The Mechanics of qETH

A fundamental explanation of qETH

qETH represents the time and quantity of ETH a user deposited in a fund. Users interact with Tranchess Fund to deposit ETH and create the equivalent US dollar worth of new qETH.

qETH holders could swap qETH with ETH, provide liquidity for the qETH-ETH stable swap, or split into BISHOP and ROOK for more risk options. Furthermore, Tranchess Fund will stake the ETH into the ETH2 Deposit contract. Every 32 Ethers deposited would activate a new validator created by one of the node operators and earn stable ETH2 staking rewards. Note that since the rewards for a functional validator node are always positive and will constantly grow, the net asset value of qETH/ETH will almost always increase.

Unlike Lido’s stETH, the balances of qETH does not get rebased on daily basis; what’s getting recalculated regularly is the net asset value of qETH. The staking rewards will be reflected on the increase in the net asset value (qETH/ETH). Therefore, qETH is naturally compatible with existing DeFi infrastructures. Fund would distribute fee rebates to node operators and veCHESS holders in qETH, which could be directly traded in the qETH/ETH pool from Balancer directly.

Due to the illiquidity of the staked ETH, there is no way to collect the ETH rewards at the current Phase. Therefore, the fund would distribute qETH as the performance fee so that veCHESS holders and node operators could collect and participate in other activities with qETH at will. The strategy relies on trusted reporters to summarize individual node operators' current performance and update the fund's total underlying without actually receiving the ETH. In the short term, an off-chain reporter microservice will retrieve the total summation of all staked assets, but we will eventually update it into an on-chain oracle with quorum restriction.

Most of the qETH performance fee get distributed among veCHESS holders, and a fraction of the fees go to each node operator. The overall operator fee rate is one of the parameters controlled by Tranchess Timelock. The community could always propose and vote to apply a new distribution ratio between node operators and veCHESS holders. For individual node operators, the strategy contract will distribute the qETH rewards based on performance. Namely, the greater the net profit a node operator made, the higher percentage of the qETH it would receive.

Step 1: User Creates qETH

To get started, users deposit ETH to create qETH with Tranchess Fund.

Step 2: Strategy Assigns the Next Validators

Strategy collects ready validator addresses from node operators. Strategy will continue to match up the validator address with the ETH deposit until either unused funds or idle validators run out.

Step 3: Operators Receive Rewards

Once validators start earning rewards, Tranchess will deploy Reporter oracles to capture the per-operator performance and report the profit (or loss) to Strategy, which would further distribute rewards to the corresponding operator.

Last updated