wstETH/wETH vault

1) The Strategy The wstETH leveraged staking strategy aims to amplify wstETH’s staking yield by leveraging (6.5x) the amount originally deposited by recursively borrowing ETH, using AAVE as the core lending platform, and 1inch as the core swap aggregator.

  • Users may choose to deposit ETH or wstETH. The same choice applies upon withdrawal.

  • This strategy's total APY is equal to the differential between Positive yields minus the borrowing rate.

  • The positive yield comes from the Staking yield APR + Supply APR.

  • The negative yield comes from the Borrowing rate (APR).

  • The equation goes as follows: TotalAPY = 6.5 x (wstethStakingYield + wstethSupply APR) - 5.5 x (ethBorrowRate)

Important note: This strategy incurs swap fees upon creation and withdrawal (due to gas fees & swap slippage, mostly incurred upon withdrawal). Therefore, a breakeven time applies. Depending on the onchain swap rate and strategy APY, the breakeven time may vary from 5-15 days. Users shall be informed before depositing in the vault.

2) Workflow

The following workflows present the step-by-step processes taking place in the backend upon users’ deposit/withdrawal. All respective steps {A-F} are automatically executed within 1 block transaction. For the sake of clarity, let’s assume that 1 ETH = 1 wstETH:

A) Deposit (e.g. 1 ETH)

  1. 1 ETH is converted to 1 wstETH using Lido’s staking contract (or swapped, depending on which approach is more cost-effective);

  2. 1 wstETH supplied on AAVE V3 as Collateral;

  3. Using this collateral, borrow 0.7 ETH;

  4. 0.7 ETH is converted to 0.7 wstETH using Lido’s staking contract (or swapped, depending on which approach is more cost-effective);

  5. 0.7 wstETH supplied on AAVE V3 as collateral (total 1.7 wstETH);

  6. Repeat steps C, D & E until the position reaches 6.5 wstETH supplied as collateral on AAVE (6.5x). Since the user initially deposited 1 ETH, 5.5 ETH had to be borrowed in order to fully leverage his position.

The user ends up with 6.5 wstETH supplied, and 5.5 ETH borrowed.

B) Yield

Once the position is created, no further transactions are necessary for the yield to be generated*. As long as the borrowing rate doesn’t surpass the staking APR, the strategy will keep generating returns. Since the staking APR comes from Ethereum’s validation fees, unless Ethereum dies off, it is very unlikely to see this strategy become irrelevant. * The only extra execution possible is the readjustment of the collateral ratio in case of an extreme market crash. If the price of wbETH was to deppeg from ETH, this might cause a risk of liquidation to any active leveraged stakers. To prevent this risk, CIAN’s vaults come equipped with a liquidation protection mechanism that can partially deleverage the vault to counter liquidation. This specific mechanism is one of the prime reasons why institutions choose CIAN as an investment tooling platform.

C) Withdrawal (e.g. 1.1 ETH)

  1. Having 6.5 wstETH as collateral and 5.5 ETH borrowed, to return user’s assets, the ETH borrowed first has to be repaid. To do so, first withdraw a small part of the collateral (e.g, 0.5 wstETH);

  2. Swap 0.5 wstETH to 0.5 ETH on 1inch;

  3. Repay 0.5 ETH from the active debt;

  4. Repeat steps A, B & C multiple times until all the debt has been repaid, leaving 1.1 wstETH as collateral (profit: 0.1ETH).

  5. Withdraw the remaining collateral. 1.1 wstETH withdrawn to user's wallet, or, swap wstETH to ETH, and then send this ETH to user’s wallet (if the user prefers receiving ETH).

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