Forum Thread: https://forum.inverse.finance/t/offboard-the-st-yeth-market-on-firm/626

Summary

This proposal initiates the orderly offboarding of the st-yETH FiRM market due to a sustained deterioration of its liquid value, operational integrity, and redeemability of the largest component of its backing, apxETH, which no longer has sufficient on-chain liquidation routing. These structural changes materially impair the true liquidatable value of st-yETH when used as collateral on FiRM.

To mitigate this risk, the proposal reduces the st-yETH market Collateral Factor to 50%, sets the Liquidation Factor to 100%, sets the Market Ceiling to 0, and pauses the market to prevent new borrowing. Existing borrowers should close their positions and fully repay any outstanding debt on this market. A follow-up proposal will be introduced if necessary to fully offboard any remaining market debt after the actions of this proposal are executed.

Background

yETH has been available on FiRM as a liquid staking derivative vault token intended to provide diversified ETH staking exposure through Yearn’s basket of LSTs. Its value relies on frictionless redemptions of its underlying components, making the integrity of each constituent asset critical to its suitability as collateral.

A recent and significant degradation in yETH’s collateral profile stems from apxETH, which has undergone major structural changes following Dinero’s recent dissolution and product acquisition by Plume. This acquisition has resulted in the removal of all product and governance token incentives (e.g. pxETH, pxSOL, sDINERO), eliminating the fast-withdraw mechanisms that previously supported pxETH’s immediate liquidity and redemption reliability. Under the new model, pxETH withdrawals require Ethereum’s standard 32 ETH validator queue minimums, causing sub-32 pxETH redemptions to commonly sit in multi-week queues awaiting fulfillment. Dinero’s user interface currently estimates delays of roughly 50 days for smaller pxETH withdrawal requests and the Ethereum validator queue is 32 days for large withdraws / Yearn rebalancing. It’s unclear at this time if Plume will resume supporting pxETH functionality such as fast-withdraw liquidity incentivization or if Dinero will continue maintaining UI/UX post acquisition.

Motivation

Although pxETH maintains a theoretical 1:1 economic guarantee with ETH, its realizable liquidity is no longer compatible with FiRM’s need for predictable, on-chain unwindability. These constraints create a structural mismatch where redemptions are delayed and impaired in practice. More critically, this materially impacts the true value of yETH on FiRM because roughly 30% of its composition (apxETH) no longer has sufficient on-chain liquidation routing. In effect, a large portion of yETH’s backing cannot be unwound in a manner that preserves collateral value for FiRM during liquidation events.

On-chain DEX liquidity conditions illustrate this deterioration, documented in the RWG’s observer checklist. The yETH/ETH Curve pool currently stands at approximately $2.2M, a ~37% decline from October averages, and continues to trend downward. pxETH liquidity has thinned as well, with the pxETH/WETH Curve pool sitting around $1.88M TVL and poor pairing depth, leaving it incapable of absorbing meaningful redemptions. Simulating an unwind of yETH’s apxETH exposure (894 pxETH) shows ~85% slippage, yielding only 125 ETH ($380,000). This level of impairment demonstrates that yETH’s pxETH-backed portion cannot be liquidated through on-chain DEX’s without catastrophic loss, even in benign conditions.

This issue is compounded by yETH’s governance woes. Despite Dinero’s dissolution, Yearn governance has yet to adjust exposure to pxETH. The lack of corrective action suggests governance stagnation and reduces confidence that the vault will address this or any future problematic concentration in the foreseeable future.

Offboarding Rationale

Taken together, pxETH’s degraded redemption mechanics, the persistent apxETH overweight within yETH, declining AMM liquidity across both assets, and inactive upstream governance all point to a sustained and compounding deterioration in yETH’s liquid collateral value. These conditions render the asset unsuitable for continued use as FiRM collateral and justify initiating its orderly offboarding. Fully removing the market also eliminates the need for RWG to continue overseeing an upstream asset mix that we neither control nor that appears to be actively maintained.

On-Chain Actions

1.) Set st-yETH Collateral Factor to 50%

• A follow-up proposal will be introduced if necessary, further reducing collateral factor until all remaining market debt is repaid.

2.) Set st-yETH Liquidation Factor to 100%

3.) Set st-yETH Market Ceiling to 0

4.) Pause st-yETH market borrows