Bonded ETH (bETH)
The bETH exchange rate determines the conversion rate when swapping stETH to bETH and vice versa. The exchange rate is calculated as the amount of stETH provided per bETH minted, the value initially starts with 1, and decreases with slashing events.
Losses from slashing events are equally shared amongst all bETH tokens, lowering the calculated value of a bETH token. stETH accounts for slashing by pro-rata decreasing the token balance of all stETH holders. The stETH balance held by the bETH smart contract also decreases, decreasing the bETH exchange rate.
The Lido DAO keeps a whitelist of ETH 2.0 validators, only permitting delegations to those included in the whitelist. This is crucial since all bETH tokens equally share slashing risks, and delegations to low-performing validators could negatively affect all holders. Through governance, the DAO can choose to register or deregister validators.
The Lido DAO is governed by holders of LDO, Lido's protocol token. The governance interfaces is accessible at this link.
bETH is minted by submitting ETH or stETH to Ethereum-side bETH contracts, along with the Terra address to receive the resulting bETH tokens. Once submitted, bETH tokens (with the amount determined by the bETH exchange rate) are minted to the provided Terra address.
bETH holders can redeem their tokens for their underlying stETH. Redemption is a two-step process; 1) transferring bETH to Ethereum and 2) redeeming bETH to stETH.
bETH tokens can only be redeemed through Ethereum-side bETH contracts. bETH tokens that reside on Terra must first be transferred over to Ethereum via Terra Shuttle.
bETH tokens on Ethereum can be converted back to stETH, with the use of Ethereum-side bETH contracts. Conversion is conducted based on the bETH exchange rate.
bETH tokens accrue TerraUSD rewards, funded from the Ethereum staking rewards of stETH. Every 24 hours, Ethereum staking rewards (in the form of stETH) are sold for UST, which are then transferred over to Terra and distributed to holders of bETH.
Holders of Terra-side bETH can send a request to the bETH contract, which prompts the transfer of accrued rewards to their account. As rewards accrue during the user's period of ownership, transferring bETH to a different user automatically credits accrued rewards to the previous holder.