[RFC] - Stake idle ETH on Enzyme Vault to ether.fi

Hi all - this is @rok one of the co-founders of etherfi.


The following is a proposal to invest a portion of Nexus Mutual’s capital pool into etherfi’s weETH.

etherfi is the largest liquid restaking protocol on Ethereum. weETH is etherfi’s non-rebasing, natively restaked token. By holding weETH, users earn base staking yields, etherfi points, and restaking rewards. The staking rewards are based on the staked ETH amount and protocol’s subsequent yields. These have been performing at market since launch in November. Additionally users earn the restaking rewards based on the natively restaked ETH in the protocol level and protocol’s restaking yields (+ EigenLayer points). Users do not need to make separate actions or lock up their assets. Stakers can redeem ETH out of eETH/weETH without the 7 days withdrawal period as long as etherfi has the available liquid ETH in the contract. Users can always redeem 1:1. etherfi is the only native Liquid Restaking Protocol with withdrawals enabled. The depth of our liquidity on chain and having withdrawls enabled has helped us keep a very tight peg. Our whitepaper also provides a deep dive into the specs of the protocol.

Stakers through etherfi can stake in native ETH. At its core, etherfi is focused on decentralization as a primary objective and wants to minimize counterparty risk wherever possible. We want to be the safest, most decentralized staking option in the Ethereum network.

The benefits to allocating a portion of the treasury are:

  1. Deep Liquidity and withdrawals - etherfi has the deepest liquidity on-chain of any LRT (liquid restaked token). The deep liquidity has helped us maintain a very tight peg.

  2. Increased Rewards - In addition to the base staking rewards that Lido and Rocketpool provide, you will earn restaking rewards and both etherfi + EigenLayer points with weETH. The additional rewards are all upside, but are significant resulting in significant APY depending on when the ETH is staked.

  3. Diversification of Ethereum - Lido now controls nearly 30% of validators on Ethereum which is a risk to the network. More stake across different providers is a good thing, etherfi has self limited to 22% of the network stake.

We appreciate all feedback through comments, suggestions, concerns/red flags, and areas that require further due diligence.

This is a Request For Comment with the expectation that after a period of discussion the proposal would move to a signaling vote, with options decided based on member feedback. etherfi will work to make sure Nexus Mutual is benefitting in every way possible from the etherfi protocol.


Why Invest?

It has been well documented in prior proposals, including Proposal 13 (Lido) and Proposal 197 (Rocketpool), of the benefits of staking ETH. There is continued incentive to stake ETH from the mutual capital pool to earn yield while being long ETH.

Why etherfi?

etherfi is a decentralized, non-custodial delegated staking protocol with a Liquid Staking Token. One of the distinguishing characteristics of etherfi is being the only protocol where stakers control their keys. Having allocated some of the mutual’s capital pool already to staking, etherfi will allow for better diversification of the mutual’s stake and increased rewards. Furthermore, investing assets into etherfi will drive growth for the capital pool while prioritizing security.

With most other delegated staking protocols the starting point is that the staker deposits their ETH and is matched with a node operator, who generates and holds the staking credentials. Although this approach can be implemented such that the protocol is non-custodial, in practice in most cases it creates a mechanism that is custodial or semi-custodial. This can expose the staker to significant and opaque counterparty risk, you’re effectively forced to ask your node operator for permission to exit your validator. With etherfi the staker controls their keys and retains custody of their ETH while delegating staking to a node operator. This significantly reduces their risk surface area.

Nexus Mutual and etherfi have a working relationship already, as the Mutual provides cover for etherfi Liquid, which is a managed DeFi vault strategy.


Amount and Duration of Investment

The proposal: Stake 6,585 in etherfi’s weETH

This represents investing ~7.54% of the mutual’s current Capital Pool.

There is no set duration for this investment. However, periodic reviews every 6 months including a call with the etherfi team to discuss updates, developments, concerns or additional staking opportunities.

The cap of the investment should aim to be around 15% of the pool as suggested for stETH and rETH.

Minimum amount of asset: 6,585 ETH
Maximum amount of asset: 14,000 ETH

There are several users and stakeholders on etherfi:

  1. Stakers who are also bond-holders

  2. Stakers who only hold weETH or eETH, the etherfi LRT (Liquid Restaking Token)

  3. Node operators

  4. Node services users

Each validator is spun up using the workflow below:

  1. A node operator submits a bid in order to be available to be assigned a validator node to run. Trusted node operators may submit a nominal bid to be marked as available. Trustless node operators participate in the auction mechanism and are assigned validators based on their winning bid.

  2. The staker deposits their 32 ETH into the etherfi deposit contract. This triggers the auction mechanism and assigns a node operator to run the validator. This also mints a withdrawal safe and two NFTs (T-NFT, B-NFT) that confer ownership of the withdrawal safe. The T-NFT represents 30 ETH and is transferable, this is sent to the liquidity pool where weETH and eETH can be minted. The B-NFT represents 2 ETH and is soulbound. The only way to recover the 2 ETH is for the validator to be exited or fully withdrawn.

  3. The staker encrypts the validator key using the public key of the winning node operator and submits it as an on-chain transaction. The transaction emits an event to which the node operator is listening.

  4. The node operator launches the validator utilizing the decrypted validator key.

  5. Node operator natively restakes the ETH on EigenLayer. Native restaking describes the process of changing an Ethereum validator’s withdrawal credentials to EigenLayer’s smart contracts. Native Restaking on EigenLayer consists of the following actions: Create New EigenPod, Set Withdrawal Credentials, Enable Restaking. Our whitepaper details more.

For more details on EigenLayer specifically they have good information on their site - Native Restaking | EigenLayer

  1. The staker (or node operator) may submit the exit command to exit the validator and recover the staked ETH into the withdrawal safe. The staker can then burn the NFTs to recover their ETH net of fees.The B-NFT is used to supply the deductible for slashing insurance (in case of a slashing event) and represents a responsibility to monitor the validator node for performance. It pays a higher yield than the T-NFT due to the added risk and responsibility. etherfi makes it easy to monitor validator performance via notifications and alerts. The B-NFT is used to supply the deductible for slashing insurance (in case of a slashing event) and represents a responsibility to monitor the validator node for performance. It pays a higher yield than the T-NFT due to the added risk and responsibility. etherfi makes it easy to monitor validator performance via notifications and alerts.

Rewards and Fees
Current rewards: 3.5% + points (etherfi and EigenLayer points have yielded ~70% APY)

Expected: ~7% in perpetuity. This rate is a bit more difficult to determine but AVS will pay for block space in the upcoming months, we’ve seen that to be around 100 basis points per AVS. This will be paid out in a variety of different ways, but we feel comfortable that it should be at least 7%.

90% of staking rewards go to the staker, 5% goes to the node operator, and 5% goes to the protocol. etherfi shares revenues they generate back with stakers and node operators. There are no other fees with any of our staking strategies, outside of initial gas fees to get staked.

Smart Contract Risks
Though our smart contracts will be crafted carefully, many times audited, and thoroughly tested, there always exist risks in interacting with smart contracts on the Ethereum network. etherfi has completed several audits.

Key Management Risks
With etherfi’s desktop and decentralized web applications, we’ve taken great care to utilize the latest, safest methods for key encryption and protection. However, ether.fi can make no guarantees or representation that our methods are or will remain 100% secure. Additionally, the care for one’s keys remains in the staker’s hands. Preventing user error, though a primary aim, is virtually impossible.

Regulatory Risks
etherfi firmly believes that the Ethereum network will become the settlement layer for global financial markets. Our convictions, however, are not guarantees about the future. Cryptocurrencies and Ethereum in particular have made the leap from niche to mainstream and this increase in prominence has been accompanied by an increase in governmental scrutiny. Any number of well-meaning and / or ill-informed public policies can temporarily or permanently derail the protocol, including but not limited to: bans on cloud service providers providing services to crypto related enterprises bans on ISPs providing crypto related services onerous taxes levied on various network transactions etc. We have taken every measure necessary to keep ourselves out of regions with heavy government scrutiny, including geofencing stakers in the US.

Qualitative vs. Quantitative Risk Assessment
Below are our self assessed risks using the assessment the mutual provided. We’ve provided further commentary on each below:

Illiquidity Risk - Low risk. weETH has deep liquidity on chain for normal swaps to ETH. Additionally, weETH can always be converted to eETH as per the rate provided per contract as calculated per the oracle. eETH is then redeemable for ETH, 1:1. The protocol keeps a buffer in the liquidity pool to facilitate these swaps.

Basis Risk - Low risk. Our protocol is ETH denominated, you can stake in native ETH as well.

Protocol Risk - Low risk. We take security very seriously at etherfi. We have done a series of audits and bug bounties. Additionally, we’ve provided a 3rd party risk assessment from Chaos Labs.

Liquidation Risk - Low risk. etherfi has no liquidation risk.

Leverage - Low risk. etherfi have no leverage.

Counterparty Risk - Low risk. No node operator has more than 20% of our stake. We work with 10+ professional node operators and solo stakers. We have yet to have a slashing event. List of operators is below, with DSRV running the most nodes with ~13% of them.

Economic Risk - Low risk. Biggest risk would be slashing.

In conclusion, we believe etherfi provides an alternative for Nexus Mutual to safely increase their returns through restaking and diversifying from Lido and RocketPool. We appreciate your consideration and look forward to further strengthening our relationship with Nexus Mutual.

We could only post two links, so will put supporting links in as a comment.


Whitepaper - Introduction | ether.fi
Liquidity Dashboard - https://dune.com/queries/3572814/6014539


Oracle - https://etherscan.io/address/0x57AaF0004C716388B21795431CD7D5f9D3Bb6a41
Chaos Labs Risk Assessment - [ARFC] Updating weETH Risk Parameters - #4 by ChaosLabs - Governance - Aave


Thanks for putting together the proposal.

As we have two proposals targetting the same pot of funds, I’ve put up a suggested governance process for the next stages to be considered alongside the two individual proposals.

Looking forward to discussing!


Thanks, @rok, for this detailed proposal. I think Ether.fi represents a good opportunity for the Mutual. You can find my comments below and a link to my broader thoughts on both investment allocations on @Rei’s post about how we manage the Snapshot signalling votes for these two RFCs.


  • How much liquidity is typically available for redemptions? The above highlights that Etherfi keeps liquidity available for redemptions, but should the liquidity be exhausted, then any weETH or eETH holders would need to wait the seven (7) day withdrawal period from EigenLayer or wait for more liquidity ahead of the seven day withdrawal window.
  • I know that the Chaos Labs report highlighted 40.6k in liquidity for withdrawals. I wanted to confirm if that number is still accurate or if all the ETH held in this contract is available for withdrawals?
  • I know you probably can’t confirm but is there any indication of what the rate of rewards would be if the Mutual were to allocate to weETH?
  • Do you know when AVSs will start paying for blockspace? I know it’s hard to project but this does impact my view of a potential allocation. As of right now, it’s hard to weigh potential future yield when I don’t know how far in the future the Mutual would have to wait for the estimated 7% to kick in.

Overall, I’m more cautious on an allocation to Ether.fi due to additional smart contract risk with EigenLayer and AVSs not being live just yet. We also have correlation risk to manage with active cover, but that can be managed within the Mutual, as well.

I’ve shared my broader thoughts on how much I would support allocating to Ether.fi at this time in Rei’s Suggested Governance Approach for June ‘24 Investment Proposals post :point_down:


@rok thanks very much for the time and effort you and the EtherFi team have put in.

Given the Stakewise proposal is also being put up at the same time I’ll consolidate my views on both here (and copy them in the Stakewise thread as well).

Overall, allocating to EtherFi is slightly riskier for the mutual than for Stakewise, mainly due to the correlation effect of Nexus already covering users that include EtherFi and Eigenlayer smart contracts.

On the AVS side, as slashing isn’t live yet and won’t be for some time (as far as I know) I don’t see any material additional risk here. If things do change the mutual can reassess at that time.

The base staking return on Stakewise is a bit better, but I believe this is materially outweighed by the more uncertain and variable restaking points etc that the EtherFi position offers. It is quite hard to put a solid number on the return uplift which means we should be somewhat cautious with how much credit is given but overall I would expect it to be material in the comparison.

The mutual needs to be cautious on the correlation aspects and therefore I would split the allocation roughly 50:50 between the two options. On a pure risk vs return assessment (before allowing for correlation) I would place EtherFi at an advantage, but the mutual must manage it’s overall exposure position prudently and therefore allocating to both makes sense.

I would also recommend revisiting existing allocations between the various ETH re/staking positions (Lido, RocketPool, Kiln, and possible future allocations to EtherFi/Stakewise) 6 months after this proposal, especially in consideration with the divestment framework.

Thanks @rok and the rest of the EtherFi team for putting this together.

Have copied the comments I here to Avantgarde’s thread targetting the same pool of assets.

I see the two proposals as being pretty similar from a risk perspective, with similar slashing risk and EtherFi having probably the slightly higher smart contract exposure due to the Eigenlayer integration.

The base staking yield is higher and fees are lower on Stakewise/Chorus One. This is balanced by the likely ETHFI and EIGEN rewards that will generate uncertain extra yield with EtherFi, both of which are uncertain in terms of size/duration and I get the sense we’ve likely missed the largest component of rewards here.
@rok - any additional clarity that could be provided here on the likely rewards would go a long way.

Another key decision component, as Hugh and BND have pointed out already, is that we actually have a reasonable amount of exposure against EtherFi on the liability side, which makes me reluctant to over-expose ourselves on the investment side.

Considering the above, I’ll likely be allocating 70% of my vote to Stakewise/Chorus One and the remaining 30% to EtherFi.

Signaling Vote: How to Allocate the 6,585 ETH Between the Chorus One Stakewise V3 Vault and Etherfi weETH Proposed Investment Strategies

I’ve posted the signaling vote on Snapshot for the investment proposals. Members will be able to signal their support start on Wednesday (19 June) at 11:58pm UTC until Monday (24 June) at 11:58pm UTC.

This Snapshot signalling vote uses the weighted voting option, so members can split their voting power (if they choose to do so) across each strategy.

The outcome of this vote will be used to create the final NMPIP ahead of an onchain vote in July.

Thanks for the post @BraveNewDeFi!

You are right that if liquidity is exhausted that they would have to wait for the EigenLayer withdrawal period. All of the ETH held in the contract is available for withdrawals. We aim for 3-5% of the TVL in the pool.

It’s hard to say but I’d imagine it would at least triple the current rate.

Payments should start in the next few months! We just selected the protocol that will do AVS payments for us.

thanks @Hugh thoughtful post!