Hi all - this is @rok one of the co-founders of ether.fi sharing a proposal to stake Kiln ETH in Enzyme Vault on ether.fi.
Introduction
The following is a proposal to invest a portion of Nexus Mutual’s capital pool into ether.fi’s weETH.
ether.fi is the largest liquid restaking protocol on Ethereum. weETH is ether.fi’s non-rebasing, natively restaked token. By holding weETH, you earn the staking rewards based on the staked ETH amount and protocol’s staking yields. Additionally, you receive restaking rewards derived from the natively restaked ETH at the protocol level (paid in KING tokens, inclusive of EIGEN among others), as well as ether.fi loyalty points and King governance tokens (formerly LRT2). 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 ether.fi has the available ETH liquidity in the contract. You can always redeem weETH 1:1 to ETH. ether.fi was the first native Liquid Restaking Protocol with withdrawals enabled. Our whitepaper also provides a deep dive into the specs of the protocol.
Stakers through ether.fi can stake in native ETH. At its core, ether.fi 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.
Key Benefits of Allocating to ether.fi:
- Deep Liquidity and Stable Redemptions: ether.fi offers the deepest on-chain liquidity of any Liquid Restaking Token (LRT). The protocol’s liquidity buffer ensures a tight peg to ETH and has processed large withdrawals with no impediment to operation.
- Enhanced Rewards: Beyond base Ethereum staking rewards, weETH accrues additional restaking rewards and ether.fi seasonal rewards. These combined incentives result in a highly competitive APY.
- Established Relationship: Nexus Mutual and ether.fi share a strong working relationship. The Mutual currently provides cover for ether.fi products such as the Liquid ETH Vault and bundled protocol covers, underscoring mutual trust and alignment.
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. ether.fi will work to make sure Nexus Mutual is benefitting in every way possible from the ether.fi protocol.
Authors: Rok Kopp, Tyson Wynne
Rationale
Strategic Reallocation to ether.fi
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. Building upon the established relationship between Nexus Mutual and ether.fi, as highlighted in the previous proposal RFC - Stake idle ETH on Enzyme Vault to ether.fi, this proposal advocates for reallocating 6,784 ETH from Kiln to ether.fi.
Nexus Mutual has previously allocated 1,508 ETH to ether.fi through the Enzyme vault, demonstrating confidence in the protocol’s yield generation and operational security. This proposal seeks to build on that allocation by integrating weETH more directly into the mutual’s staking strategy to further optimize returns and align with its long-term capital growth objectives.
Why Transition from Kiln to ether.fi?
Transitioning the 6,784 ETH currently staked with Kiln to ether.fi offers an opportunity to optimize returns while minimizing risk, aligning Nexus Mutual’s investment philosophy.
Kiln’s 30-day trailing average reward rate of 3.68%, exclusive of fees, falls short compared to ether.fi’s estimated Total Annual Percentage Rate (APR) of approximately 5.0%. This improved yield structure is derived from:
- Ethereum Staking Rewards: ~3.14%
- Restaking Rewards (paid in KING tokens, inclusive of EIGEN among others): ~1.10%
- Seasonal Rewards: ~0.75% (based on Season 4 projections)
By reallocating to ether.fi, Nexus Mutual can achieve a higher yield on its staked ETH, compounding treasury growth over time. This transition leverages ether.fi’s superior reward mechanisms and liquidity management while maintaining a high standard of security and decentralization.
Liquidity & Flexibility
ether.fi’s liquidity, driven by its native liquid restaking token weETH, provides increased flexibility for exits, DEX swaps, or usage within the broader DeFi ecosystem. With $65.97 million in DEX exit liquidity against weETH on Ethereum Mainnet and a withdrawal liquidity buffer of 56,504 ETH, weETH enables efficient 1:1 redemption processes with an average withdrawal time of approximately 12 hours. This liquidity ensures Nexus Mutual retains operational efficiency and immediate access to funds.
Unlike Kiln, which requires dedicated validators with fixed 32 ETH multiples and variable reward structures, ether.fi enables pooled staking with consistent and predictable reward rates.
Existing Partnership
Nexus Mutual and ether.fi already share a robust working relationship. Nexus Mutual provides cover for several ether.fi products, including the Ether.fi Liquid ETH Vault and other bundled protocol covers. This established trust underscores ether.fi’s commitment to security and innovation, providing a solid foundation for future collaboration.
Proposal:
ether.fi proposes staking 6,784 ETH on the Enzyme Vault in weETH. This investment will undergo semi-annual reviews, including consultations with the ether.fi team to discuss updates, developments, concerns, and additional staking opportunities.
Implementation
- Stake ETH: Allocate 6,784 ETH into ether.fi’s protocol to mint weETH.
- Hold weETH: Retain weETH to accrue rewards from Ethereum staking, restaking, and ether.fi seasonal incentives.
- Redeem ETH: weETH holders can redeem ETH at a 1:1 ratio, subject to liquidity availability. Average withdrawal times are approximately 12 hours.
Technical:
ether.fi operates as a pooled staking protocol, collaborating with trusted node operators to manage validator keys and operations. This design streamlines the staking process and enhances yield opportunities for participants. Key technical aspects include:
- Validator Key Management: In the current pooled staking model, ether.fi and its partnered node operators jointly manage validator keys, ensuring efficient validator operations and protocol security.
- Reward Distribution: All staking rewards are directed to protocol-managed contracts, which then distribute earnings to participants based on their stake and applicable reward rates.
- Withdrawal Process: Stakers can redeem their eETH holdings for ETH at a 1:1 ratio, subject to liquidity availability within the protocol. The average withdrawal time is approximately 12 hours, providing participants with timely access to their assets.
- Native Restaking with EigenLayer: ether.fi integrates with EigenLayer to enable native restaking, allowing staked ETH to earn additional rewards through EigenLayer’s mechanisms, thereby enhancing overall yield potential.
Rewards and Fees
Rewards
Total Annual Percentage Rate (APR): Approximately 5.0%
- Ethereum Staking Rewards: ~3.14%
- Restaking Rewards (paid in KING tokens, inclusive of EIGEN among others): ~1.10%
- Seasonal Rewards: ~0.75% (based on Season 4 estimates)
Seasonal Reward Details:
- Seasonal Cycles: Each season spans four months; the upcoming Season 5 is scheduled from February 1 to May 31, 2025.
- Reward Composition: Includes ether.fi loyalty points and King governance points, which may offer future benefits.
Fees
- Staker Allocation: 90% of staking rewards
- Node Operator Allocation: 5% of staking rewards
- Protocol Allocation: 5% of staking rewards
There are no additional fees beyond the initial gas costs associated with staking.
Risks
Smart Contract Risks
ether.fi’s smart contracts are carefully crafted, extensively audited, and thoroughly tested. The protocol has completed 9 comprehensive security audits by reputable firms, including Certora and Trail of Bits. Audit reports are publicly accessible, ensuring transparency and fostering trust (view audits). Additionally, ether.fi maintains active bug bounty programs with Immunefi and Hats Finance, offering rewards of up to $200,000 for identifying vulnerabilities. Despite these measures, interacting with smart contracts on the Ethereum network carries inherent risks.
Key Management Risks
ether.fi has taken great care to utilize the latest, safest methods for key encryption and protection. Keys remain in the staker’s hands. Preventing user error, though a primary aim, is virtually impossible.
Regulatory Risks
ether.fi 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:
| Risk | Lower Risk | Medium Risk | Higher Risk |
|---|---|---|---|
| Illiquidity Risk |  |
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| Basis Risk | |
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| Protocol Risk | |
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| Liquidation Risk | |
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| Leverage | |
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| Counterparty Risk | |
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| Economic Risk | |
Illiquidity Risk:
Assessed as low. weETH maintains substantial on-chain liquidity, enabling efficient swaps to ETH. Additionally, weETH can be redeemed 1:1 for ETH, facilitated by a withdrawal liquidity buffer of 56,504 ETH. Secondary market liquidity is also robust, with $28.37m weETH in DEX liquidity, $65.97m in DEX exit liquidity against weETH on Ethereum Mainnet, and a withdrawal liquidity buffer of 56,504 ETH on Ethereum Mainnet
Basis Risk:
Assessed as low. The protocol is ETH-denominated, allowing native ETH staking without introducing currency mismatches or additional risk layers.
Protocol Risk:
Assessed as low. ether.fi has undergone 9 comprehensive security audits by reputable firms, including Certora and Trail of Bits. The protocol also engages in active bug bounty programs with Immunefi and Hats Finance, offering rewards up to $200,000. Partnerships with Chaos Labs and Hypernative provide continuous risk monitoring and real-time threat detection. Useful references below:
- Audits | ether.fi
- Chaos Labs Risk Assessment on weETH
- Ether.fi Brings Real-Time Protection to Liquid Restaking With Hypernative
Liquidation Risk:
Assessed as low. The protocol does not utilize leveraged positions or mechanisms that could trigger liquidations.
Leverage:
Assessed as none. ether.fi operates without leverage, focusing on stable and predictable yield generation.
Counterparty Risk:
Assessed as low. ether.fi works with 17 professional node operators shown below, no single operator controls more than 12% of the total stake. The protocol has not experienced slashing events to date, reflecting its strong operational reliability.
Economic Risk:
Assessed as low. The primary economic risk relates to potential slashing, which has been mitigated through rigorous validator performance monitoring and slashing insurance mechanisms.