How Does Fluid Lite Work?

Deposits ETH, stakes to get stETH via Lido, uses stETH as collateral on lending protocols (Aave, Compound, Morpho) to borrow ETH, restakes, and repeats — amplifying staking yield through leverage

Standard recursive stETH leverage strategy used across DeFi. The leverage ratio determines both yield amplification and risk amplification. Typically 2-4x leverage.

Smart contract vaults with automated rebalancing that adjusts leverage ratios and allocations across lending protocols based on market conditions and rate differentials

Automated cross-protocol rebalancing is the value-add over manual recursive strategies. Automation carries its own risks: bot failures, oracle lag, and MEV extraction during rebalances.

Vaults split funds across Aave, Compound, and Morpho to optimize yield and manage risk, with dynamic allocation based on rate differentials

Multi-protocol routing provides diversification but compounds smart contract risk — each additional protocol adds attack surface.

20% performance fee on generated yield plus 0.05% exit fee on withdrawals from Lite vaults

Standard yield aggregator fee model. Performance fee aligns incentives but exit fee creates friction during market stress when users need to exit.

FLUID token (rebranded from INST) governs protocol parameters, vault strategies, and fee distribution

Instadapp rebranded to Fluid in December 2024. Governance token controls strategy parameters which directly affect risk levels for vault depositors.

Relies on oracle price feeds from each underlying protocol (Aave, Compound, Morpho) for collateral valuation and liquidation thresholds

Each underlying protocol has its own oracle setup. Oracle disagreements between protocols could cause inconsistent liquidation behavior during volatile markets.

At 3-4x leverage, a 5% stETH depeg would cause the vault's collateral to drop below liquidation thresholds across all lending protocols simultaneously. The vault would need to rapidly de-leverage, selling stETH into an already depressed market, amplifying the depeg and losses.

Funds are deployed across 3+ lending protocols simultaneously. A smart contract exploit in any single protocol could drain the portion of vault funds allocated there. The aggregate attack surface is the union of all dependent protocols' surfaces, not just one.

Rebalancing transactions rely on accurate oracle prices to make allocation decisions. During high-volatility periods, stale or manipulated oracle prices could cause the automation to make incorrect rebalancing decisions, moving funds into unfavorable positions.

During a stETH depeg event, the exit fee creates perverse incentives to delay withdrawal, leading to a rush for the exit when losses become unavoidable. First movers absorb the fee; late movers absorb both the fee and leveraged depeg losses.

Governance-controlled strategy parameters (max leverage ratio, protocol allocation limits) directly affect risk for depositors. Aggressive parameter changes to boost yield could significantly increase loss potential without depositors' explicit awareness.