Overview
This proposal seeks DAO approval to integrate ether.fi’s weETH into the tETH yield strategy by allocating a portion of the post-strategy wstETH balance to mint weETH.
The objective is to improve the yield efficiency of tETH while preserving the existing leverage structure, safety parameters, and risk controls of the strategy.
Background
tETH, like other tAssets, enhances native Ethereum Proof-of-Stake (PoS) yield by combining staking rewards with interest rate arbitrage across major lending protocols.
The current yield strategy consists of three primary components:
1. Base Yield
tETH is backed by liquid staking tokens (LSTs) that generate Proof of Stake (PoS) rewards. The underlying LST is currently wstETH (Lido).
2. Yield Enhancement
tETH generates additional yield through Market Efficiency Yield (MEY), where LSTs are utilized as collateral to borrow assets at rates below their underlying staking yield.
The borrowed assets are then converted back into yield-generating positions to earn additional rewards while contributing to the convergence of fragmented rates.
In the case of tETH, wstETH is used as collateral to borrow ETH at rates below staking yield. The borrowed ETH is converted back into LST exposure to earn additional staking rewards.
This process amplifies returns while contributing to the convergence of fragmented lending rates across DeFi markets.
3. Additional Rewards
tETH holders may receive ecosystem incentives where applicable.
This includes participation in Treehouse’s GoNuts rewards program, which rewards users based on their activity and positions within the ecosystem.
Post-Strategy Balance
Following tETH strategy execution, a portion of wstETH remains as a post-strategy balance.
This balance serves as available capital within the strategy and supports flexibility for liquidity and risk management.
This proposal concerns the allocation of a portion of this balance.
Motivation
ether.fi is a decentralized staking protocol whose Liquid Restaking Token (LRT), weETH, accrues yield through both staking and restaking activities. These restaking incentives may contribute to the Market Efficiency Yield (MEY) component of tETH.
Allocating a portion of the post-strategy wstETH balance to mint weETH is expected to:
- Enhance the MEY component through additional yield sources
- Improve capital efficiency within the strategy
- Diversify staking exposure across multiple providers
In addition, exposure to weETH may enable participation in ether.fi’s reward mechanisms, where applicable, with any benefits accruing to tETH holders.
This integration introduces an additional source of yield while maintaining existing leverage and risk parameters.
Specification
If approved, the protocol will:
- Allocate a portion of the post-strategy wstETH balance to mint weETH
- Integrate weETH into the strategy accounting framework
- Maintain existing strategy risk parameters
The allocation will be capped at 60% of the post-strategy wstETH balance and may be revised through future governance proposals.
Allocation will be subject to internal risk checks and execution conditions.
Risk Considerations
The integration introduces exposure to:
- ether.fi smart contract risk
- Validator performance risk
- weETH liquidity conditions
Mitigation measures include:
- Allocation capped at 60% of post-strategy balance
- Preservation of existing collateral and leverage controls
- Ongoing monitoring of yield performance and liquidity conditions
- DAO authority to adjust or unwind allocation through governance
Implementation Plan
If approved, the DAO assigns Treehouse Protocol to:
- Review ether.fi integration parameters
- Execute up to 60% of tETH’s post-strategy wstETH balance to mint weETH
- Update strategy accounting and dashboard reporting
- Monitor performance and yield contribution to tETH’s MEY
No structural redesign of the tETH strategy is required.
Next Steps
- Gather community feedback on the Governance Forum
- Escalate to Snapshot for formal vote
- Implement the integration of weETH in tETH’s strategy upon approval