[BIP-28] Approve bETH design and deployment


This proposal aims to agree the implementation of bETH, a basket of liquid staked ETH tokens.


Bao needs an interest-bearing Ethereum token to use as collateral for baoUSD, and in future baoETH. A basket of liquid-staked ETH derivatives (LSDs) would encourage the adoption of a healthy balance of liquid-staking providers whilst minimizing risk to the solvency of our synthetics simultaneously. It can also be a good product on its own, allowing other communities to adopt it instead of a single LSD.


  • Create the best interest-bearing Ethereum collateral possible.
  • Provide an easy way for the crypto community to diversify between liquid staking providers

Proposed Solution

bETH will be a dynamic basket of liquid-staked ETH tokens, meaning the tokens that back it can change. Market conditions will dictate how many providers to include, and their allocations.

bETH underlying assets will be allocated based on the cube root of their market cap. This means tokens with more liquidity have a higher weighting, but a more even distribution of liquid staking providers is still promoted because smaller cap tokens have a higher allocation in relation to their market cap.

Criteria for inclusion:

  • Liquidity on ETH main net, with at least one supported pool allowing a $1m buy with less than 2% slippage
  • Operating for 3+ months
  • Chainlink price feed
  • Have wrapped tokens that compound staking rewards to minimize gas costs
  • Be non-custodial

The bETH basket is proposed to start with two liquid-staked ETH tokens. More is better from a diversification standpoint, but each additional token will increase the mint and redemption cost for the basket as gas usage will increase. Additionally, many other LSDs fail to meet the criteria set out above, for example, cbETH is custodial and frxETH has been operating less than 3 months.

The top two staked ETH tokens by market cap that meet the criteria are wstETH (Lido) and rETH

The proposed starting composition based on market caps at the time or writing

Anyone can initiate rebalancing or altering of selection criteria at any time via governance proposal.

There will be no minting or redeeming fee. A 0.5% streaming fee will be collected, which is expected to be around 10% of the yield generated from ETH staking. The fees can also be adjusted at any time via governance.

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This one’s easy to support:

  1. Increases the bao products.
  2. LSDs will be hot very soon, kinda already is
  3. This will spread out emissions a bit, possibly attracting new players.

But would steth qualify as non-custodial though? Regardless, steth needs to be there, so does obviously reth, and possibly stakewise.

Have you considered the implications of using stETH vs wstETH? wstETH will move almost like rETH, whereas the gap between stETH and rETH will grow bigger over time.

your right, but the number of stETH will increase inside the basket, keeping weightings fairly similar if we did use stETH. I actually thought I put wstETH (I have in the sentence above the spreadsheet screenshot)

The main concern for which we would use is liquidity for minting the basket tokens. We’ll be using balancer because they have the most LSD liquidity, so it makes sense in this case that we use wstETH because it is more liquid there.

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Yeah, it porbably doesn’t matter much. There will be a slight impermanent loss on stETH, but it’s very small