LIDO x CIAN: Automated Strategies for staked assets

Partnership

  1. facilitate ETH/stETH holders to manage and optimize their positions/risks in various yield strategies for better return;
  2. further strengthen the application scenarios and ecosystem around Lido’s liquid staking tokens, which in turn, would reinforce their price stability.
Figure 1. Stats of ETH beacon chain POS staking pools (source http://postat.xyz/)
Backtest results

Leveraged stETH-ETH Arbitrage Strategy

Fig. 2 Source: https://www.livecoinwatch.com/price/LidoStakedEther-_STETH

Product Details Explained

Parameters:

  1. Deposit Amount: Principle used for this strategy (stETH or ETH)
  2. Leverage (up to 2.5X)
  3. Lower Price (onchain slippage not included): When the market price reaches this target, CIAN will automatically swap ETH for stETH using the preset leverage ratio.
  4. Upper Price (onchain slippage not included): When the market price reaches this target, CIAN will automatically swap all stETH for ETH, waiting for the next arbitrage opportunity.
  5. Stop-Loss Price (onchain slippage not included): When the market price reaches this target, CIAN will automatically unwind the leverage, repay the debts and swap all stETH for ETH. Once executed, the strategy will automatically end, sending back all funds to users’ smart wallet.
  6. Deposit Gas Fees (min. 0.5 ETH): gas fees used to cover all the automated transactions.
  7. Gas Fees Limit (Optional): You can set a limit per transaction to avoid paying excessive gas fees in case of network congestion.
Fig. 3 Source:dapp.cian.app

Parameter Setting:

  1. Market Price(stETH/ETH): 0.95
  2. Deposit Amount: 10 ETH
  3. Leverage: 2.5 X
  4. Lower Price: 0.95
  5. Upper Price: 0.96
  6. Stop-loss Price: 0.9

Execution Process:

  1. The strategy is activated when the market price matches the lower price limit of 0.95, after which CIAN’s tool will swap 25ETH for 26.31stETH (2X leveraged).
  2. After the market price goes above the upper price of 0.96, CIAN will swap 26.31 stETH for 25.26 ETH and repay the 15 borrowed ETH (borrowing interest not included).
  3. Now 10.26 ETH are kept in the strategy waiting for the next arbitraging opportunity. Users could adjust the parameters setting any time they want.

Backtest:

How does CIAN add leverage at the lower price?

  1. Borrow ETH (10 ) through flashloan from Balancer.
  2. Swap all the ETH (10+10) for stETH (21.05).
  3. Deposit stETH (21.05) in AAVE and borrow ETH (10) to repay the flashloan.

How about the leveraging process at the upper price?

  1. Borrow ETH (10) to repay the debt on AAVE through flashloan from Balancer.
  2. Withdraw stETH (21.05) from AAVE and swap for ETH (20.21).
  3. Repay the flashloaned ETH(10) from Balancer.

What are the profits and costs in this process?

  1. Arbitrage profits
  2. stETH staking rewards (APR:3.9%) x leverage ratio
  1. CIAN will charge no fee during the promotional period (3 months).
  2. Borrowing interest rate — when purchasing stETH with leverage, CIAN will need to borrow ETH from AAVE.
  3. Swap fees and slippage. When trading stETH-ETH pair through Curve, users will be charged by curve for swap fees and possibly also incurs price slippage.
  4. Gas fees. Gas fees consumed by every transaction will be deducted from the gas balance in the users’ gas contract.

What are the risks related to this strategy?

  1. Trading loss. The “Leveraged Arbitrage” strategy is neutral. Users will generate profits or losses according to their preset parameters, which should be set/modified according to current market conditions.
  2. Liquidation. In theory, users’ positions might get liquidated under extreme market conditions. To alliviate this risk, users will be able to set a stop-loss, automatically unwind their leverage and close the position. But in practice, liquidation is almost impossible to happen since we limit user’s leverage ratio in this strategy to 2.5 x, which requires an extra 14.3% drop in stETH-ETH relative prices from the “lower price”.
  3. Execution costs. If a user’s position is too small, the high gas fees on Ethereum may out-weight the gains, resulting in an overall loss.

Additional Information

About Lido

  1. Staking pool. Protocol to manage deposits, staking rewards, and withdrawals. A separate one for every supported network.
  2. st[token]. Unlike staked assets, the Lido st[token] are freely transferable instead of locked as in the case of native staking. Lido lets users operate with staked assets to gain yield on top of yield by leveraging collateral, lending, yield farming, and other kinds of Defi protocols.
  3. DAO. Lido liquid protocols management entity, responsible for picking node operators, configuring the protocol parameters and much more.
  4. Node Operators. entities that manage a secure and stable infrastructure for running validator clients for the benefit of the protocols. They’re professional staking providers who can ensure the safety of funds belonging to the protocol users and correctness of validator operations.

About CIAN

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