# Research on LSD asset - Lido (wstETH)

###### tags: `DeFi` `Lido` `Lending`

## TL;DR
Since Lido is the [BIGGEST DeFi protocol](https://defillama.com/lsd) in terms of **TVL** today which is also available on **MULTIPLE** chains, if we are going to build a single-collateral CDP system based on LSD assets, I think [`wstETH`](https://etherscan.io/token/0x7f39c581f595b53c5cb19bd0b3f8da6c935e2ca0) (which is an ERC20-compliant token without [rebasing feature](https://help.lido.fi/en/articles/5231836-what-is-wrapped-steth-wsteth)) from Lido is the best choice.

### References
- MakerDAO `wstETH` onboarding analysis: https://vote.makerdao.com/executive/template-executive-vote-parameter-changes-wsteth-a-onboarding-october-22-2021
- AAVE analysis on supporting `stETH`: https://governance.aave.com/t/proposal-add-support-for-steth-lido/2123/14
- Compound V3 to support `wstETH`: https://www.comp.xyz/t/initialize-compound-iii-weth-on-ethereum/3737

## Asset on-chain Liquidity
At the time of this research is taken, [`wstETH`](https://www.coingecko.com/en/coins/wrapped-steth#markets) could be traded to popular stablecoins or `ETH` on various mainstream DEXs with good depth:
| DEX | Pair | Pair TVL | Daily Volume|
| :------: | :------: | :------: | :------: |
| Balancer |[wstETH-WETH](https://app.balancer.fi/#/ethereum/pool/0x32296969ef14eb0c6d29669c550d4a0449130230000200000000000000000080)| $241.67M | $4.59M |
| Balancer |[wstETH-bbaUSD](https://app.balancer.fi/#/ethereum/pool/0x25accb7943fd73dda5e23ba6329085a3c24bfb6a000200000000000000000387)| $6.04M | $0.53M |
| Uniswap V3 |[wstETH-WETH](https://info.uniswap.org/#/pools/0xd340b57aacdd10f96fc1cf10e15921936f41e29c)| $3.15m | $2.08m |
| KyberSwap |[wstETH-WETH](https://analytics.kyberswap.com/elastic/ethereum/pool/0xebfe63ba0264ad639b3c41d2bfe1ad708f683bc8)| $18.68M | $12.03M |
| KyberSwap |[wstETH-USDC](https://analytics.kyberswap.com/elastic/ethereum/pool/0xe6bcb55f45af6a2895fadbd644ced981bfa825cb)| $14.92M | $6.17M |

In addition to above direct liquidity, liquidator could also possibly convert `wstETH` back to [`stETH`](https://www.coingecko.com/en/coins/lido-staked-ether#markets) by calling `unwrap()` on its smart contract then utilize the giant pool of [`stETH-WETH`](https://curve.fi/#/ethereum/pools/steth/swap) on Curve which provides excellent trade experience [in terms of slippage](https://www.comp.xyz/t/initialize-compound-iii-weth-on-ethereum/3737/16).

## Asset on-chain Oracle
At the time of this research is taken, both ChainLink and Tellor do not support any feed for `wstETH` on Ethereum. But there is a related feed for [`stETH-ETH`](https://data.chain.link/ethereum/mainnet/crypto-eth/steth-eth) (`2%` deviation with `24 hours` heartbeat) on Ethereum supported by ChainLink.

We could possibly combine it with other ChainLink feeds then use the `exchange rate` between `wstETH` and `stETH` to get the price feed we want. Compound V3 use a [similar audited strategy](https://gist.github.com/kacperrams/0f961d746f53e2a000cd92c60410c685#conclusion).

For example, if we desire a feed for `wstETH-BTC`, we could do following:

- Query `stETH-ETH` from ChainLink to get the price of `stETH` in `ETH`
- Query `ETH-BTC` from ChainLink to get the price of `ETH` in `BTC`
- Multiply results from above 2 querys to get **(the price of `stETH` in `BTC`)**
- Query `tokensPerStEth()` from `wstETH` smart contract to get amount of `wstETH` for one `stETH`
- Divide **(the price of `stETH` in `BTC`)** by `tokensPerStEth()` to get the final result: the price of `wstETH` in `BTC`

## Asset token integration
Based on [Lido's guide](https://docs.lido.fi/guides/steth-integration-guide/#wsteth) and related audits from [MixBytes](https://github.com/mixbytes/audits_public/blob/master/Lido/WstETH/README.md) and [ChainSecurity](https://chainsecurity.com/wp-content/uploads/2022/08/ChainSecurity_Lido_Smart-Contract-Audit.pdf), `wstETH` token contract follows canoical ERC20 interface and is developed using good practice without obvious critical issue.