Concepts

The system creates stable assets that are collateralized by staked ETH. These stable assets are tracked in a Vault and use Bridge contracts to deposit/withdraw staked ETH into a Vault.

At launch there will on be support for one base Vault: ONE. In the future, different Vaults may correspond to different risk-profiles of the underlying LSTs which generate yield.

Stable Assets

Stable assets such as dollar stablecoins track the value of a derivative. This system uses price oracles to monitor that positions maintain a healthy CR (collateral ratio).

Stable assets require proper backing (not under or fractional collateralization) to be created. Because the collateral itself may be volatile, it is over-collateralized for the asset to maintain the correct price index.

Orderbook

MakerDAO's CDP (collateralized debt position) is "one sided" in the sense that a single user locks collateral to generate their stable asset, DAI.

This system uses an orderbook to match buy and sell sides (thus two sided) to create a stable asset. A buyer takes their ETH with the intent of getting the stable asset (dUSD, Ditto USD). A shorter takes their ETH with the intent of getting the yield of their collateral in addition to the extra collateral of the buyer as well as taking a lended sell position against USD. The orderbook model allows for the shorter to be incredibly efficient with their provided collateral.

Vaults

A Vault can hold many stable assets. All assets in the same Vault are collateralized by the same basket of underlying LSTs.

• ETH and LST, as well as assets issued by the protocol, can enter and exit the system via the VaultFacet
  • On withdrawal, ERC-20 tokens are minted and ercEscrowed are decreased
  • Conversely, upon deposit these ERC-20 tokens are burned and ercEscrowed are increased
• Vaults are tracked as uints, where constant ONE is Vault = 1
• There is only a single Vault at launch, but a new Vault can be made with createVault

Vault - Functions

These are the functions of VaultFacet, which allow both depositing and withdrawing dETH and stable assets.

Function	Token	Internal Accounting
depositAsset	burns ERC-20	+ercEscrowed
withdrawAsset	mints ERC-20	-ercEscrowed

Assets also exist virtually within the system, similar to dETH. There is a corresponding AssetUser.ercEscrowed for virtual accounting of each stable asset, such like there is one VaultUser.ethEscrowed to hold the amount of ETH collateral per user. Because assets are virtual, ERCs are only minted and burned when they enter/exit the system via VaultFacet.

dETH

Because the system takes in multiple kinds of collateral, the system is denominated in dETH, which represents a basket of ETH LSTs (Liquid Staking Tokens, like rETH and stETH). LSTs are the underlying collateral for dETH that bear yield due to Ethereum staking rewards.

Note: dETH only exists virtually (not as an ERC-20 balance). VaultUser.ethEscrowed is the internal variable that tracks dETH at a per user level.

dETH can be created in 2 ways:

• Deposit LSTs directly (a user already has the stETH/rETH)
• Deposit ETH and mint stETH/rETH (a user comes in with ETH)

dETH can be redeemed:

• Withdraw to stETH/rETH directly (subject to fees)

Given that each Vault in the future may have different underlying collaterals and risk profiles, there needs to be a mechanism in place to move between vaults. One approach is to do a conversion when migrating collateral between vaults. The other is to create a separate dETH per vault which has it's own value (this is already supported but not used since the system will only start off with a single vault and thus a single dETH).

Bridges

Bridges allow escrowing collateral into the system (specifically for LSTs).

Bridges are separate contracts from the Diamond that are only callable by BridgeRouterFacet.sol to handle depositing and withdrawing LST collateral.

• createBridge can be used to add a new collateral type

BridgeRouter

The BridgeRouterFacet is responsible for routing deposits/withdraws to the proper bridge (using interfaces/IBridge.sol). Each bridge contract has a unique implementation for interacting with its corresponding LST.

The initial launch will support stETH (Lido) and rETH (Rocket Pool), with designs on supporting other quality ETH LSTs in the future.

Bridge - Functions

These are the functions of BridgeRouterFacet, which allow depositing and withdrawing ETH and ETH LSTs.

Function	Token	Internal Accounting	Fee
depositEth	-ETH	+ethEscrowed
deposit	-stETH or -rETH	+ethEscrowed
withdraw	-stETH or -rETH	-ethEscrowed	Bridge.withdrawalFee + stETH/rETH premium

Depositing:

• deposit(): if you come in with an LST, it will deposit into a bridge and increase VaultUser.ethEscrowed
• depositEth(): if you come in with ETH, it will deposit into a bridge and increase VaultUser.ethEscrowed

Withdrawing:

• withdraw(): decreases VaultUser.ethEscrowed and gives you the LST specified, subject to Bridge.withdrawalFee and stETH/rETH premium for LST withdrawn past credit balance
• withdrawTapp(): a special function protected by onlyOwner which enables the diamond owner to withdraw dETH fees accrued to the TAPP as LST

Note: Bridge.withdrawalFee planned to launch at 0%, likely to remain 0% and solely rely on stETH/rETH premium fees to prevent arbitrage.