The launch of financial products designed specially for Web3 is heating up. Lido and Idle DAO too have jumped into the fray. The two have decided to collaborate to launch a DeFi primitive.
There is an enormous amount of staked ETH on the ethereum network. The staked amount is also constantly growing. Compared to the time of its launch the ethereum network now has twenty times the quantum of staked ETH. The growth of the ETH network is largely due to the fact that it has over 280,000 validators.
For the risk averse portion of the DeFi community, it helps to have risk-adjusted staking opportunities. The Lido-Idle DAO collaboration has been formed mainly with a view to increase the quantum of staked ETH on the network and also to spur a general growth of staking in the market. The collaboration aims to do this through the launch of stETH PYTs (Perpetual Yield Tranches).
These PYTs have in-built mechanisms to protect the interests of the investors. This is achieved by offering them risk-adjusted opportunities for staking.
The initial success of this launch is evidenced by increased institutional investment interest. The launch addresses an unmet need in the market for secure investments and sustainable yields.
PYTs enable individuals providing liquidity to gain higher yields by taking on higher risk, PYTs do this by the segmentation of yield and risk. The junior tranches receive higher yields while carrying higher risk. Conversely, the senior tranches provide lower yield at lower risk. Expectedly, in the event of a default the senior tranches are the first to be repaired.
Currently, the APR on stETH is 1.8% on senior tranches and 8% on junior tranches. The firm plans to boost APR through several incentive schemes that they have planned. For starters, the firm plans to distribute 10,000 LDO tokens. Such measures, it is hoped, will spur liquidity and also boost APR above 5% on senior tranches.