Love these scenarios being raised by folks in the Ethereum ecosystem, these concerns are the reason behind why building asset-native DeFi protocols is so important. Staked and restaked assets have a myriad of various characteristics that aren't inherent to every asset in the ecosystem. Though they have made up (prev to recent times) a vast minority of on chain collateral, as they become more and more entrenched as the de-facto collateral asset in DeFi, we are going to have to build infrastructure that is aware of these inherent characteristics. The dependency on robust active counterparty liquidity for LSTs is something that is extremely expensive (for providers) and doesn't scale, especially when you take into consideration the liquidity fragmentation that will follow the advent of restaking. Liquidations based on this dependency are mechanisms that exposure borrowers to risks that aren't representative of the underlying solvency of their positions. Similar to nation-state bond mispricing, the way protocols frame LST value currently are similarly to as if they were sovereign bonds with an expiry dictated by the withdrawal queue. Though we should factor in user demand for liquidity as a function of withdrawal availability, this method of valuation in an inherently much more illiquid market compared to most sovereign bonds can lead to significant market mispricing much easier many will initially consider due to the cost of counterparty liquidity and has the potential to harm many users due to the opacity of the risk vector This is one of the many reasons why when we decided to build @ionprotocol, we knew that there should be a better approach to determining the underlying value of staked and restaked assets and decided to implement a solvency-based approach with multiple redundancies for assessing this value. But realistically this is just step one of the journey, step two is changing the dynamic of how users can exit into ETH liquidity and building venues to enable more passive (and JIT-like) methodologies that decrease the cost overhead for providers to incentivise counterparty liquidity to further derisk the solvency based valuation mechanism. More on this soon 👀
