osETH Liquidity: Boosted osETH-ETH pool on Balancer
Starting Monday, April 28th 2025, the StakeWise DAO will begin incentivizing a new liquidity pool for osETH — namely, a Boosted osETH-ETH pool on Balancer.
This pool will be the new flagship liquidity pool for the osETH token, selected due to its ability to safely lend out spare ETH capacity on Aave to generate extra yield for liquidity providers.
In addition to generating extra yield through lending ETH, the new osETH-ETH pool will receive mostly ETH-denominated incentives, based on the StakeWise DAO’s recent decision to incentivize liquidity using 75% osETH and 25% SWISE. Hence, the APY of the new pool has the potential to exceed the network reward rate, benefiting LPs and StakeWise users.
We encourage all existing liquidity providers in the “legacy” osETH-ETH pool on Balancer to migrate liquidity as soon as (or hours before) incentives are reallocated to the new pool (again, this will happen on April 28th).
Read on for the guide on migrating liquidity to the Boosted pool, and more details about how Balancer Boosted pools work!
Step-by-step guide for migrating liquidity to the new pool
- Navigate to the “legacy” osETH-ETH pool page and press the Unstake button in the My Liquidity tab to first unstake your LP tokens.
PS. If you locked your LP tokens on Aura Finance instead of Balancer, you can unstake them by pressing the Unstake tab and clicking on the Unstake & Withdraw button in the interface (don’t forget to tick “Claim Rewards”). - Once your LP tokens are unstaked, press the Remove button on the same “legacy” osETH-ETH pool page and enter the amount of assets you wish to remove. Remove your ETH as WETH.
- Once your osETH and WETH assets are withdrawn, navigate to the new osETH-ETH Boosted pool page and press Add Liquidity.
- Follow the rest of the steps in the guide for adding liquidity below.
Step-by-step guide for deploying liquidity on Balancer
- Navigate to the osETH-ETH Boosted pool page and press Add Liquidity.
- Enter the amount of assets you wish to deploy as liquidity. Note, Balancer allows you to deposit liquidity in any ratio, however, it is recommended to deposit ~50/50 WETH/osETH to avoid price impact and capital loss (see the Balancer Explained section for more information). Note that the WETH that you deposit will be converted to Aave ETH automatically.
- In the new My Liquidity tab on the pool page, press Stake (staking your LP tokens is necessary to receive incentives).
- Enter the amount of LP tokens you wish to stake. Once you confirm the transactions (i.e. to approve the use of your LP tokens, and then stake them), you will start earning all the distributed rewards (a mix of osETH & SWISE). Liquidity rewards can be claimed via the Claim button in the same interface.
Balancer explained
Balancer is a versatile DEX built on Ethereum, renowned for pioneering liquidity pools with highly customizable parameters. Battle-tested since inception in 2020, it has a TVL of ~$700M and an average daily volume of ~$100M.
Balancer Boosted Pools
Customization offered by Balancer is particularly useful for improving the capital efficiency of idle assets in the liquidity pool. Specifically, Balancer Boosted pools offer the ability to commit ~90% of the idle assets in the pool to select yield-generating opportunities, allowing this capital to stay productive while remaining available for large swaps. Since statistically most transactions use below 10% of the pool’s size, Boosted pools represent an efficient way of keeping slippage on trades low while improving LP returns.
For the Boosted osETH-ETH pool specifically, the idle ETH in the pool will be automatically deposited into Aave to earn a lending APY of ~1.8%.
Risks and considerations for LPs
As liquidity is only deployed full-range on Balancer, there are no extra considerations other than whether are you happy taking price exposure to both ETH and osETH, alongside the associated smart contract risks of StakeWise, Balancer, and Aave.
ETH and osETH are a ‘stable asset pair’ where osETH should slowly reprice higher with respect to ETH with little volatility (in theory). In practice, volatility should be expected and cause a shift in the ratio of tokens within your LP position. However, it is unlikely to be significant, with weights historically deviating to at most 52/48 before returning to the default 50/50.
With regards to the Boosted pool use specifically, the main risks here are:
- Liquidity crunch on Aave, which could temporarily keep LPs’ ETH assets locked up until some of the leverage in Aave is unwound. We consider the risk of this happening to be low, because ETH utilization on Aave rarely exceeds 80%, leaving ca 500K ETH (~20% of total supplied on Aave) always available for withdrawal. We also question the potential negative effect from a liquidity crunch, because a skyrocketing ETH lending rate on Aave would handsomely compensate LPs for the delays in withdrawing. Finally, all borrows on Aave are meaningfully overcollateralized, hence we do not expect any bad debt to occur which would force LPs to lose money.
- Aave insolvency, which could lock up LPs ETH assets in the Aave lending market forever, forcing them to lose money. We consider this risk to be very low given Aave’s battle-tested code, attention paid to collateralization levels across different assets, and protocol’s consistent performance even during mass deleveraging events in the past.
- Balancer Boosted Pool exploit, which could see LPs’ assets stolen from the pool. We consider the risk of this happening to be very low given Balancer’s heightened attention to Boosted Pools code following a rocky start to their use.
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