Plaza Finance Overview

Plaza is a platform for the creation and redemption of structures on top of asset vaults. Eventually, any structure can be permissionlessly created on top of any tokenized asset or strategy on Plaza. We are working on building a generalizable standard for onchain financial engineering, so that Plaza Finance can become a public utility cross-chain financialization layer on top of LSTs, LRTs, RWAs, and vault strategies. Today we are focused on the creation of two core assets on top of wstETH - bondETH and levETH.

bondETH and levETH can be thought of as a split of the total return of wstETH into two assets that are better tailored to different users’ risk-reward profile. The total return of wstETH comes from two places, the capital appreciation of ETH and the staking reward earned for staking that ETH, less Lido’s fee. While bondETH is designed for investors seeking stability and yield, levETH is designed for investors seeking leveraged exposure to wstETH.

bondETH Overview

bondETH is a bond token issued by a vault containing wstETH. bondETH holders are entitled to a fixed coupon of 2.50 USDC per quarter per bondETH in perpetuity.

The creation price of 1 bondETH is determined by a conditional AMM curve:

• Collateral Level is defined as: the quantity of wstETH in the vault * the oracle price of wstETH / the quantity of bondETH outstanding * 100.
• If the collateral level exceeds 1.2, the creation price of 1 bondETH is 100 USDC, meaning a user must deposit a quantity of wstETH equal to 100 / the price of wstETH per bondETH created.
• If the collateral level is less than 1.2, the creation price of 1 bondETH is 80% * the quantity of wstETH in the vault * the oracle price of wstETH / the quantity of bondETH outstanding.

The redemption price of 1 bondETH is determined by the same conditional AMM curve with additional conditions to allow free float trading to a market clearing yield:

• If the collateral level exceeds 1.2, the redemption price of 1 bondETH is the lesser of 100 USDC and the oracle bondETH price on Aerodrome.
• If the collateral level is less than 1.2, the redemption price of 1 bondETH is the lesser of 80% * the quantity of wstETH in the vault * the oracle price of wstETH / the quantity of bondETH outstanding and the oracle bondETH price on Aerodrome.

bondETH Coupons

bondETH Coupons are generated through the sale of wstETH in the vault on Aerodrome. Sales are conducted in the days leading up to a coupon distribution, based on the estimated coupon owed. As the price of wstETH rises, the amount of wstETH required to be sold to generate the fixed USDC coupon owed to bondETH holder declines, asymptotically approaching zero. As the price of wstETH falls, the amount of wstETH required to be sold to generate the fixed USDC coupon owed to bondETH holders rises. The protocol has the following embedded protections to prevent the vault from ever running out of wstETH to pay bondETH coupons.

• bondETH holders may permissionlessly redeem along the conditional AMM curve. As the market price of wstETH falls, if there is no redemption of bondETH holders, bondETH is a riskier asset with less projected collateralization. Rational bondETH holders should redeem to a level where where the coupon adequately compensates them for the risk of the vault lacking sufficient funds to sustain coupons.
• If the amount of wstETH required to be sold to pay a bondETH coupon exceeds the amount of wstETH in the vault, coupon payments are paused until the price of wstETH recovers to a level that once again supports a coupon payment. This ensures there is always some wstETH in the vault that bondETH and levETH holders may redeem for.

levETH Overview

levETH is a token representing a leverage position issued by a vault containing wstETH that has also issued bondETH. The leverage of levETH comes from the fact that wstETH was deposited in the vault for the creation of bondETH. Because bondETH investors have deposited wstETH into the vault for a fixed rate of return, levETH investors, who are entitled to the remainder of the total return of the vault (total return of wstETH less the total return of bondETH), have levered exposure to wstETH financed by bondETH.

The creation price of 1 levETH is determined by a conditional AMM curve that mirrors the bondETH creation curve: