[RFC]: Restart Enzyme vault & diversify ETH across staking providers - continued

Last call for comments, review period: 19–25 June
Snapshot signaling vote: Open for voting between 26 June until 3 July.

[RFC]: Restart Enzyme vault & diversify ETH across staking providers - continued

Hi all, @moss @elisafly, @buendiadas @gainzley here, posting from Avantgarde Treasury (the Treasury Management arm of Avantgarde Finance).

This second RFC marks the second significant governance milestone following the first RFC we shared on March 30, 2023. Having gathered feedback from community members, we are excited to present a formal improvement proposal that aligns with the specific needs and requirements of Nexus and follows the new guidelines stemming from the investment philosophy 2023 review and investment proposal template.

In terms of strategy, our objectives encompass maintaining a consistent long exposure to ETH, earning rewards through ETH native staking, and mitigating various risks through diversification, due diligence and continuous risk monitoring.

Our proposed approach involves deploying the ETH currently held by Nexus on the Enzyme vault to a carefully selected group of ETH native staking providers. These providers consist of diverse node operators, offering exposure across different geographies, regulatory jurisdictions, and operational setups. For a more comprehensive overview of operational risks, diversification goals, and benchmark results, we invite you to read our detailed report.

To provide this important a-priori due diligence and ongoing monitoring services, Avantgarde proposes a total AUM-based annual flat fee that we consider very competitive when compared to LSTs fees and taking into account the premium nature of this service.

Staking has evolved into a vital pillar of the Ethereum ecosystem. Failing to embrace diversified staking practices would result in the DAO diluting its potential and neglecting its contribution to overall network security and decentralisation. The importance of diversifying Ethereum staking providers cannot be overstated, as it serves to mitigate risks associated with staking. Relying solely on a limited set of staking providers exposes one to potential economic penalties, operational disruptions or regulatory crackdowns.

To illustrate, consider the scenario where you rely on a solitary staking provider utilising a hosted service that receives a directive to cease its services to crypto companies. Such an event would lead to severe penalties for both Nexus and the network. It is imperative to thoroughly assess and evaluate these types of risks, implementing specific mitigation measures programmatically to ensure the ongoing stability of treasury management.

By adopting a diversified approach to staking providers, Avantgarde can proactively safeguard Nexus against such contingencies, thereby fortifying the continuity of its Capital Pool in the long run.

Regarding infrastructure, our aim is to establish direct connectivity with staking providers via the existing Enzyme vault while leveraging audited smart contract integrations. This job would qualify as low risk as per the risk scorecard defined in the investment philosophy since we avoid complex layering of protocols and associated risks. More details on that in the specific paragraph on risks.

Another advantage of this choice is the utilisation of the Proof of Reserve Chainlink Oracle, a custom development effort that our team carried out for Nexus in 2022, which allows Nexus Mutual smart contracts to know the exact value of the investment in real time.

The proposal aims to achieve discretionary and risk-managed native staking through the establishment of a carefully curated library of selected node operators, coupled with a dedicated risk monitoring infrastructure. A concise summary of the report outlining this approach to discretionary ETH can be found in the image below.

Criteria Objective Key Result
Past track record Identify history of uptime, security incidents, and other operational metrics that can affect the likelihood of future slashing. Aiming at having a portfolio of providers with no major security incidents and min. participation rate of 99.5%
Provider diversification Mitigate risks related to a single provider while promoting decentralization of staking services Aiming at having a portfolio of minimum 5 different providers (aim at 10 longer term).
Geographic location Mitigate regulatory, operational and natural disaster risks by diversifying across different geographies. Aiming at having a portfolio of providers hosting from at least 3 world regions initially and growing to more than 5 longer term.
Operational setup Mitigate risks associated with server/hosting risks in particular. Aiming at having a portfolio which diversifies across server setups.
Fees & rewards Improving standard commercial terms while ensuring best-in-class service. Aiming to strike commercial terms that are more competitive than LSTs like Lido or Rocket Pool (<10% fees)
Risk monitoring Mitigate potential risks, such as withdrawal process and maintain the DAO up to date with risk metrics Aiming at creating and improving a specific risk matrix for staking providers and having an alert system in place.
Consensus client Mitigate downtime risks coming from single consensus client Aiming at not having more than a 50% of nodes running on a single consensus client

This active framework brings significant advantages to the Mutual by offering a complementary diversification strategy that extends beyond Liquid Staking tokens alone.

The Mutual cannot get direct exposure to emerging LSTs tokens that do not have a price oracle or sufficient liquidity on-chain. This limitation also affects Enzyme, which relies on Chainlink for its secure price feeds. So the suggestion made by @GordonGekko in his latest comments is unfortunately not viable. Nevertheless, the true value of this proposal lies in Enzyme’s ability to provide direct accessibility to a diverse range of node operators while ensuring a consistent Proof of Reserve in ETH across all staking positions. This audited on-chain formula plays a pivotal role in computing the exact value of the investment in real time and the important comparison with the Nexus MCR, thus making it a key element of the overall yield-seeking treasury program.

After consulting with the Nexus Investment committee the proposed approach is to start with a 50% allocation of the currently idle WETH to Kiln (6,624 ETH rounding up increments of 32 ETH) and leave the rest idle for the moment until Stakewise V3 is successfully integrated and audited (ETA mid July 2023).

For full details on the risk monitoring and mitigation measures, please refer to the full report here. The table below is a high-level summary of the report.

Staking risks Risk definition Key Mitigation
Client Concentration Bugs in a validator client could be exploited to make inaccurate attestations. Build monitoring infrastructure, diversify investments based on client balance.
Slashing risk Penalization for negligence or malicious validation Select high-performing node operators, exclude inconsistent ones.
Centralization risk SLAs may not include all possible unfavourable circumstances Choose reliable service providers with clear SLA terms.
Liquidity risk High demand to withdraw ETH. This results in a long withdrawal queue Monitor closely staking and withdrawals, mitigate liquidity risks.
Regulatory risk Regulators could introduce new rules that could negatively impact the staking operation Diversify staking across regions, avoid hostile regulatory environments.
SC risks
Risk of hacks & exploits Risk of loss due to potential bugs or hacks Avantgarde maintains a strong security track record through audits, monitoring, and in-house expertise.
Staking connectors risks Risk of a validator refusing to unstake and taking funds hostage Using sharding to distribute both validator and exit signatures across a network of oracles.
Oracle risks Risk of oracle being compromised or manipulated Exploring extra providers for diversified on-chain price feeds.
Contract Upgradeability Risk of unwanted or forced upgrades of the contract version Enzyme users have discretion in adopting upgrades with an opt-in option.
Governance risks Risk of adverse decision from the governance body Enzyme Council acts in the user’s best interest and can’t impact vault owners’ code. Users responsible for upgrades and instant share redemption if needed.

In terms of engineering efforts, the most efficient path to achieving our stated goal is through Kiln, a fully integrated and audited solution, combined with the integration of Stakewise V3.

This extra integration will grant us a permissionless approach to engage directly with different validators, opening up numerous direct staking opportunities. We anticipate including this protocol in our upcoming audit slot scheduled for July 2023. This timeline aligns seamlessly with our objectives and provides time to start developing the required research library for the initial portfolio and establish the necessary monitoring infrastructure, a task estimated to be completed within conservatively 6 months starting from the successful implementation of this proposal.

Furthermore, the involvement of the Mutual’s Engineering Team is not anticipated, ensuring their undivided focus on current priorities at hand.

To provide this important a-priori due diligence and ongoing monitoring services, Avantgarde proposes a total AUM-based flat annual fee of 0.3% (inclusive of protocol fee). This fee would be ongoing and no set-up fee is required in the context of this proposal.

At the current rate of staking APY%, this fee would correspond to about 6% of the annual staking rewards accrued. We consider this management fee + native node operators’ fees to be very competitive when compared to LSTs fees and to be in line with the requirements expressed by the Mutual in response to our initial RFC. This is especially true when taking into account the premium nature of this dedicated discretionary service.

As an important premise, ETH is considered the “cash” asset, therefore the fluctuations of ETH in USD terms do not affect the pessimistic or optimistic scenarios. For simplicity, we just assume that the price won’t change over the simulation period. Also, for simplicity we consider the projections made with Kiln as sole provider when in fact a combination of Kiln and Stakewise V3 will be included in the scope of this proposal.

Expected Scenario

  • Staking ratio of 30% (increasing from the current level of approx 18%)
  • Effectiveness rate of 96%
  • Attestation Participation Rate of 99.5%
  • Annual fixed costs of 0.3% AUM

Source: Staking Interest Calculator | Staking Rewards

Pessimistic Scenario

  • Staking ratio of 50% (increasing from the current level of approx 18%)
  • Effectiveness rate of 93%
  • Attestation Participation Rate of 98%
  • Annual fixed costs of 0.3% AUM

Source: Staking Interest Calculator | Staking Rewards

Based on the list of risks laid out in the investment philosophy, and the fact that the capital allocated on the Enzyme vault is less than 10% of the capital pool, we believe this strategy qualifies for the lower risk category.

Risk Score Lower Risk Medium Risk Higher Risk Comments
Illiquidity Risk :black_circle:◯◯ Can be liquidated in 72 hours or less Can be liquidated in 7 days or less Liquidation takes more than 7 days Locking up capital for periods of time presents risk to the balance sheet should the mutual need those funds to pay claims. Note that the risk buckets here refer to liquidity in non-stressed scenarios. Stressed scenario liquidity is also a consideration but difficult to quantify.
Basis Risk :black_circle:◯◯ ETH denominated High to medium correlation with ETH Little to no correlation with ETH The balance sheet is largely ETH denominated. ETH and DAI are effectively ‘cash.’ Investing in other tokens introduces basis risk.
Protocol Risk (DeFi Safety Score) :black_circle::black_circle: DeFi Safety Score >=80%; simple design DeFi Safety Score >=80%; Newer protocol; composability (2 layers) DeFi Safety Score >=70%; 3 or more protocol layers Putting funds in a vault or liquidity pool to earn a yield opens up our funds to risk of loss from smart contract hacks.
Liquidation Risk :black_circle:◯◯ No liquidation risk Max 20% expected loss in liquidation 20%+ expected loss in liquidation In the case of lending, Nexus collateral could be at risk of liquidation
Leverage :black_circle:◯◯ No leverage 10% net leverage 10%+ net leverage Leverage may either be an explicit component of a particular strategy, or embedded leverage (Options, Futures, etc.)
Counterparty Risk :black_circle:◯◯ 20% exposure to a single counterparty or less 20%-30% exposure to a single counterparty 30%+ exposure to a single counterparty Other additional qualitative & quantitative measures of counterparty risk may be used to assess investments & managers
Economic risk :black_circle:◯◯ Negligible possibility of loss as a result of investment Limited loss possibility Unlimited loss possibility Some investments may result in losses on a short term basis, e.g. impermanent loss.

Regarding protocol risks, we believe this job still qualifies as low risk since we avoid complex layering of protocols and associated risks. Kiln and Stakewise V3 have a simple design that is not comparable to composable strategies through complex smart contracts. You can find more info about Kiln’s security here Stakewise V3 here.

In terms of governance risks related to the future versions of the Enzyme smart contract, the vault upgrades are never forced upon vault owners, they are simply recommended when a new version becomes available. Each vault owner must proactively opt-in in order for the upgrade to take place so there is no scenario where users are coerced into the contract migration. Read more here.

Given the rapid increase of the deposit queue, we urge the Mutual to move the proposal swiftly through the governance process in order to limit the additional lead time the activation process will take before it starts to generate actual rewards.

As always, we are very happy to have the opportunity to support Nexus and we remain open to any additional feedback before we move on to the next phase. :muscle:

Proposal Status

This RFC was posted on 7 June, and the Investment committee has issued a last call for comments during the next week (19–25 June)!

They want to hear your feedback and comments on this RFC before a non-binding Snapshot signaling vote is opened to gauge member sentiment regarding this RFC proposal.


Edit: @BraveNewDeFi added the proposal status and timelines for review, per @Rei’s message in the thread below.

Edit 2: @BraveNewDeFi updated this RFC to include links to the non-binding Snapshot signaling vote at the start of this RFC and in the Status section.

Small edit made to the RFC in order to correct a few typos and change a wrong link.

Thanks @Moss for putting this together.


I’d suggest the following governance process from here:

  1. Two simultaneous snapshot votes:
  • Do we want to allocate 6,624 ETH from the Enzyme vault to the Kiln solution? Y/N

  • Do we want to allocate the remainder of the ETH in the enzyme vault to Stakewise V3 when live on a set of operators chosen by Enzyme?

  1. If the snapshot votes have a successful outcome, create an NMPIP for an on-chain governance vote to allow implementation of the investment allocations & make a decision on what to do with the idle funds until Stakewise V3 (possibly via more signalling votes)

If either/both are unsuccessful, we can have a follow-up snapshot vote on alternatives, including withdrawing the funds.

Happy to work with yourself and @BraveNewDefi to come up with wording for the snapshot votes as a next step.

Personal view on proposal


I’d be supportive of allocating 50% of the current Enzyme vault balance to Kiln as per your proposal – I think the risk/reward/fees balance is good, they’re a well rated operator & an allocation in my opinion would represent a good use of those funds.


My understanding is that these funds are included in the 0.3% AUM fee even while “idle” in WETH – would you be willing to waive the fee on the inactive portion of the assets until they are invested?

If not, there’s a strong case for withdrawing the funds at least until Stakewise V3 is live, assuming the members want to go ahead with that option, as uncertainty remains around how quickly the investment can start earning a return.

You may be aware that Nexus Mutual has a longstanding relationship with Stakewise (they were our first buyers of ETH Staking Cover) & there have since been ongoing conversations about staking ETH with them. There was also a reasonably well-received investment proposal back in May ’22 which was put on hold as we awaited Stakewise V3, and I would anticipate that Nexus Mutual will choose to allocate directly to either a Nexus Mutual-chosen set of validators or osETH, depending on the technical ability for Nexus Mutual to create a vault ourselves & deposit capital pool funds in it.

Where Enzyme would add value here is providing an alternative set of validators vetted by your process to those chosen by Nexus Mutual, or a lower fee than osETH.


Hello @Rei, thanks for your positive feedback, looking forward to seeing this go to Snapshot!

Regarding Fees:
Since protocol fees are now set at 25 basis points (bps), we will need to consult with the Enzyme Council on how we can adjust and facilitate this. However, we do not anticipate any issues accommodating your request given the situation outlined. We will confirm this at the next Enzyme Council meeting and outline proposed next steps to achieve a lower fee until Stakewise V3 is available.

Regarding Stakewise:
In the May '22 proposal you refer to, Enzyme was put forward as a key component of the implementation plan. As a result, we assumed it would be utilised due to the savings in engineering efforts vs a direct integration with Stakewise. Nevertheless, we acknowledge that employing Enzyme is not strictly an alternative; rather, it can be viewed as a complementary allocation, contingent upon our ability to propose the level of value through the diversification desired.

Excited to work on next steps! :muscle:

1 Like

Hi everyone,

We are aiming to take this to a series of signaling votes on Snapshot. The votes will go live in 7 days (on 2023/06/26).

Please post any additional comments in this thread ahead of the votes on 26th June.

As we approach the back end of this week, the investment committee will coordinate with the original proposer to craft the wording & select options for the signaling votes, also incorporating any new comments from the community.

If the signaling votes show a positive outcome, the next step will be to work with the original proposer and the engineering team to put forward an NMPIP that would implement the investment via on-chain vote.


Thanks for the detailed proposal @Moss !

My thoughts:

  • Overall, I’m supportive of using the Enzyme vault for direct ETH staking, as this isn’t something we can easily access from the existing capital pool.
  • Specifically, I’m supportive of the Kiln allocation component.
  • On Stakewise, I’m supportive of the allocation but there are a few outstanding points that can’t be decided yet, such as a) when exactly should we allocate given it’s not live yet and b) which operators should we choose. Given this I’d be supportive of a snapshot vote that delegated these choices to the Investment Committee.

Update after a direct conversation with @Moss following committee discussions & allowing for above comment from @Hugh

Because of:

  • The expectation that go-live on Enzyme’s Stakewise V3 integration is less than a month away
  • Confirmation that Enzyme fees can be waived on the portion that is not invested

we agreed to have the necessary votes with up-to-date options on the Stakewise v3 portion closer to the time.

Unless there are strong objections from the community, suggest we keep Monday’s snapshot vote to only the Kiln allocation component.


Thanks Hugh, couldn’t have put it better!

I also think the Avantgarde team has been very thorough with their proposal!

Regarding Kiln, I met the team a few times the past 2 years (management & engineers) and can attest to their professionalism.

As Rei pointed out :point_down:, their onchain performance is very good, plus they’re relentless at integrating with the strongest actors of the ecosystem (custodians, wallets, aggregators…)

As for the other half of the investment, waiting for Stakewise V3, I think you’re making a valid point with this suggestion here


Snapshot signaling vote

The non-binding signaling vote for this proposal has opened for voting! You can cast your vote from 9am EST / 1pm UTC on Monday (26 June) until 9am EST / 1pm UTC on Monday (3 July).

Voting options

You can choose from one of the following options when you cast your vote:

  • Option A: YES, stake 6,624 WETH through Kiln
  • Option B: NO, make no changes.
  • Option C: None of the above. Explore other solutions.

Be sure to review the RFC, cast your vote, and signal your support for the option of your choice!

1 Like

For future readers, after successful completion of the non-binding Snapshot vote, the discussion has now been moved forward to NMPIP stage here.