[NIP-109] List a June 2025 pufETH PT vault (Mainnet)

[NIP] Notional Improvement Proposal
1

Vault details

Vault type: Leveraged PTs

Network: Mainnet

Borrow token: ETH

PT: June 2025 pufETH PT

Oracle: Redstone pufETH/ETH

Vault strategy overview

This vault borrows the borrow token (ETH) from Notional, converts the borrow token into the PT underlying token (pufETH), and buys the PT. The PT is convertible back into the underlying token subject to liquidity and can always be redeemed for the underlying token at maturity.

Notes

  1. After the PT matures, the assets convert to pufETH and continue earning yield.

  2. Liquidations can only occur if they do not cause account insolvency. If a liquidation transaction would leave bad debt on Notional, it will revert.

Vault parameters

Vault Parameters Proposed Value Implied Leverage
LiquidationRate 1.03
MinCollateralRatioBPS 0.11 10.09
MaxDevelerageCollateralRatioBPS 0.2 6.00
MaxRequiredAccountCollateralRatioBPS 1 2.00
Maximum vault capacity 1000 ETH
Minimum borrow size 20 ETH
feeRate5BPS 0
ReserveFeeShare 80%

pufETH redemption and liquidity

pufETH is fully redeemable at any time. Redemption times vary depending on the Eigenlayer holding period + the Ethereum validator exit queue.

Given the free redeemability of pufETH, on-chain pufETH trading liquidity is less important from a risk standpoint but is still helpful in enabling instant exits and liquidations.

Onchain liquidity for pufETH is relatively low, but it is enough for the purpose of instant exits and to ensure that arbitragers have sufficient incentive and opportunity to return pufETH to peg if it does depeg.

Protocol Pair TVL pufETH Percentage
Curve pufETH / wstETH $9.3M 54%
Curve pufETH / ETH $1.5M 61%
Balancer pufETH / wstETH $3.3M 51%
Uniswap pufETH / ETH $2.7M 51%

Risks

The strategy’s structure (no liquidations if they cause insolvency) and risk parameterization is designed to ensure that no insolvency can occur as long as the underlying token is redeemable at the maturity of the PT at par.

However, there are ways that this strategy could go wrong which would violate this core assumption.

  1. Slashing. If capital controlled by pufETH is slashed, this could put a haircut on the pufETH redemption value. Slashing is not currently operational so this is not a concern at the moment.

  2. Expanded pufETH redemption period. If the time it takes to complete an pufETH redemption expands significantly, that could cause risks for this strategy. The risks boil down to the fact that pufETH does not earn yield after redemption has been initiated, but accounts on Notional are still paying interest on their borrow. This could cause insolvency over a long enough time period.

This strategy’s risk parameters allow for a 10% decline in the pufETH price before Notional becomes insolvent. For the expanded pufETH redemption period to cause losses, the debt on a user’s position would have to increase by ~10% before the user receives their ETH back.

This is extremely unlikely. If the user was paying a 20% borrow rate (unlikely), they would still be able to wait for 6 months to get their ETH back without causing any insolvency. It is possible that the Ethereum validator exit queue could expand significantly, but six months is an unprecedented period of time and there is a very small chance that the exit queue would expand to this length.

Smart contract risk

This strategy involves smart contract risk associated with Puffer and Pendle. Both of these teams are battle-tested and have demonstrated high security standards.