LSD Vaults on Range Protocol
Range is excited to announce our wstETH/ETH liquid staking vault, capable of generating an estimated yield of 6–12%, the best of its kind at the point of writing.
Liquid staking is one of the top categories of DeFi with ~$18.5B in TVL on Ethereum alone, and yet one of the trickiest DeFi areas to navigate. While liquid staking itself is not hard, optimizing the yield is where it’s challenging.
The reason for this is that upon staking one’s funds, a user is faced with various possible yield strategies. Each of these, in turn, requires additional transactions that add up quickly in terms of gas fees, while DeFi is so volatile and ever-changing that a given user is unlikely to generate the best return. For example, should one decide to deploy their LSD into a liquidity pool on a concentrated liquidity-based AMM, the changing price bandwidths of these pools tend to leave yield on the table.
In this article, we’ll show how our new LSD vault, focused on wstETH/ETH, generates yield above competing offers and is a must-know for DeFi investors.
The LSD Vault
After careful analysis, we’ve concluded that providing LSDs as liquidity is capable of generating a superior return in comparison to other potential yield strategies, such as lending them out. As such, our strategy revolves around directing wstETH/ETH into the 0.01% fee-level liquidity pool (highest fee tier) on Uniswap V3. We then actively manage the liquidity in order to maximize yield.
The yield comes from 3 main sources:
- Staking
- Trading fees
- LP incentives
Staking
First of all, the wstETH from this strategy generates yield at a rate of ~4%. Given that it comprises 50% of the vault on average, the expected return is 2% here.
Trading Fees
On top of this, we use mathematical models to maximize the trading fees generated from trading fees, surpassing what one would typically expect. While we will not dive into our specific strategy in too much depth, it’s important to note that the pricing relationship between wstETH and ETH tends to continuously fluctuate due to market forces. At the same time, on a daily and weekly basis, the price of wstETH appreciates against ETH as value accrues to it in the form of staking yields.
Therefore, by modeling their pricing behavior and reacting in real-time, we are able to provide a superior yield than expected. Currently, this APY is 4.35%.
wstETH/WETH ETH Mainnet Statistics
Range Protocol generates 256% more yield per dollar compared to the average Uniswap V3 LP.
This is calculated as follows:
- Range generates 14.3% of the fees of the average Uniswap V3 pool.
- Range’s TVL is 5.6% that of the average Uniswap V3 pool.
Range’s capital efficiency is therefore 256% greater than the average Uniswap V3 pool. This is because for every dollar of TVL in a Range pool, more fees are generated, indicating that capital is deployed more efficiently. The result is that Range Protocol users know that their funds are wisely put-to-use and generating more fees than elsewhere.
LP Incentives
At the point of writing, Range vaults also provide the best prevailing rates for LP incentives.
Source: Statistics obtained from Merkl.angle.money
We are continuously monitoring the market for other yields, such as in the form of LP incentives. One example of this included the Uniswap Foundation’s distribution of UNI incentives in July. During this time we were able to earn 2,073 UNI (~$13,400) which provided an APY of 20.49% on our vault’s TVL of 1.7M at the time. Another token distribution of UNI incentives is also expected shortly, which can be claimed by LPs of Range’s vault.
Additionally, we are integrating as a liquidity manager on Merkl, which will enable Range users to directly claim Merkl incentives either through their dashboard or via our front end. Merkl is an incentive reward platform for LPs, where rewards are distributed in proportion to how capital efficient an LP is. Capital efficiency refers to the amount of swap fees generated based on the amount of capital deployed. The more efficient that the capital is deployed, the greater the amount of rewards allocated as incentives by Merkl.
This means that by analyzing the LPs receiving the most incentives from Merkl, we can deduce who is the most capital efficient. In fact, looking at our Merkl vaults, we can see that Range faults generate higher trading fees and incentives than others.
Both the rETH/WETH vault (0.05% fee) and the wstETH/WETH (0.01% fee) vault have high returns of both 8.88% and 7.14% respectively. Their incentives are based 98% upon the fees, meaning that the yield generated is nearly completely attributable to higher swap fees.
Range is noticeably higher than other vaults, meaning that more rewards are attributed to its position. For example, the rETH/WETH graphic shows that Range will receive 9.55% of rewards, significantly higher than other vaults.
Arbitrum WETH-rETH 0.05%
Arbitrum wstETH — WETH 0.01%
Given that Range is receiving a much higher proportion of rewards than others, it illustrates that Range’s generated swap fees are significantly above those of competitors.
Putting everything together
In this article, we covered how Range provides the highest yield through:
- Staking
- Trading Fees
- LP Incentives
Staking currently yields ~2%, while trading fees yield ~4.35%.
And of particular note is that we have the most capital efficient vault in the market to date — our vaults have been able to generate the most fees for the least amount of capital deployed for our LPs. This is why our LP incentives are able to surpass others — because we are rewarded for our capital efficiency.
For these reasons, we are able to provide an overall yield of ~6–12%, placing us at the top of the industry.
Next Steps
We’ve already surpassed $2M in TVL despite launching only a few months ago. In the near future, we plan to introduce new LSD vaults that complement our other on-chain vault strategies.
These LSD vaults hold significant promise in generating additional yield for DeFi users in a very simple, one-click manner. They, in turn, complement our other yield strategies that are part of our strategy of becoming the premier on-chain asset management protocol.
In the meantime, we’ll be regularly posting exciting news and insights into our trading strategies on our Twitter.
So, make sure to give us a follow.
