afETH: Asymmetry Finance Ethereum

afETH: Asymmetry Finance Ethereum

afETH is a hybrid LST that harnesses the power of Curve & Convex to successfully generate market-leading yield. Asymmetry believes in real yield that is truly sustainable. This is achieved through the ‘Asymmetrical Allocation Algorithm (AAA)’ - a novel yield generation mechanism that splits user deposits in order to achieve the proper allocations for creating sustainable real yield.

The automated process breaks user deposits into sfrxETH and CVX, which is locked as vlCVX and entered into the Votium Vote Market to be used in optimizing rewards. Vote-locked Convex is a desirable asset as the votes that each vlCVX command direct the massive amount of Curve that Convex has acquired towards a given Curve Pool. Because of this, protocols compete in the marketplace to incentivize users to vote for them in order to increase rewards, which in turn increases liquidity, which increases fees, and increases the revenue of the protocols, thus creating a flywheel. The vlCVX within afETH is allocated to the highest bidder on behalf of afETH users.

More details about both Staked Frax Ether and Vote Locked Convex can be found below.

Staked Frax Ether

In partnership with Frax, Asymmetry selected Staked Frax Ether as the LST of choice within afETH.

sfrxETH is a ERC-4626 vault designed to accrue the staking yield of the Frax ETH validators. At any time, frxETH can be exchanged for sfrxETH by depositing it into the sfrxETH vault, which allows users to earn staking yield on their frxETH. Over time, as validators accrue staking yield, an equivalent amount of frxETH is minted and added to the vault, allowing users to redeem their sfrxETH for a greater amount of frxETH than they deposited. The exchange rate of frxETH per sfrxETH increases over time as staking rewards are added to the vault. By holding sfrxETH users hold a % claim on an increasing amount of the vault's frxETH, splitting staking rewards up among sfrxETH holders proportional to their share of the total sfrxETH. This is similar to other auto compounding tokens like Aave's aUSDC and Compound's cUSDC.

Vote Locked Convex

CVX is the governance token of Convex, a platform built to boost rewards for CRV stakers and liquidity providers. Convex boosts rewards thanks to the large amounts of veCRV that are under its control and the distribution of its CVX token as additional rewards. CVX can be locked for 16 weeks for vote-locked CVX (vlCVX) which cannot be traded or transferred. vlCVX holders can claim a portion of Convex platform fees and can vote for Curve governance proposals, including (and most importantly) bi-weekly Curve gauge weight votes. vlCVX holders (and CVX holders for non-gauge weight votes) vote on Convex governance proposals in order to decide how Convex’s aggregate veCRV voting power will vote on Curve governance proposals. The veCRV voting power per vlCVX for each governance vote is calculated as Convex’s total veCRV voting power divided by the vlCVX (and CVX for non-gauge weight votes) that votes in that governance vote, with Convex voting on the Curve governance proposals in the same proportion as voted under the corresponding Convex proposal.

afETH generates ~3x ETH staking yield due to exposure to the vlCVX portion of afETH. This means that users have exposure to the price of CVX, a blue-chip asset and a powerful driver of liquidity. This means that users have additional upside as the price of CVX increases. It also means that users have an additional downside if the price of CVX decreases. However, over the last month, ETH and CVX have traded with a 0.94 correlation, meaning they have moved in lock step with each other. The impact of CVX declining in price is greatly reduced due to the 30% allocation. For example, if CVX were to decline in price by 10%, afETH would only decrease in value by less than 3%. This decrease in value is easily made up for by the increased yield users receive, resulting in users likely still earning more ETH than they would with any other LST.