as collateral, in V2 it will be possible to use most leading LSTs, including the likes of Rocket Pool’s rETH, Binance’s WBETH, Swell’s swETH, and many more. For those new to the Lybra ecosystem, eUSD is an interest-bearing stablecoin that users can mint by depositing either ETH or LSTs as collateral. Unlike other stablecoins, simply by holding eUSD, holders can yield an interest of up to 8%. So, expanding the range of LSTs represents a big leap in Lybra’s mission to become the leading solution for maximizing the value of LSTs. This article is designed to guide you through how different LSTs will operate in the Lybra ecosystem to ensure you can start using them with ease as soon as the functionality goes live. But before we get to the how, let’s explain the why…
Why Lybra Is Expanding The Range Of LSTs It Supports
When Lybra launched its V1 protocol, Lido’s stETH was by far the most dominant LST on the market. Now, of course, it is still the biggest player with a 74% market share at time of writing. However, inevitably as the LST ecosystem matures, more and more LSTs are emerging. Therefore, for Lybra to deliver on its vision of being the go-to protocol for maximizing the utility and yields of LSTs, it is vital that eUSD can be minted against as wide a range of LST’s as possible. We want Lybra to be the home for all LSTs, where users can gain access to an interest-bearing stablecoin that maintains their LST exposure, optimizes their yields, and ensures liquidity for use in DeFi applications.
To do this, we’ve been hard at work revamping the protocol to make it compatible with a full roster of new LSTs. We’ve achieved this through a variety of technical innovations. The first of these innovations revolves around the introduction of different vaults and pools for different types of LSTs. So, to get you up to speed on how you’ll be able to make the most of the expanded LST options on Lybra V2, let’s start by diving into the new vault and pool mechanisms:
Lybra LST Vault & Pool Mechanisms
To understand why the creation of different vaults and pools is necessary to cater for the new range of LSTs on the Lybra platform, it is important to know that there is more than one type of LST on the market. Existing LSTs can broadly be grouped into two categories, namely Rebase LSTs and Non-Rebase (Value-Accruing) LSTs. For a deep-dive on the difference between the two, you can read our LSD Summer School articles on Rebase LSTs and Non-Rebase (Value-Accruing LSTs).
But in essence, with a Rebasing LST, the holder receives more and more LST tokens as their staking rewards accrue. So, for example, let’s say you hold a Rebase LST like Lido’s stETH. As your staking rewards accrue, you’ll receive more and more stETH to recognize the accumulated value.
Meanwhile, with a Non-Rebase (Value-Accruing) LST, each LST the holder owns increases in value as staking rewards accrue, meaning there is no need to transfer additional LSTs to them. So, for example, let’s say you hold a Non-Rebase (Value-Accruing) LST like Rocket Pool’s rETH. As your staking rewards accrue, your rETH balance will stay the same, but each rETH will increase in value.
To cater to these different types of LSTs, Lybra V2 will have individual vaults for the different categories of LSTs: one vault for Rebase LSTs, and another vault for Non-Rebase (Value-Accruing) LSTs.
Each vault will have a different minimum Collateral Ratio. The Collateral Ratio is the ratio between the dollar value of the LSTs you put up as collateral in the Lybra Protocol Vault and the dollar value of the eUSD that you minted. The Rebase Vault will require a minimum Collateral Ratio of 150%. Meanwhile, the Non-Rebase Vault will require a minimum Collateral Ratio of 130%.
Within each vault, there will then be individual pools for each specific asset. So, for example, within the Rebase Vault, there will be individual pools for stETH, swETH, BETH etc.. Likewise, in the Non-Rebase Vault, there will be individual pools for wBETH, rETH, wstETH etc..
To empower governance token holders and ensure a fair, decentralized process, decisions to list or remove individual LST assets will be decided by DAO vote. Similarly, the vault limit (i.e. the maximum amount of eUSD that can be minted for each asset) will also be decided by DAO vote.
Now that we’ve explained the vault and pool mechanisms, we can start to explore how the eUSD minting and loan repayment processes will work for assets in each of the vaults. However, in order to do that, first we need to introduce you to another exciting new feature of the V2 platform: peUSD (Pegged eUSD). peUSD unlocks omnichain functionality for the Lybra protocol and we’re pretty excited about it. Here’s why…
Introducing peUSD: A New Omnichain Version Of eUSD
On V2, Lybra will be introducing a new omnichain version of eUSD: an Omnichain Fungible Token (OFT) called peUSD. peUSD will bridge eUSD from the Ethereum mainnet to Layer 2s. This will allow holders to use their interest-bearing stablecoin holdings on any chain they want. Moreover, when swapping or spending for looping, users will maintain the ability to claim rebase yield when bridging back. All this adds up to a perfect fit solution for the LST ecosystem, which will inevitably move further and further towards omnichain models.
It also offers a wide range of new functionality on the Lybra protocol, as peUSD can be utilized for various DeFi purposes, including swapping, trading pairs, perpetual contracts, lending, or borrowing.
So, with an understanding of vaults, pools and peUSD in place, it’s time to get into the practicalities of how you will be able to use all this functionality. Once you’ve decided that you want to mint eUSD or peUSD using one of the new LST options on the protocol, this is how you go about it…
eUSD Minting & Loan Repayment Processes For Different LSTs
As you can see, the minting and loan repayment process for Rebase LSTs and Non-Rebase LSTs will be slightly different.
Holder of Rebase LSTs will be able to directly mint eUSD, whilst holders of Non-Rebase LSTs will be able to directly mint peUSD.
There are a few differences in how eUSD and peUSD function. peUSD also functions differently depending on whether you minted it directly from a Non-Rebase LST or converted it from eUSD. Here is a graphic explaining how it all works:
So, let’s examine how these differences play out in terms of how to make the most of the functionality that Lybra V2 offers. Because peUSD is an omnichain token and is compatible with most DeFi protocols, when an eUSD holder wishes to spend their holdings, they can convert it into peUSD. This can be done at a 1:1 ratio. But the most powerful feature of peUSD is that when you convert eUSD to peUSD you continue to earn yields on the underlying eUSD value. These yields can be immediately realized when you convert your peUSD back to eUSD.
So, taken in combination, eUSD and peUSD provide users with the best of both worlds. They can simultaneously receive interest on their stablecoin holdings, whilst freely deploying them in further yield-bearing applications on a wide range of DeFi protocols.
As for users who have minted peUSD directly from Non-Rebase LSTs, they can get all the omnichain benefits of peUSD, whilst being secure that their underlying collateral is still accumulating value in the meantime. This is because, as discussed earlier in this article, Non-Rebase LST tokens are designed such that they automatically increase in value as their staking rewards accrue.
The introduction of peUSD therefore creates a win-win for Lybra users. In doing so, it represents a big leap forward in Lybra’s vision for providing an interest-bearing stablecoin that allows users to maximize the value of all their LST holdings.
Conclusion
Lybra is excited to welcome more and more LSTs onto our platform as we continue to cement our place as a cornerstone of the emerging LSDfi ecosystem. We can’t wait for Lybra V2 functionality to go live so you can try it out for yourself. In the meantime, make sure you stay in touch with us for all the latest updates on:
Twitter: https://twitter.com/LybraFinanceLSD
Discord: https://discord.gg/mgyq3PhdJg
Website: https://lybra.finance/
Docs: https://docs.lybra.finance/
