Introduction

Last updated 1 month ago

Introduction

What is Hoenn?

Hoenn is a liquidity hub designed to support diverse restaking strategies while isolating slashing risks. Users can borrow overcollateralized —unified synthetic assets backed by LRTs and pegged 1:1 to their base asset, with varying Loan-to-Value ratios. These uTokens enhance liquidity and capital efficiency in DeFi, earn (re)staking rewards, and can be repaid anytime without limitations.

Motivation

The core enabler of restaking—slashing—hasn’t launched yet. Once active, the heterogeneous nature of restaking will lead to a proliferation of different strategies. Yet, many will face challenges such as low liquidity, risk of price depegs, and limited DeFi utility. Market fragmentation occurs as liquidity becomes the main factor in restaking decisions, sidelining the importance of which AVS/SSN is supported. To address this, we created a unified liquidity system for any restaking strategy, but without increasing risks for everyone.

Three critical challenges form the foundation of our design:

Increased heterogeneity post-slashing implementation. Restaking draws security from established networks and extends it to others, resulting in highly varied yield optimization strategies and risk profiles. The inherent heterogeneity of restaking will lead to a proliferation of different strategies.
Liquidity fragmentation leads to limited DeFi utilization. Many restaking strategies will struggle with low liquidity and limited compatibility with DeFi applications. Over time, this could result in constraining experimentation and resilience of shared security ecosystems.
Compounded slashing risk. A liquidity pool to aggregate different LRTs is conceivable, but it requires extreme caution. Combining LRTs with varying risk profiles significantly increases the potential for slashing and cascading failures.

Existing Solutions

Unified liquidity pools backed by multi-asset collateral: This model can be highly liquid but merging LRTs with different risk profiles heightens the likelihood of slashing and systemic failures. This model is only suitable for a few large, established LRTs, as each new collateral type increases overall risk.
Isolated lending markets: This approach minimizes systemic risk by isolating collateral types into separate markets. While the framework enhances capital efficiency and allows any LRT to be accepted as collateral, liquidity remains fragmented because each collateral market requires its own liquidity pool, resulting in greater fragmentation.
CDP stablecoins: This model enhances capital efficiency while isolating risks to user vaults. However, its liquidation mechanism require deeply liquid collateral to prevent price deviations between debt and collateral, thereby avoiding bad debt. This limits collateral options and poses challenges in unifying LRT liquidity.

How can we design a system that fully leverages the benefit of unified liquidity, shields against slashing risks, and empowers the flexibility and diversity of shared security?

Introducing Hoenn

Key Benefits

For Restakers:

Risk Isolation: Slashing risk is isolated to individual, dedicated vaults, ensuring added security.
Enhanced Risk-Adjusted Yield: Maximize yield without the risk of price-based liquidations.
Diverse Opportunities: Access a wider variety of restaking strategies supported by deeper liquidity and seamless integration across DeFi. Any LRT is eligible as collateral without liquidity constraints.

For Strategy Managers:

Unified Liquidity for Early-Stage LRTs: Early-stage LRTs can tap into unified liquidity and DeFi integrations from the start, helping them grow TVL and minimize depeg risks until they establish independent liquidity.
Decentralization and Diversity for Established LRTs: Established LRTs can support more AVSs and unlock a wide range of product offerings while driving the protocol's scalability and long-term resilience.
Focus on Strategy Development: By alleviating the burden of managing liquidity and DeFi integrations for each LRT, strategy managers can focus on refining and implementing diverse yield optimization strategies to strengthen their competitive edge and market reach.

NextuTokens

Last updated 1 month ago

What is Hoenn?

Motivation

Three critical challenges form the foundation of our design:

Increased heterogeneity post-slashing implementation. Restaking draws security from established networks and extends it to others, resulting in highly varied yield optimization strategies and risk profiles. The inherent heterogeneity of restaking will lead to a proliferation of different strategies.
Liquidity fragmentation leads to limited DeFi utilization. Many restaking strategies will struggle with low liquidity and limited compatibility with DeFi applications. Over time, this could result in constraining experimentation and resilience of shared security ecosystems.
Compounded slashing risk. A liquidity pool to aggregate different LRTs is conceivable, but it requires extreme caution. Combining LRTs with varying risk profiles significantly increases the potential for slashing and cascading failures.

Existing Solutions

Unified liquidity pools backed by multi-asset collateral: This model can be highly liquid but merging LRTs with different risk profiles heightens the likelihood of slashing and systemic failures. This model is only suitable for a few large, established LRTs, as each new collateral type increases overall risk.
Isolated lending markets: This approach minimizes systemic risk by isolating collateral types into separate markets. While the framework enhances capital efficiency and allows any LRT to be accepted as collateral, liquidity remains fragmented because each collateral market requires its own liquidity pool, resulting in greater fragmentation.
CDP stablecoins: This model enhances capital efficiency while isolating risks to user vaults. However, its liquidation mechanism require deeply liquid collateral to prevent price deviations between debt and collateral, thereby avoiding bad debt. This limits collateral options and poses challenges in unifying LRT liquidity.

How can we design a system that fully leverages the benefit of unified liquidity, shields against slashing risks, and empowers the flexibility and diversity of shared security?

Introducing Hoenn

Inspired by Sky (formerly MakerDAO) and Stakewise, Hoenn addresses these challenges by employing an overcollateralized CDP system to isolate slashing risks to dedicated while allowing users to combine liquidity via uTokens—unified synthetic assets pegged 1:1 to their underlying restaked asset, such as ETH. To bring together liquidity from diverse strategies, the protocol ensures that uTokens can only be minted when they are correlated to the underlying restaked asset. This approach allows Hoenn to accept a greater diversity of LRT as collateral without liquidation constraints while issuing synthetic tokens based on collateral availability and LTV ratios.

Key Benefits

For Restakers:

Risk Isolation: Slashing risk is isolated to individual, dedicated vaults, ensuring added security.
Enhanced Risk-Adjusted Yield: Maximize yield without the risk of price-based liquidations.
Diverse Opportunities: Access a wider variety of restaking strategies supported by deeper liquidity and seamless integration across DeFi. Any LRT is eligible as collateral without liquidity constraints.

For Strategy Managers:

Unified Liquidity for Early-Stage LRTs: Early-stage LRTs can tap into unified liquidity and DeFi integrations from the start, helping them grow TVL and minimize depeg risks until they establish independent liquidity.
Decentralization and Diversity for Established LRTs: Established LRTs can support more AVSs and unlock a wide range of product offerings while driving the protocol's scalability and long-term resilience.
Focus on Strategy Development: By alleviating the burden of managing liquidity and DeFi integrations for each LRT, strategy managers can focus on refining and implementing diverse yield optimization strategies to strengthen their competitive edge and market reach.