Summary
Timeline: From 2025-06-09 To 2025-06-10
Overview
Puffer Finance has created a Compound forum post requesting that pufETH be accepted as collateral in the Ethereum markets. The proposal highlights pufETH’s “liquid restaking” design and its sizeable DeFi footprint, and offers Puffer Points to addresses that vote in favor of the proposal.
Puffer Finance itself is a native liquid-restaking protocol (nLRP) built on EigenLayer. Its goal is to let anyone run an Ethereum validator while earning both Proof-of-Stake (L1) rewards and additional EigenLayer restaking rewards. The project reports a total value locked of nearly $1.4 billion in core contracts and a further ~$640 million across integrations, and it is backed by investors such as Binance Labs, Brevan Howard, Fidelity-Avon, Franklin Templeton, Coinbase Ventures, and Kraken Ventures.
What is pufETH?
pufETH is a yield-bearing ERC-4626 token that represents ETH staked through Puffer. It differs from standard liquid-staking tokens (LSTs) because it also accrues EigenLayer restaking rewards, making it an nLRT (native Liquid Restaking Token). Holders benefit from a single-step staking experience: simply holding pufETH provides both L1 and restaking yield.
Key Characteristics
Token design
pufETH is an upgradeable ERC-4626 vault. Administrative operations (upgrades and fee changes) run through OpenZeppelin’s AccessManagedUpgradeable role system, so they must be executed by authorized signers on-chain.
Issuance and Redemption Workflow
- Mint: Deposit ETH (or approved LSTs) into
PufferVaultand receive a proportional amount of pufETH. - Redeem: Burn pufETH and choose one of two exit modes:
- Instant Withdrawal – ETH is delivered immediately, but a fee (currently
1%, hard-capped at2%) is deducted. - Queued Withdrawal – Request enters a ≈14-day queue and is settled fee-free.
- Instant Withdrawal – ETH is delivered immediately, but a fee (currently
Fee Mechanics and Oracle Impact
The instant-withdrawal fee is withheld inside the vault. Since convertToAssets() divides total assets (which now include the retained fee) by the total supply (which just shrank), the exchange rate it returns drifts upward by exactly the fee percentage. Compound’s price feed uses this value, so it can overstate pufETH’s spendable ETH by up to 2%. By contrast, previewRedeem and previewWithdraw already subtract the fee and therefore expose the true, net redemption amount.
Tokenomics (13 Jun 2025)
- Price: ≈ $2,653
- Market cap: ≈ $152 million
- Holders: ≈ 45,000 unique addresses
- 24h on-chain volume: ≈ $186,000
- Contract age: deployed Jan 2024 (≈ 18 months live)
Conclusion
This assessment finds pufETH suitable for use as collateral on Compound, provided that the community recognizes the small valuation drift introduced by its instant-withdrawal fee. The vault can charge up to 2% (currently 1%) on withdrawals executed immediately, yet the protocol’s price oracle derives its exchange rate from convertToAssets(), a function that does not subtract that fee. In periods when many redemptions take the instant path, the oracle can therefore overstate the token’s redeemable value by no more than those two percentage points.
In practice, this ceiling remains lower than the liquidation incentives that Compound markets typically offer, so the difference is unlikely to endanger solvency or materially deter liquidators. Moreover, the discrepancy is confined to the instant-withdrawal route. Users who opt for the delayed, fee-free queue receive exactly the amount reflected in the oracle, making pufETH’s pricing behavior consistent with other LSTs that employ time-locked redemptions already accepted by the protocol.
As the fee is both capped and visible, and because an alternative, fee-less withdrawal path exists, we do not view the mechanism as a high-risk feature. With these considerations in mind, listing pufETH should be compatible with Compound’s existing risk framework.