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Introducing the Diversified Staked ETH Index ($dsETH)
Introducing the Diversified Staked ETH Index ($dsETH)
The Index Coop is excited to announce the launch of the Diversified Staked ETH Index ($dsETH)! Diversify your portfolio, decentralize the network.
1/24/2023
Index Coop
The Diversified Staked ETH Index (dsETH) is an index token of the leading Ethereum liquid staking tokens. Holders of dsETH earn staking yield while incentivizing liquid staking protocols to be more efficient and decentralized. dsETH accomplishes this with inclusion criteria and weightings that favor decentralized liquid staking protocols. To be eligible, liquid staking tokens must meet all inclusion criteria, which center around security, transparency, and liquidity. Tokens that meet these criteria are assigned equal weights before applying two factors: 1) the number of node operators supporting a protocol and 2) the distribution of stake across those node operators.
In this post, you will learn:
The Basics of the dsETH Token
The Methodology behind the dsETH Token
The Basics of dsETH
Diversified Staked ETH is the first index token to officially launch on Index Protocol, a good-faith fork of Set Protocol v2. The same security assumptions and audit coverage for Set Protocol apply to Index Protocol as no changes have been made to the core code. Therefore, dsETH will use the same battle-tested infrastructure as other Index Coop products like $DPI, $MVI, and $BED. More information on Index Protocol can be found in the docs here.
At launch, dsETH will be composed of rETH (Rocket Pool), wrapped stETH (Lido), and sETH2 (StakeWise). In order for dsETH to be a “re-pricing” token, its components must also be “re-pricing”. In other words, staking and execution layer rewards must accrue to the liquid staking token’s net asset value, with the token gradually appreciating in price relative to ETH over time. For this reason, stETH must be wrapped, and sETH2 rewards must be periodically reinvested so that the ultimate index token is “re-pricing”.
There are 3 major benefits to using dsETH:
Diversification across liquid staking tokens
Ease of use
Promote decentralization amongst liquid staking protocols
Diversification across liquid staking tokens
A diverse set of liquid staking tokens within dsETH reduces the risks associated with individual tokens and stabilizes returns across the range of tokens. The price of a single liquid staking token can be volatile relative to ETH, but a basket of liquid staking tokens will have more price stability. In the same way, the rewards earned by different liquid staking tokens can be volatile, but dsETH holders have balanced exposure to all of these rewards.
Ease of Use
dsETH provides a simple way to access diversified Ethereum staking rewards. Easy access - dsETH can be easily purchased on a decentralized exchange (DEX) or through a process called Flash Mint. This eliminates the need for users to individually buy all of the components to mint dsETH themselves, resulting in significant gas savings.
Passive holding
dsETH allows users to simply buy the token and let rewards accrue to them over time, without requiring any additional effort or involvement. This can be a convenient, hands-off way to earn staking and execution layer rewards.
Auto rebalancing
Adjusting the proportions of different assets within dsETH maintains a desired balance and optimizes returns. Users do not pay any gas fees when a rebalance is performed.
Evergreen index
The exact constituents of dsETH will evolve over time to include other liquid staking tokens. This allows the dsETH to adapt to changing market conditions and continue to offer long-term value to holders as the liquid staking market evolves.
Promote decentralization of the Ethereum network
The objective of dsETH is to give token holders diversified exposure to liquid staking tokens, with weightings that favor decentralized liquid staking protocols. dsETH promotes decentralization by incentivizing liquid staking protocols to support more node operators. By increasing the number of node operators, the protocol becomes more decentralized and less vulnerable to the actions of a single node operator. Protocols are also incentivized to evenly distribute staked ETH across all nodes so that the liquid staking tokens they offer are not overly dependent on a concentrated set of node operators.
Understanding the dsETH Methodology
The objective of the dsETH methodology is to give token holders diversified exposure to ETH liquid staking tokens, with a weighting that favors decentralized liquid staking protocols as measured by the number of node operators as well as the distribution of stake across node operators.
To begin, constituents are equally weighted before adding a Node Operator Factor, which benefits staking protocols with more active node operators. An HHI (or Herfindahl-Hirschman Index) Factor is added, which measures the concentration of stake and broader competition amongst active node operators within each protocol.
Initial components for dsETH: - Rocket Pool ETH (rETH) - Wrapped Lido Staked Ether (wstETH) - StakeWise Staked ETH2 (sETH2)
Fees
dsETH will have a streaming fee of 0.25% (25 bps), and no mint or redeem fees.
Liquidity
The Index Coop has seeded 0.05% dsETH / ETH and dsETH / USDC pools on Uniswap v3.
How to Buy / Mint
New to crypto:
Buy / sell on Ethereum:
Buy / sell on zkSync:
(currently found in the Swap crypto section)
Experienced crypto native:
Buy / sell on Ethereum:
,
, or DEX aggregator:
. Buy / sell on zkSync:
&
(currently found in the Swap crypto section)
Mint / redeem on Ethereum:
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Disclaimer: This content is for informational purposes only and is not legal, tax, investment, financial, or other advice. You should not take, or refrain from taking, any action based on any information contained herein, or any other information that we make available at any time, including blog posts, data, articles, links to third-party content, discord content, news feeds, tutorials, tweets, and videos. Before you make any financial, legal, technical, or other decisions, you should seek independent professional advice from a licensed and qualified individual in the area for which such advice would be appropriate. This information is not intended to be comprehensive or address all aspects of Index or its products. There is additional documentation on Index’s website about the functioning of Index Coop, and its ecosystem and community.You shall not purchase or otherwise acquire our restricted tokens if you are: a citizen, resident (tax or otherwise), green card holder, incorporated in, owned or controlled by a person or entity in, located in, or have a registered office or principal place of business in the U.S. (a “U.S. Person”), or if you are a person in any jurisdiction in which such offer, sale, and/or purchase of any of our token products is unlawful, prohibited, or unauthorized (together with U.S. Person, a “Restricted Person”). The term “Restricted Person” includes, but is not limited to, any natural person residing in, or any firm, company, partnership, trust, corporation, entity, government, state or agency of a state, or any other incorporated or unincorporated body or association, association or partnership (whether or not having separate legal personality) that is established and/or lawfully existing under the laws of, a jurisdiction in which such offer, sale, and/or purchase of any of our token products is unlawful, prohibited, or unauthorized). You shall not resell or otherwise transfer our restricted tokens to any Restricted Person. The transfer or resale of our restricted tokens to any Restricted Person is not permitted. Click here to view the list of Tokens Restricted for Restricted Persons. You shall read the Terms of Service and use our tokens and website in compliance with the Terms of Service.
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