10X the ezFriendly Leverage

With the passing of GIP-143, Gearbox DAO approved increasing the LTV(Liquidation Threshold Value) for ezETH, bringing the maximum possible leverage to 10X. The change in the LTV was voted on based on improved fundamental specifications for ezETH, which make Friendly Leverage on ezETH a possibility.

Friendly leverage enables users to access upto 10X credit to buy an asset without exposing the users to DEX price volatility. How does this work? Let us walk you through it!

NOTE: The LTV and leverage for ezETH will go up over the next 13 days and not immediately. Other aspects of friendly leverage are live and making ezETH leverage cheaper and less volatile.

Meet Friendly Leverage...

Friendly leverage enables users to access upto 10X credit on ezETH while

⏬ Lowering the likelihood of liquidation by taking away the volatility induced by DEX prices.
📈 Increasing returns by reducing the cost of leveraging a farm through lower borrow rates. (due to lower volatility/risk)
🛡️ And if someone still manages to get liquidated, reduce their overall losses with partial liquidations.

ezETH enables Gearbox to implement Friendly Leverage owing to the below mentioned factors.

• Withdrawals enabled: ETH can be withdrawn from Renzo's restaking contract using ezETH, reducing risks.
• Deep DEX liquidity: To make the leverage farming experience smoother even at larger sizes.
• Fundamental Oracles: To replace the DEX volatility with prices based on reserve holdings.

How does this work? Read on for Quick explanations.

I. Lower Borrow (Quota) Rates

Borrow rates are the primary factor (usually the only factor) that dictates the cost of your points. Overall Borrow rates on Gearbox comprise of 2 types of rates.

Base borrow rate: The essential cost of borrowing for a particular debt asset applied to all borrows.
Quota rates: Gearbox democratises rates by enabling users to vote on the risk-adjusted borrow rates for a specific farm or asset through Gauges. Quota rates are applied in addition to base borrow rates to achieve comprehensive risk adjusted rates. You can read more here.

While base borrow rates are the same for all strategies, Quotas depend on factors like market demand, relative rates, perceived risk, and more. With Renzo enabling withdrawals and a fundamental oracle in place, the risk associated with ezETH is significantly reduced. Thus, the borrow rates for ezETH are the lowest they have ever been.

II. Fundamental Oracles: Removing DEX volatility

The primary risk for a leveraged farm is the risk of liquidation, which arises from changes in prices on DEXes. Gearbox, though, reduces the risk of liquidation by using Fundamental Oracles.

Instead of deriving the peg of ezETH using DEX sources, a fundamental oracle derives it from the ratio of the assets restaked in ezETH's LRT contracts and the total ezETH tokens minted.

Fundamental oracles effectively move the source of prices from DEXes to ETH reserves in the LRT contracts.

The effectiveness of fundamental oracles can be observed in the chart below. The green line denotes the Fundamental Oracle or reserve price, and the red line denotes the market oracle. While market Oracles remain volatile, fundamental Oracles completely muffle the volatility and make leverage friendlier.

Changing the price source also changes the source of risks. A hack or slashing of the LRT becomes the primary source of depegging risk for Gearbox's borrowers. Since LRTs have verifiable redemptions, even if a short-term depeg occurs at a DEX level, fundamentally, arbitrageurs can restore the peg in the worst case in 7 days. Thus enabling a better leveraged borrowing experience without risking bad debt.

However, slashing won't be live for a few months... So Safu?

III. Partial Liquidations

Gearbox previously had only hard liquidations. In this case, the entire position of the user was liquidated in one go when the HF dropped below 1. To improve this UX, Gearbox has now moved to partial liquidations.

Partial liquidations won't fully liquidate a user; instead, they close their position just enough for them to be back above a health factor of 1. This will reduce the losses leverage takers incur and, at the same time, ensure bad debt doesn't seep in.

So while the HF dropping below 1 gets tougher as fundamental oracles safeguard users from short term market depegs, partial liquidations will further reduce the damage a liquidation could cause.

NOTE: Additionally, Gearbox positions are fully liquid. Your collateral is not burned instantaneously, you choose when you enter, when you leave and how much you spend.

STIMMIES and ezPoints

To make Gearbox's leverage even friendlier, ezETH on Gearbox comes with a 3X ezPoints boost. Enabling users to earn upto 30X ezPoints with leverage. Or a month's worth of points everyday.

Additionally, if you open an ezETH position on the Arbitrum network, you also become eligible for Gearbox's user rewards programs called STIMMIES. With over $300K in incentives, STIMMIES can supercharge your APYs. And ezETH comes with a 2X STIMMIES boost, details below.

Opening a position: dApp UI walkthrough

To start it all, first, go to https://app.gearbox.fi/restaking/list

then:

A. Choose the network you want to open a position on and go to "Points": Which should bring you to this page. Choose ezETH to make sure you earn the right boost.

B. Choose Your Leverage: Customise the position as per your risk tolerance. The page also displays the borrow rate, the liquidation price and more to help you take an informed decision. All these details are up to you, you decide all the parameters!

C. Scroll to the bottom of the page and click on "Open position".

And Voila! You are all set. Multicall will now execute all the required transactions in one go, using account abstraction.

Gearbox is a DAO that has no "team", what you say in the discord matters the most and is always considered. If you think there's something we suck at, come berate us. Join the DAO - just get involved on Discord. Discuss, research, lead and share. Call contributors out on their bullshit and collaborate on making things better. Here is how you can follow developments:

Website: https://gearbox.fi/
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PURE margin trading: https://pure.gearbox.fi/
User Docs: https://docs.gearbox.finance/
Developer Docs: https://dev.gearbox.fi/
Github: https://github.com/Gearbox-protocol
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Snapshot page: https://snapshot.org/#/gearbox.eth
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