Pre-EIP: Northstar - The Wrapped Ethereum Liquidity Program
Authors: Me, Daniele, Chef Nomi, Zeus
Abstract
After reviewing community feedback regarding liquidity programs and re-utilization of community assets, the authors propose this Pre-EIP to initiate discussion on gradually deploying the and Ethereum reserves of the Wrapped Ethereum smart contract into curated liquidity pools to kickstart a new Ecosystem Incentives program to grow the DeFi ecosystems of Ethereum and its community at large and win back over Solana.
The Pre-EIP Authors propose combining their industry-leading technology and expertise to assist the Ethereum Community in establishing this program we call the Northstar: Restaked ethereum will be serving as the underlying liquidity source, Chef Nomi as the curator/risk manager of the system, while assets from the venerated DeFi projects such as Wonderland and OlympusDAO will be serving as high-quality DeFi yield-bearing collateral.
Motivation
The Wrapped Ethereum contract currently holds ~$10B worth of Ethereum (https://etherscan.io/address/0xc02aaa39b223fe8d0a0e5c4f27ead9083c756cc2), making it one of the largest but also idle holders of Ethereum-based assets on-chain. At the current benchmark lending rate for these assets, this represents an opportunity cost of around ~$300M annually.
Contrast this with the current overview of the Ethereum ecosystem: A segregated mess and a state of disarray it has not seen in ages. A competing blockchain, Solana is clearly winning all metrics, meanwhile the Ethereum Foundation is selling it’s Ethereum on a constant basis. In situations such as this, wartime leadership is desperately needed. Ethereum needs its Northstar.
During the most recent crypto drama on twitter, one of the top recurring requests (x.com 1) was putting the wETH reserves into canonical or conservative yield strategies that would unlock a lot of growth for Ethereum. The authors believe that DeFi as a whole has matured whereby assets held in the Wrapped Ethereum contract can be used productively and securely to incentivize additional activity on Ethereum.
Details
This Pre-EIP for Northstar proposes a very gradual (safe!) deployment of the smart contract liquidity for Ethereum and into a corresponding ERC-4626 vault. The authors propose a high-level description of the vault’s strategy as follows:
Restaking Vaults will be used as the canonical source of yield for Wrapped Ethereum given the absence of native yield-bearing wrappers. They’ll act as core yield sources for the contract collateral curated by Wonderland and OlympusDAO. All decisions that increase risk (increasing market caps & adding new markets) will be behind a 72-hour time lock. The Ethereum Inner Circle will retain a veto (via the guardian role).
The proposed Ecosystem Incentive Program will be managed by Chef Nomi. Chef Nomi will create an Ethereum Ecosystem Vault for each approved asset. These vaults will be incentivized using the rewards earned from the bridge assets deployed in the liquidity protocol. The deposits in the vaults will be deployed across Ethereum, growing the ecosystem. The details of this program will be further detailed in its own independent EIP.
The above changes will be debated by the community via the forum and PPGC consensus-making process. Formal EIPs will follow with details of a proposed specification, along with each respective asset type to be used.
Backwards Compatibility
The goal is for there to be no major backwards compatibility concerns as all wETH contract calls are unchanged. The amount of gas used by certain contract calls may increase as part of executing the new logic. In the exceptional case where liquidity is not readily available, a withdrawal will be filled with the ERC-4626 vault token, which can be redeemed directly for the underlying assets as liquidity is made available.
References
Wrapped Ethereum Contract
(https://etherscan.io/address/0xc02aaa39b223fe8d0a0e5c4f27ead9083c756cc2)
