kETH is an ERC-20 token that encapsulates a diverse basket of liquid staked ETH, designed to generate ETH staking yield at a stable, optimized rate and mitigate liquid staking risk. The basket is algorithmically maintained, keeping a stable yield and price for kETH. By using the composability of Stakehouse validators, kETH is able to curate and maintain a high performing index of validators.
Users can mint kETH from the LST Optimizer dApp by depositing supported ETH liquid staking tokens or derivatives (LSTs and LSDs), and can redeem kETH for ETH (or ETH equivalent). kETH currently supports the following:
LSTs: stETH, rETH, and cbETH LSDs: dETH
As kETH gains adoption and there is increased user demand, there are plans to support more LSTs in the future.
The minting of kETH is related to the current market price of the respective LST (in terms of ETH). Current market prices are taken into consideration in the below equation for the “Deposit Value” and “Total Liquidity Value of the LST Vault”. Therefore, depositing 1 LST is subject to current market prices. (ETH market price is taken from Curve Finance)
kETH mint amount = deposit value in ETH * total supply / total liquidity value in ETH
kETH holders own their proportional share of the LSTs held in the kETH vault. In other words:
1 kETH = auto-managed basket of LSTs in proportional ratio.
kETH utilizes staked versions of ETH. As these tokens generate staking yield, the value of kETH increases proportionally to the value accrued. For example, if the average annual ETH staking yield is 5%, after 1 year, 1 kETH will be valued at 1.05 ETH.
kETH holders can redeem their kETH for ETH (or ETH equivalent).
kwETH is an ERC-20 vault share token that is minted at a when a user deposits dETH into the LST Optimizer dETH Vault and will represent their principle deposit. kwETH is a way for dETH holders to find a path to a slippage free exit to ETH. Every dETH in the vault has redemption of 1:1 to ETH. Whilst dETH is deposited into the vault waiting for ETH, it tracks and curates validators in the Stakehouse protocol to provide the highest possible yield.
The fungible dETH is staked into to savETH and gets associated with specific validators via the dETH vault. The dETH Vault automated account manager (AAM) curated savETH to produce the highest yield for kwETH holders.
The kwETH token can be burnt for dETH and ETH depending on the result of the strategy manager and the activity of the strategy.
Maintaining a Target Rate
The LST Optimizer implements an automated asset manager (AAM) to maintain a target yield rate for kETH and kwETH.
As users deposit LSTs, The AAM swaps these tokens for dETH or sells them for ETH via Curve pools. On the backend, dETH is curated to access higher yield rates from high performing Stakehouse validators. This mechanism helps maintain kETH’s optimized yield rate.
The dETH Vault is used to swap ETH to dETH when necessary.
The AAM ensures a healthy balance of LSTs, dETH, and ETH at all times. This stabilizes the yield rate for users and preserves an optimal level of ETH liquidity.
Redeeming kETH and kwETH for ETH
When a user withdraws their funds from the LST Vault, they redeem their kETH for ETH and/or dETH. When this happens, the user’s kETH gets burned and the LST Vault automatically swaps their portion of the basket’s LSTs for ETH. This ETH is then automatically transferred to the user’s wallet.
When a user withdraws their funds from the dETH Vault, they redeem their kwETH for ETH and/or dETH. When this happens, the user’s kwETH gets burned and the dETH Vault automatically distributes ETH and/or dETH to the user’s wallet.