Example 1: Insured eETH from EtherFi

SAFU is launching safueEth, the first insured version of eETH. This product provides EtherFi's eETH holders with additional security through an uncorrelated asset, while also allowing Ethena’s USDe holders to earn extra ETH-denominated yield.

Context on EtherFi

EtherFi is a decentralized, non-custodial staking platform that aims to enhance Ethereum's decentralization by offering diverse participation options for both newcomers and experienced users. EtherFi allows users to mint the liquid staking token eETH or run their own validator with full control over their validator keys. Unlike other platforms, EtherFi provides users with complete ownership over their validator exit process, offering both flexibility and higher rewards for certain stakers. eETH is a rebasing liquid staking token backed 1:1 by staked ETH, making it a core component of EtherFi's decentralized staking ecosystem.

Context on Ethena and USDe

Ethena is a DeFi platform that introduces USDe, a synthetic dollar backed by Ethereum (ETH) through delta-hedging strategies. USDe offers censorship-resistant stability by hedging ETH price volatility while generating yield from staked ETH rewards and funding spreads. Ethena's model combines these yields to offer higher returns than traditional staking, and its insurance fund ensures solvency even in adverse market conditions. USDe recently became eligible for restaking in EigenLayer, allowing users to earn additional rewards.

Insured eETH Dynamics

These deployment enables eETH holders can now opt into an insurance-backed version of EtherFi’s liquid restaking token. By wrapping their eETH into SAFU, holders will receive a 2.7% annual yield instead of 3%, in exchange for the assurance that their assets are protected in the event of a slashing incident on EtherFi. This protection comes from Ethena’s USDe holders, who provide collateral as decentralized insurance, covering slashing risks. Essentially, eETH holders sacrifice a portion of their yield in exchange for added security through USDe-backed insurance.

At the same time, USDe restakers can opt into the eETH AVS on SAFU earning additional ETH-denominated yield on top of their existing returns. By participating in this service, USDe holders will gain access to new income streams while providing a much-needed safety net for EtherFi stakers.

Creating New Market Dynamics

This market opens up new avenues for price discovery around slashing risks in EtherFi, Ethereum and LRT ecosystem iteslf. By integrating insurance-backed protection, SAFU Protocol turns risk assessment into an interactive predictive market. Participants will have the opportunity to engage in real-time market pricing on the likelihood of slashing events and their impact on EtherFi, adding an additional layer of transparency and insight into the Ethereum ecosystem.

So let's portray different scenarios and play with some numbers

eEth depeg risk underpriced

Let's now imagine that there are 1,000 safueEth minted and 10,000,000 USDe restaked; This would mean an extra 0.2% APR for USDe restakers (on neglible) and more than 100% collateral; though is logical to think than given the eEth lindy effect so far, either more people will opt in to hold safuEth (insured version) or some restakers will opt out (since yield is not attractive for the risk they are taking) reaching to an equilibrium point logical of what the market prices regarding risk of eEth.