Insurance Pool

Goal:

• Create deep liquidity during depeg scenarios.
• LPs should retain liquidation profits from temporary depegs.
• Should not apply additional or unbounded pressure to the Lido Withdrawal Queue.

Solution

• 1-1 hardcoded, low gas, ETH→stETH swaps. Use hardcoded 1:1, or Beacon Oracle peg.
• LPs compensated based on Rate of Withdrawals fee formula for stETH→ETH swaps.
• Withdrawal trigger enters LPs into the queue in the absence of reverse swaps so they are made whole. Circuit breaker protects against a congested queue.
• Liquidity is incentivized to enter before a depeg using a Deposit Module. New LPs donate a portion of their earned fees to existing deposits for a ‘deposit period’ (few hours). The amount of fees shared is dynamic based on the pool’s current ETH reserves (pool can attract new liquidity with 0 fee share if ETH liquidity is low).

Rate of Withdrawals Fee Formula

Rate of Withdrawals Simulations

Below we have simulated SWAMM’s Rate of Withdrawal fee formulas on swap data from stETH/ETH Curve pool, for stETH → ETH swaps:

Good Weather: Block number from 17947048 (Aug-19-2023) to 18162975 (Sep-18-2023). Total stETH sold: 85.539k

Bad Weather: Block number from 14694240 (May-01-2022) to 15773674 (Oct-18-2022) (stETH depegged to 0.95). Total stETH sold: 916.344k

Parameters:

EMA_coefficient: 5.39734135e-04