What is peUSD and How does peUSD Work?

peUSD

Understanding Non-Rebase LSTs

Non-Rebase LSTs, also known as Value-Accruing or Reward-Bearing LSTs, are a variant of LSTs where the value of the token increases automatically as staking rewards accumulate. Unlike their rebase counterparts, the quantity of a holder's Non-Rebase LSTs remains the same as the value of the tokens themselves increase.

Examples of Non-Rebase LSTs include Binance’s WBETH, Rocket Pool’s rETH, and Swell’s swETH.

For instance, with Binance's WBETH, an Ethereum holder can stake their ETH to receive WBETH via the token's smart contract or the Binance ETH staking page. As the staking rewards accumulate, the value of each WBETH token held increases, effectively recognizing the rewards without changing the quantity of WBETH tokens held.

This characteristic distinguishes Non-Rebase LST's from Rebase LSTs, where the ETH value of each LST remains constant, and rewards are recognized by transferring additional LSTs to the holder.

The Popularity and Advantages of Non-Rebase LST's

At the time of writing, Rebase LSTs currently account for over 75% of the total value locked (TVL) in the LST market (largely due to Lido's stETH, which has a 74% market share). However, a majority of the different LST assets available are now Non-Rebase LST's, with 8 out of the top 10 LSTs by TVL adopting this model.

Non-Rebase LST's offer several advantages. For one, they can be more tax-efficient since they eliminate potentially taxable events associated with rebasing. Furthermore, their compatibility with a broader range of DeFi protocols has driven their increasing popularity.

Integration of Non-Rebase LST's in Lybra V2

Given these benefits, we have designed the V2 of the Lybra Protocol to support both Non-Rebase and Rebase LSTs. To facilitate this, we have developed a new minting process specifically tailored to Non-Rebase LST's and introduced a new stablecoin, peUSD (Pegged-eUSD), into our ecosystem.

How Non-Rebase LSTs Function On Lybra V2

In Lybra V2, we’ve restructured the protocol so as to create a dedicated process for depositing Non-Rebasing LSTs. The first step was to create separate vaults for Rebase LSTs and Non-Rebase LSTs, as well as separate pools for each individual LST asset within those vaults. You can consult our in-depth guide to the new vault and pool mechanisms to get into the details. But for now, here is a simple graphic summarizing the key workflows:

Lybra V2 Workflow (Rebase and Non Rebase Vaults)

In Lybra V2 there will be a dedicated vault for Non-Rebase LSTs, which accounts for the different way in which they recognize value.

As already reference, there will be a new type of stablecoin in the Lybra Finance ecosystem called peUSD (Pegged eUSD).

peUSD will convert eUSD from the Ethereum mainnet to any supported L2s that currently exist or are even yet to be launched, starting first with Arbitrum. It also offers a wide range of new functionality on the Lybra protocol, as peUSD can be utilized and used for a various DeFi purposes, i.e. lending, borrowing or swapping for other assets, to mention a few.

Whilst holders of Rebase LSTs will mint eUSD (which they can convert to peUSD at a 1:1 ratio), holders of Non-Rebase LSTs will directly mint peUSD. You’ll notice that peUSD does not bear interest like eUSD.

peUSD directly minted from Non-Rebase LSTs cannot be converted to eUSD. However, users who mint with Non-Rebase LSTs need not fear. This is because whilst they hold their peUSD, the underlying LSTs put up as collateral will automatically increase in value, due to the value accruing nature of Non-Rebase LST outlined earlier in this section of the docs. Meanwhile, there is no need to convert to eUSD as peUSD has wider utility than eUSD for usage in DeFi protocols.

So, holders of both types of LST end up receiving similar value via different mechanisms. Those who mint with Rebase LSTs get interest on their eUSD holdings paid in eUSD. They can also convert their eUSD to peUSD whilst continuing to generate interest as they spend it. Meanwhile, those who mint peUSD with Non-Rebase LSTs can spend their peUSD whilst their underlying LST collateral continues to accumulate value. The end result is that both types of user access all the benefits that a stablecoin offers, whilst continuing to accumulate value as they hold or spend it.

So, with the distinction between the value accrual mechanisms for Rebase LSTs and Non-Rebase LSTs clear, we’re now going to walk you through how you can actually mint peUSD using Non-Rebase LSTs on Lybra V2.

How To Mint peUSD Using Non-Rebase LST's On Lybra V2

The process for minting peUSD using Non-Rebase LST's on Lybra V2 will be very simple. It can be summarized in 4 Stages:

1. Mint: Users can mint peUSD against their Non-Rebase LST collateral (eg WBETH, swETH, rETH etc.) on the Ethereum mainnet. A collateral ratio above 150% is required for minting. The Collateral Ratio is the ratio between the dollar value of the LSTs you put up as collateral in the Lybra Protocol Vault and the dollar value of the peUSD that you minted. There are no upfront mint costs involved.

2. Spend: peUSD can be utilized for various DeFi purposes, including swapping, trading, lending, borrowing or providing liquidity to name but a few examples.

3. Repay: Users have the flexibility to repay their peUSD debt at any time they wish. A 1.5% borrow APY, based on the users total peUSD borrowed (debt), is charged for repayment.

4. Withdraw: Prior to withdrawing the total amount of their collateral asset, users must settle the borrow fee in peUSD, which is calculated as the total peUSD debt multiplied by 1.5% (as described above).

The Benefits of Using Non Rebase LSTs as Collateral To Mint peUSD

Whether you choose to use Rebase LSTs or Non-Rebase LSTs as collateral on Lybra V2 will depend on your priorities and strategies. Here are some of the key reasons why you might use Non-Rebase LSTs instead:

1. You Want To Receive Your Yield In LSTs Rather Than eUSD: Because any Non-Rebase LSTs put down as collateral automatically increase in value, this means that you will continue to accumulate value in terms of LSTs whilst you spend your peUSD. For those who wish to realize their value increase in LSTs rather than eUSD therefore, minting with Non-Rebase LSTs offer them this option.

2. Tax Efficiency: Because the value increase is reflected automatically in the value of the LST collateral itself, no additional transactions are necessary. This means there are no potentially taxable events such as interest payment transactions.

3. Wider Functionality Of Non-Rebase LSTs In The DeFi Ecosystem: The lack of rebasing makes Non-Rebasing LSTs compatible with a wider range of DeFi protocols. This is not an issue once deployed on the Lybra platform itself as eUSD can be converted to peUSD, delivering the same functionality. However, it is a reason why a user may decide to hold Non-Rebase LSTs in the first place. The Lybra V2 functionality means that those holding Non-Rebase LSTs for these reasons can directly use them on the protocol without having to trade them for Rebase LSTs elsewhere.