Aave Attracts stETH, The Celestia Vision, & Wallet-Enabled Gaming

APR 13, 2022 • 5 Min Read

Joo Kian + 2 others

DISCLOSURE: DELPHI VENTURES HAS INVESTED IN ETH, LIDO, AND CELESTIA. DELPHI HAS ALSO DONE CONSULTING WORK FOR AAVE IN THE PAST. THESE STATEMENTS ARE INTENDED TO DISCLOSE ANY CONFLICT OF INTEREST AND SHOULD NOT BE MISCONSTRUED AS A RECOMMENDATION TO PURCHASE ANY TOKEN. THIS CONTENT IS FOR INFORMATIONAL PURPOSES ONLY AND YOU SHOULD NOT MAKE DECISIONS BASED SOLELY ON IT. THIS IS NOT INVESTMENT ADVICE.

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Chart of The Day: Aave Attracts stETH Lenders

  • On February 28th, stETH was made available on Aave to be loaned and borrowed. This has attracted stETH holders to deposit and leverage using liquid staking ETH.
  • In under two months since it went live, stETH deposits on Aave now hold 22% of all stETH. This makes it the second-largest stETH store held by a protocol, slightly behind Curve’s ETH/stETH LP pool. This could change very soon.
  • Given the stability of the ETH/stETH pairing on Curve, stETH has proven that it can hold its peg against ETH. This allows for stETH to be safely collateralized at 70% LTV on Aave.
  • The inclusion of stETH in a money market brings new potential to leveraged staking yields. Let’s see how this works:
    1. Deposit stETH on Aave
    2. Take an ETH loan
    3. Use the loaned ETH to purchase stETH on Curve or convert it to stETH on Lido.
    4. Re-deposit the stETH on Aave. (You can continue this cycle depending on your risk tolerance.)
  • With ETH lending rates only at ~1% and stETH yielding ~4%, you’ll net a +3% yield on your leveraged staking position.
  • Furthermore, DeFiSaver, a DeFi management platform, allows you to easily create a “recipe” to do it all in one transaction. One whale levered up a 4,190 ETH position into a 12,390 stETH position in a single transaction!
  • This strategy will likely gather more attention post-merge, as yields are expected to increase around 2-3x. With the ability to lever such a position, it may end up being one of the most attractive yield strategies for ETH.

Pay Attention To Celestia

[Excerpt from a Delphi Pro report]

  • A monolithic chain where everyone executes every transaction is inherently not scalable. Indeed, this is why almost every major ecosystem is building for a multi-chain world.
  • As we laid out in our previous post, ecosystems differ in how they envision a multi-chain world. The two approaches that attract the most activity today are those of Ethereum and Cosmos. 
  • In a nutshell, Ethereum envisions a Rollup-centric future. Rollups tend to be expensive and less flexible than L1s, but they can share security with each other. In contrast, Cosmos is an ecosystem of interoperable sovereign L1s known as Zones. While Zones can be cheaper and more flexible than Rollups, they can’t share full security with each other.
  • Celestia combines the best of these two worlds. As a wise anon once said, “Celestia’s vision is a marriage of Cosmos’ sovereign interoperable zones and a rollup-centric Ethereum with shared security.” 

  • To understand the “hows” of Celestia we must first define its problem statement. Celestia was born in search of an answer to the following question; “what’s the least a blockchain can do to offer shared security for other blockchains (ie. rollups)?”
  • Typically, consensus and validity are referred to as one and the same. However, it is quite possible to regard these notions as separate; validity rules determine which transactions are considered to be valid whereas consensus allows nodes to agree on the order of transactions that are valid. 
  • Just like any L1 blockchain, Celestia implements a consensus protocol (Tendermint) to order transactions. However, unlike typical blockchains, Celestia doesn’t reason about the validity of these transactions nor is it responsible for executing them. Celestia treats all transactions equally; if a transaction is paying necessary fees, it accepts, orders, and replicates it.
  • All of the transaction validity rules are enforced on the client-side by rollup nodes. Rollup nodes monitor Celestia to identify and download transactions that belong to them. They then execute them to compute their state (for example to determine everyone’s account balances). If there are any transactions that rollup nodes consider to be invalid they simply ignore them.
  • As you can see, as long as Celestia’s history remains unchanged, rollup nodes that run software with the same validity rules can compute the same state.
  • This brings us to an important outcome. Rollups don’t need another chain to perform any execution to share security. Instead, all they need is to agree on a shared history of ordered transactions. 
  • For more, you can read the Delphi Pro Report here. PAYWALL REMOVED!

Horizon Blockchain Games: How Building a Trading Card Game Led to Web3’s Smartest Wallet

[Excerpt from The Delphi Podcast]

  • For more, you can see our latest Delphi Podcast releases here.
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Joo Kian + 2 others