DeFi investors punt nearly $1m into new Ethereum hybrid staking protocol offering 10% yield

As the competition between Ethereum liquid staking protocols intensifies, projects are coming up with new ways to enhance the yields they offer.

One protocol — Asymmetry Finance — is trying to lure in investors with a hybrid approach. Its new afETH token combines the yields on staked Ether and Convex tokens to generate a 10.2% yield for investors. That’s significantly higher than the top three Ether liquid staking competitors — Ether.fi, Puffer Finance, and Kelp DAO— that offer yields between 3-4%.

Launched on February 20, afETH has already reached its 301 Ether — about $913,000 in today’s price — deposit cap.

Although afETH offers almost three times the returns at other protocols, it also comes with more risks. That’s because 30% of it is backed by vlCVX — or vote-locked CVX — which has historically been much more volatile than Ether.

Asymmetry also plans to take the other 70% of afETH’s backing, which is made up of Frax’s sfrxETH, and deposit it to buzzy restaking protocol EigenLayer to juice potential returns even more.

Liquid restaking tokens, tokens that stake your Ether and then restake it in EigenLayer, are now close to $4 billion in total value locked — up from $296 million at the start of 2024.

The flurry of deposits to liquid restaking protocols recently has been due to a rising trend around of points — a wider trend in DeFi that typically heralds an upcoming airdrop. Users earn points — and free tradable tokens in the future — by using these protocols.

Liquid restaking protocols are especially popular because they offer users EigenLayer points in addition to points for their own protocols.

EigenLayer is a recent Ethereum protocol that introduces restaking by extending Ethereum’s security to other blockchain networks. The EigenLayer mainnet — the actual blockchain — will go live sometime in the second quarter of 2024.

EigenLayer investors have collected over 1.7 billion of these points — worth nearly $240 million on Whales Market, a secondary market where one point trades for $0.14.

Asymmetry currently does not restake with EigenLayer since deposits into EigenLayer have been paused. But once they are unpaused, Ether deposited in Asymmetry will be restaked, as per the protocol’s announcement.

Asymmetry Finance and points

Assymetry Finance distributes points — dubbed gems — while also offering an outsized yield on its liquid restaking token, afETH.

Since EigenLayer is not live yet, the yields received by liquid restaking tokens are generally the same as those you would receive staking Ether regularly.

But afETH is distinct from other LRTs on the market in at least one crucial way.

While other LRTs represent a 1:1 deposit of a user’s Ether, afETH is considered a hybrid LST and each afETH is backed by a blend of two tokens: sfrxETH and vlCVX.

sfrxETH is the liquid staked Ether token offered by Frax Finance, and vlCVX is vote-locked governance token of Convex Finance. Vote-locked implies a user locked their tokens to gain the ability to vote in governance and it’s used in another corner of DeFi, the so-called Curve Wars.

How afETH works

When a user deposits their Ether into Asymmetry Finance, Asymmetry will take that deposit and automatically split it into 70% of sfrxETH and 30% of vlCVX.

vlCVX, or vote locked CVX, is the key driver in producing the outsized yields offered by afETH.

The vlCVX is used in the Votium Vote Market, a market that lets protocols incentivize vote locked CVX users to vote for their liquidity pools, thereby directing valuable CRV token emissions to said pool.

In the last Votium round, which occur every two weeks, a total of $1.3 million was used as incentives for vlCVX votes.

Essentially, vlCVX users are earning a 14.5% annual percentage return by being incentivized to vote for specific liquidity pools through Votium, and this yield is what lets afETH earn an over 10% APY.

But, the strategy — relying on vlCVX to back a liquid restaking token — comes with a number of risks.

afETH may have the yield — but also the risks

The first risk is that users who may have just wanted to restake their Ether on Asymmetry are now exposed to the price of CVX.

CVX is trading at $4.78, down over 90% from its all-time high of $49.9 on January 2, 2022.

Although recently the correlation — how similarly they trade — between CVX and Ether has been high, a hypothetical drop of 10% in the CVX price would cause afETH to lose about 3% in value.

The second risk is the lengthy lockup of vlCVX. Due to the 16 week lock period required for vlCVX, users who want to unstake from Assymetry are given two unstaking options: regular and instant.

The regular-unstake option gives the user 70% of Ether immediately, with the remainder available to claim at a later date depending on the availability of the vlCVX.

Depending on how long it takes for the vlCVX portion to be available, by the time a user receives their deposit the price of vlCVX could move against them.

The instant-unstake option gives users their entire deposit in Ether, but it charges a fee and is only available for users withdrawing less than 2 Ether at a time.

A third risk lies within maintaining the target afETH backing made up of sfrxETH and vlCVX.”For instance, they say they target 70/30 sfrxETH/vlCVX but it’s manual process by privileged address to rebalance” WormholeOracle, a pseudonymous researcher at crypto due diligence firm LlamaRisk, told DL News.

This target balance is not automated, instead it is managed by the Asymmetry team, and if it is not properly maintained, the backing of afETH could potentially skew even higher towards vlCVX, exposing afETH holders even more to the high volatility of vlCVX.

Asymmetry did not respond to DL News’ requests for comment.

Since the launch of afETH, 59,638 CVX - some $290,000 - has been purchased and vote-locked.

The impact on price has been noticeable, since afETH launched on February 20 the price of CVX is up 14%, while Bitcoin is down 0.3% and Ether is up 1.2% for the same period.

Of the 99 million total supply of CVX, just over 61 million is vote-locked which is an all-time high.

As the landscape of liquid restaking tokens becomes increasingly crowded, protocols like Asymmetry Finance are navigating a delicate balance between risk and reward to carve out their niche.

Ryan Celaj is DL News’ New York-based Data Correspondent. Reach out with tips at ryan@dlnews.com.