YieldNest’s Technical Specifications
Last updated
Last updated
YieldNest’s system architecture uses a clean design pattern. It is meant to be modular, clearly separate concerns, and use abstractions to promote a flexible, maintainable, and scalable codebase.
The core idea behind clean architecture is to create a fundamental base for YieldNest independent of external dependencies. It leverages modular and interchangeable components that future-proof YieldNest, allowing it to leverage future restaking protocols beyond EigenLayer and support multi-layer LRT staking.
The smart contract protocol consists of proxy-upgradeable smart contracts, with the ynETH contract acting as the main entry point for users to deposit ETH in exchange for ynETH, which represents users’ total shares of the restaked ETH managed by the protocol.
The protocol uses Ethereum staking-as-a-service providers to stake ETH by delegating to validators, making their stake available for restaking on EigenLayer by configuring their withdrawal credentials to point to one of the EigenPod instances owned by the YieldNest.
The protocol generates revenues by taking a protocol fee from the total Ethereum staking and AVS restaking rewards. These rewards are converted to ETH before being redistributed to ynDAO token holders. The remaining rewards are accumulated and auto-restaked.
YieldNest is currently managed by a set of multi-signature wallets that determine the protocol’s restaking strategies, handle validator registration, harvest rewards, manage upgradability, manage roles, and perform other administrative tasks.
YieldNest plans to develop two modules, YieldNestStrategyManager and ynDAO governance, to decentralize the current setup and transfer control over the protocol to ynDAO token holders in the near future. YieldNest starts off only with deposit functionality and will release a WithdrawalManager module shortly after the initial version is released, to allow unstaking requests from users through which ynETH is redeemed for ETH.
ynETH starts at 1:1 to ETH and then appreciates in value against it as it accrues Ethereum staking rewards and restaking rewards from various AVSs.
This means that, after a while, one ynETH will be redeemable for more than one ETH.
The deposited ETH are idle until retrieved by the StakingNodesManager to be deposited into the Ethereum 2 Staking contract and restaked on EigenLayer.
The StakingNodesManager keeps track of all StakingNode instances in the system.
The StakingNodesManager can deploy the depositors’ ETH that backs ynETH into the Ethereum 2 Staking contract.
The StakingNodesManager.registerValidators call can be executed by the VALIDATOR_MANAGER_ROLE multi-sig. The protocol initially operates with a federated model, where it has the power to register new validators from selected partner providers (currently active: https://figment.io/, with more to come).
YieldNest will launch with a federated model, meaning the YieldNest DAO will securely assign initial DAO-vetted node operators.
YieldNest plans to enhance security, decentralization, and improve the user experience by leveraging EIP-5630 or sharded keys with Distributed Validator Technology (DVT).
There’s a 1:N relationship between StakingNodesManager and StakingNode instances. The StakingNodesManager can deploy an arbitrary number of StakingNode contact instances, up to a maxStakingNodes configured system parameter.
The StakingNode instances follow a BeaconProxy pattern for upgradeability.
One StakingNode is created for each EigenPod under the management of the protocol.
The protocol has a fixed number of StakingNode instances. This allows the protocol to delegate chunks of the total assets under management to multiple node operators, where one chunk size is defined by the number of validators with withdrawal credentials equal to the EigenPod address of the respective StakingNode.
The RewardsDistributor handles all YieldNest rewards, processes protocol fees, and distributes the net rewards towards the total AUM.
YieldNest has three primary revenue sources:
Ethereum staking consensus layer rewards
Ethereum staking execution layer rewards
AVS rewards
veYND bribes
Until Eigenlayer starts supporting the distribution of AVS rewards, only the Ethereum consensus and execution layer staking rewards will be available.
When AVS rewards become available, the RewardsDistributor will be extended and configured to convert and distribute rewards in any token. The RewardsDistributor will have a built-in swap facility to convert and distribute rewards (a future AVSRewardsConverter module).
Any airdrops or other one-time rewards that may become available due to restaking will also be counted towards the protocol's total rewards stream and distributed like the other three reward types.
After applying the protocol fee, the RewardsDistributor sends rewards back to ynETH to accrue towards the total protocol assets.
The protocol fee is applied to the protocol's total revenue after it has been converted to ETH and distributed to the veYND token holders.
Because veYND token holders receive the protocol fee as a reward, the RewardsDistributor sends rewards to the YieldNest DAO Treasury will convert the ETH to more veYND, which will serve as a long-term holder of veYND tokens.
Until the YND & veYND token is released, the protocol collects the entire protocol fee in a DAO multi-sig whose address is stored at RewardsDistributor.feeReceiver.
The YieldNest StrategyManager is interfacing with the EigenLayer DelegationManager and StrategyManager to delegate stakes to pre-selected operators and deposit them in curated strategy vaults.
The StrategyManager controls StakingNode instances’ ability to delegate and stake shares to a particular strategy.
The ynDAO Governance can whitelist AVS operators.
The ynDAO Governance can whitelist AVSs.
The ynDAO Governance can register strategies.
The ynDAO Governance can configure custom rewards.
The ynDAO Governance can configure veYND emission.
The StrategyManager monitors AVSs.
The StrategyManager monitors operators.
The ability to withdraw will not be available immediately upon launch. This functionality will be introduced in subsequent epochs to ensure stability and security within the YieldNest protocol. We are currently developing a unified liquidity model for all our LRT products that will be implemented over time; a more detailed explanation follows below.
As YieldNest develops a broader range of LRT products (e.g., thematic AVS baskets, risk-tranched AVS baskets, and isolated AVS tokens), it becomes increasingly important to ensure deep liquidity for each of the ever-growing number of YieldNest LRTs. Because we envision a rapidly expanding AVS and LRT landscape, we prioritized designing a liquidity model that minimizes liquidity fragmentation by providing unified liquidity for all YieldNest LRTs. This model works by introducing a liquid token (qETH) representing ETH that is escrowed in the EigenLayer withdrawal queue. Because withdrawal-escrowed ETH no longer has exposure to any particular AVS's risks (slashing) or rewards (yield), all YieldNest LRTs become fungible once withdrawal escrow is initiated. Therefore, any YieldNest LRT can be directly converted to the same token (qETH) representing ETH in the withdrawal-escrowed state. This allows for a single qETH/ETH liquidity hub to support expedited exit from any YieldNest LRT.
YieldNest plans to develop and deploy a TryLSD Pool on Curve with blue chip liquid staking derivatives (LSDs), including wstETH, rETH, and sfrxETH.
YieldNest will onboard many AVSs and new collateral types that make sense for the protocol and broader ecosystem. It sees the use of restaked LP pools like TryLSD as a natural and beneficial development. The TryLSD Curve pool can be used as restaked collateral and economic security, making staking more capital efficient. In addition to facilitating restaking with high-quality AVSs, YieldNest also plans to [or: may also] launch its own AVSs which cater to core needs throughout the DeFi ecosystem. For example, many DeFi protocols have tunable parameters that are adjusted over time to accommodate changing risks and market conditions. YieldFi may develop AVSs that are specialized for running optimization software (e.g., curvesim) and/or AI models to update these parameters in an automated manner.
Phase 1:
To ensure the security, scalability, reliability, and high yield of its Native Liquid Restaking Protocol, YieldNest will initially work exclusively with a permissioned group of professional operators. These carefully selected EigenLayer operators will be responsible for running Ethereum validators that natively restake on EigenLayer and run AVS modules to maximize restaking rewards for ynETH token holders.
The permissioned setup will allow YieldNest to meticulously control and optimize the protocol's performance, ensuring a smooth user experience. Ethereum validators and Eigenlayer operators will be whitelisted following a rigorous vetting process conducted by the YieldNest DAO. Once approved, operators will receive token delegations via smart contracts, enabling them to participate in the restaking process.
Given the potential risks associated with AVSs, the YieldNest DAO will conduct thorough research and vote on each AVS proposed for inclusion. Only approved AVSs will be whitelisted, allowing node operators to select from a pool of vetted and secure options.
Phase 2:
YieldNest is committed to Ethereum's long-term decentralization and censorship resistance goals and ethos. To that point, when it matures, the protocol plans to transition from a permissioned to a permissionless validator/operator system, leveraging Distributed Validator Technology (DVT).
With DVT, YieldNest will drastically reduce the Ethereum validator staking requirement from 32 ETH to 1-4 ETH. This will lower the barrier to entry for Ethereum validators, enabling individuals who don't have 32 ETH to participate in the network actively.
DVT also mitigates slashing risks and enhances uptime, contributing to higher yields for ynETH token holders. This trifecta of benefits—lower barriers to entry, reduced risks, and improved yields—paves the way for a more inclusive, resilient, and rewarding YieldNest ecosystem.
YieldNest will accrue rewards from its restaking services and distribute them according to the following breakdown:
90% to ynETH holders
10% to the YieldNest DAO and YND token holders
The exact dynamics of the rewards pool are still being considered. A rewards distribution contract will calculate rewards and penalties and distribute them to restakers, operators, YieldNest DAO, and YND token holders.
