Official Links
Website: Landing Page
Dapp: Staking Page
Docs: FAQ
Contracts: swETH contract / deposit manager contract
Markets: Balancer swETH/Aave Boosted WETH + Balancer swETH/WETH + Maverick swETH/WETH + Uniswap V3 swETH/WETH + Curve swETH/frxETH
Dashboards: Swell Dune + swETH in DEXs + Mochi LSDfi
Introduction
Swell Network DAO is a non-custodial ETH liquid staking protocol built to help you optimize yield in DeFi. With Swell, users are able to earn ETH staking rewards and in return be provided with a yield bearing liquid staking token(swETH) to hold or participate in the wider DeFi ecosystem to earn additional yield.
swETH represents a user’s initial staked ETH along with any forthcoming staking rewards. As time passes, the ratio at which swETH is issued compared to ETH reduces, implying that the value of 1 swETH progressively surpasses the value of 1 ETH. swETH operates as a reward-bearing token rather than a rebasing token. In this model, the value of swETH increases over time to reflect the staking yields and does not maintain a strict 1:1 peg to the native token.
This proposal aims to comprehensively and sufficiently cover all relevant risk factors of swETH for collateral onboarding. Risks are categorized into:
- Market Risk - risks related to market liquidity and volatility
- Technology Risk - risks related to smart contracts, dependencies, and oracle price feeds
- Counterparty Risk - risks related to governance, centralization vectors, and legal/regulatory considerations
swETH Fundamentals
Key Metrics(August 9th, 2023)
Circulating supply: 45,025 swETH ($83.47M USD)
Number of validators: 1,265
Number of operators: 8
Number of stakers: 10369
Market share of LSDs: 0.42%
Market Share of ETH staked: 0.2%
Staking Provider Fee
10% of ETH staking rewards earned in the swETH staking pool is taken as a fee and split two ways:
- 5% to Swell DAO to support swETH, expand the protocol, pay operating expenses, and
- 5% to Swell’s node operators for the service they provide
Node Operator Set
Since it’s genesis launch, Swell has on boarded the following 8 Node Operators:
Governance Model
At the time of writing Swell is in a pre-token period, prior to distributing governance to the community. As expressed by the DAO, Swell is running a campaign titled the “Swell Voyage” which will be the mechanism to distribute governance to the Swell community. Currently, the Swell core team manages the Swell contracts and parameters.
Audits
The Swell smart contracts have been audited by Sigma Prime, you can download and view the audit reports on our website.
Market Analysis
TVL
Since its official launch on April 24th, 2023, swETH has seen consistent and perpetual growth in terms of ETH staked and TVL. At the time of writing Swell has seen over 45,000 ETH staked totaling ~$83M in TVL.
There has been significant demand for swETH in LSTfi protocols, with swETH commanding ~2.5% of the market share at the time of writing.
Inflows for swETH have been strong and are comparable to much larger LST protocols like Frax’s frxETH. Shown in this Dune dashboard.
Liquidity
Total Value of swETH Liquidity Pools: $46,707,856
swETH Liquidity Pools
- Balancer swETH/Boosted Aave V3 WETH - $20,572,878
- Maverick swETH/WETH - $17,110,045
- Uniswap V3 swETH/WETH - $8,749,349
- Curve V2 swETH/frxETH - $275,584
Risks
Market Risk
- Volatility: The value of swETH, like other Ethereum-based assets, is subject to high volatility. This could lead to significant price fluctuations, impacting the collateralization ratio in the CDP protocol.
- Liquidation: If swETH’s value falls below a certain threshold, liquidations might be triggered, causing potential losses for users.
- Market Perception: As Swell is relatively new in comparison to some other established protocols, any negative market perception can lead to a rapid decline in swETH’s value.
Technology Risk
- Smart Contract Vulnerabilities: Even though we are audited by Sigma Prime, no audit can guarantee complete security. There’s always a risk of undiscovered vulnerabilities that could be exploited.
- Oracle Failures: If the oracle providing price feeds for swETH to the CDP protocol fails or provides inaccurate data, it might cause incorrect liquidations or other undesired effects.
- System Failures: Any disruption in the Swell protocol or the CDP protocol could impact users who have minted R using swETH as collateral.
Counterparty Risk
- Reliance on CDP Protocol: If the CDP protocol has any vulnerabilities or faces any issues, it could directly impact Swell users who have minted R using swETH.
- Interoperability: As Swell integrates with other protocols, there’s a risk associated with the reliance on these third-party systems to function correctly.
- Liquidity Concerns: There might be times when the demand for R or swETH drastically changes, leading to liquidity concerns, making it challenging to close CDP positions or trade.
Risk Management
- Monitoring: Continuous monitoring of the collateralization ratio and market conditions is essential. Users must be vigilant and proactive in managing their positions.
- Mint Cap: An initial mint cap of 2 million R that can be minted against swETH, that dynamically rises as swETH obtains more liquidity and TVL
- Education: Users should be educated about the risks associated with using swETH as collateral, including potential liquidations.
- Diversification: Users are advised to diversify their collateral and not rely solely on swETH. This can help spread and minimize potential risks.
- Updates & Upgrades: Swell should commit to regular reviews of its technology and processes, ensuring that risks are minimized, and any new vulnerabilities are addressed promptly.
Parameters
Accounting for swETH’s time on the market, and smaller market cap than some of the other LSDs, we propose the following parameters:
| Parameter | stETH | rETH | swETH |
|---|---|---|---|
| Minimum Collateralization Requirement | 120% | 120% | 150% |
| Borrowing spread | 0.5% | 1% | 1% |
| Redemption fee | 1.5% | 2% | 2% |
| Collateral cap | uncapped | 20,000 rETH | 3,000 swETH |
| Collateral cap per Position | uncapped | 1,000 rETH | 150 swETH |
Swell is open to modifying the proposed parameters in response to insights from both the Raft team and the broader R community. The integration of swETH as a viable option for R collateral promises reciprocal advantages: it amplifies the utility of swETH within the DeFi ecosystem and simultaneously offers Raft users an expanded avenue to diversify their collateral. The Swell team remains accessible for discussions at any time via the Swell Discord server.
