Launching the Re7 WETH MetaMorpho Vault
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About Re7 Capital
Re7 Capital is a research-driven digital asset investment firm specialising in DeFi yield and liquid venture strategies.
TLDR
Re7 Labs is launching a MetaMorpho vault to lend ETH against various liquid staking tokens (LSTs). The goal is to drive the adoption of LSTs by enabling leverage strategies and providing an above-market lending rate to ETH depositors.
Finding diversified sources of risk-adjusted yield on ETH is increasingly difficult. Further, participation in staking has continued to drive down the base rate on ETH yield. This is against the backdrop of even more staked ETH tokens coming onto the market, each offering unique benefits.
With this vault, we want to drive further adoption of various liquid staked ETH tokens. By providing a stable money market for each, our vault will offer lenders an attractive opportunity to diversify their ETH yield sources.
The LST Opportunity
Liquid staking tokens are one of the largest asset classes in DeFi and have found a good product-market fit by allowing users to take a receipt token for staked ETH and use it within DeFi. Staked ETH have historically offered an attractive and steady rate of return between 3-4% annualized, making them a productive asset for users to hold.
LSTs have also found extensive use as collateral in lending protocols. One of the most popular use cases in money markets has been leveraged staked ETH strategies. By depositing an LST as collateral in a money market, borrowing ETH and swapping or depositing the borrowed ETH again into an LST, users can take advantage of the spread between the staked ETH return and the borrowing rate to create a leveraged position that earns a multiple of vanilla staked ETH yield.
While a popular strategy, because of constraints around liquidity, oracles and protocol approaches to risk management, many LSTs have historically not been listed on current leading lending platforms. This means their holders have not been able to access this kind of leveraged staking strategy or otherwise utilize the asset as collateral. This reality has also reduced lending rates for ETH lenders, as borrow demand is capped by the yield available from collateral assets.
This has been a prudent step from pooled lending markets as these newer LSTs have taken time to build up reputation, deposits and secondary market liquidity. Some have only just turned on withdrawal functionality, or are in the process of decentralizing their governance mechanisms. Each LST has a unique profile and has to be evaluated against a number of potential risk factors.
We think this is a great opportunity to apply Morpho Blue’s isolated lending markets. By distributing ETH deposits across LSTs that have been thoroughly vetted our vault will provide liquidity against a diverse basket of markets. This reduces risk for the depositor and enables appropriate sizing for each market.
A MetaMorpho Vault Curated by Re7
Re7 will be launching a MetaMorpho vault that takes ETH deposits and allocates to various LST / ETH markets on Morpho Blue.
Our LST-backed ETH MetaMorpho vault aims to:
Provide lending liquidity for longer-tail LST assets that currently can't be used as collateral, enabling their holders to access leverage staking strategies.
Provide attractive yield for ETH holders by lending against LST assets that have historically higher yields.
We will be launching the Re7 WETH vault on Thursday, February 1st. Initial vault allocations will go to lending deposits in the markets for Stakewise’s osETH and Ether.fi’s weETH.
Stakewise is one of the oldest liquid staking protocols, and their osETH represents the culmination of many years of work creating a powerful staking derivative. The token is overcollateralized and backed by a diverse set of stakers with the ability to onboard even solo stakers. The osETH/WETH market will be the first place where osETH holders can leverage their LST for improved yield. Stakewise will also be contributing $45k of incentives over the first three months of the vault's launch to WETH depositors on their market. We’re excited to enable new utility for osETH holders with our vault deposits.
Ether.fi’s eETH is one of the newer Liquid Restaking Tokens, which represents a deposit both in ETH staking and within an Eigen Layer pod. This opens up new yield opportunities as well as the promise of a future airdrop as the token accumulates Eigen Layer Points. These yield sources have made leverage on eETH attractive, making the weETH/WETH market an interesting proposition to both lenders and borrowers. Ether.fi will also be contributing $45k of incentives to the weETH/WETH market.
We have been in discussions with all major liquid staking protocols to enable Morpho Blue markets for their LSTs and include them for allocation from our MetaMorpho vault. We have a number of staked ETH protocols we are working with to launch LST/ETH markets with their respective token. In turn, each of these will be evaluated for an allocation of the Re7 WETH vault deposits.
Further, we have talked with multiple teams on how to enable incentive plans in order to bootstrap their markets and provide extremely attractive yields to ETH depositors in our vault. We plan to include many more LSTs once the vault has a baseline of liquidity and already are in active discussions with various LST teams. Multiple teams have expressed strong commitments to provide incentives to bootstrap liquidity on their markets, at inception. Incentive packages will target a yield meaningfully above base staking rates to be attractive to depositors. More details will be given on this in the coming weeks after launch.
Why MetaMorpho
MetaMorpho allows risk curators to easily deploy managed vault infrastructure for allocation in underlying Morpho Blue markets. In our day-to-day work as DeFi portfolio managers, we are well acquainted with the process of stewarding a portfolio while trying to reduce risk. MetaMorpho vaults allow us to take this expertise and provide it to the larger DeFi community as a curated service.
MetaMorpho vaults provide a good set of security features to vault curators and users. With dynamic allocation and managed caps, we can adjust to market conditions to manage risks that may arise. A time lock on the vault and a transparent strategy represented on-chain means that users always know where their money is being put to work and can verify the curators’ choices at any time.
By combining MetaMorpho vaults with the underlying lending infrastructure of Morpho Blue, a new realm of DeFi strategies opens up that allows for a diverse set of assets as well as high-customizable risk management for lenders. We’re excited about the possibilities and looking forward to kicking off some of these strategies with the Re7 WETH vault.
Enabling New DeFi Strategies
As long-term DeFi practitioners, we are excited about the new strategies enabled by the Morpho Blue markets and the Re7 WETH vault.
For Depositors
MetaMorpho vaults make it easy for depositors to get a similar lending experience to other well-known money markets. Users can just deposit WETH in the Re7 WETH vault listed on the Morpho front end. From there assets are seamlessly moved between the allocated markets. Re7 as risk curators manages the underlying exposure and will monitor each market, making changes as necessary for depositors.
Depositors in the Re7 WETH vault will benefit from a number of yield sources, including incentives on each underlying market as well as a base yield from lending activity. Both Stakewise and Ether.fi have committed to an initial 3 months of incentives for their markets. We expect to onboard other LSTs and LRTs over the coming months. This means depositors will benefit from both diversified yield and a diversified asset base to lend against.
For Borrowers
Liquidity from Re7 WETH vault depositors will flow to a set of LST and LRT markets. Starting with osETH and weETH, we aim to onboard assets that don’t have many available lending markets and that can offer interesting DeFi strategies for users. For example, users with osETH collateral will be able to take up to 7x leverage on positions using a traditional looping strategy where borrowed ETH is traded back into osETH and deposited. For holders of weETH, the additional yield from points and staking will also make these kinds of strategies attractive. With the initial liquidity subsidized in part by incentives, borrow rates should be low allowing for high yield for users who use their LST/LRT assets as collateral.
About Re7 Labs
Re7 has been providing liquidity in DeFi since 2019 having deployed over $100m of assets. We bring practical experience to risk management from years of managing stablecoin and ETH yield strategies as well as further strategies like our Liquid Token fund. As DeFi-native managers, we have focused on enabling yield strategies, providing early liquidity to various DeFi protocols, and have worked with teams throughout the space on a close basis to grow DeFi liquidity while managing risk.
From our experience deploying capital, we bring a unique perspective to risk management as practitioners and power users of DeFi. We have built extensive tooling to provide a deep view into risks in the market including liquidity monitoring, price alerts and a large suite of custom analytics tools. This has allowed us to stay on top of the ever-changing DeFi market, and we will bring this expertise to our MetaMorpho vault.
In addition to leveraging our experience for risk management, we bring an extensive rolodex of DeFi teams and have worked with over 500 projects across DeFi for liquidity provision and advisory. This has involved deployment on over 15 chains and dealing with all kinds of conditions within DeFi. We plan to use our contacts and experience to onboard further assets to Morpho Blue and ultimately the Re7 WETH vault.
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