[Gauntlet] Optimism v3 WETH Comet Listing
Simple Summary
Below are the initial parameter recommendations for the Optimism v3 WETH Comet:
Risk Parameters
| Asset |
Collateral Factor |
Liquidation Factor |
Liquidation Penalty |
Supply Cap |
| rETH |
90% |
93% |
3% |
470 ($2M) |
| wstETH |
88% |
93% |
3% |
1,300 ($5.8M) |
| WBTC |
80% |
85% |
10% |
60 ($4.2M) |
Gauntlet advises against listing cbETH within the WETH Comet due to its limited on-chain circulating supply, totaling 84 cbETH on Optimism at the time of this forum post. Gauntlet reviewed sfrxETH and does not recommend listing the asset until DEX liquidity improves. The liquidity of sfrxETH is centralized on the Beethoven Exchange, with a WETH liquidity path showing 20% slippage at $1M.
sfrxETH DEX Liquidity
| Dex Category |
Pool address |
TVL(mil) |
| beethoven_x_optimism |
0x5f8893506ddc4c271837187d14a9c87964a074dc |
4.95 |
| velodrome-finance-v2 |
0xff5318f81dd791e92d51b8a54fa3538832d2890d |
0.79 |
| velodrome |
0xeb676ae691df237ac09a0f7410123a714d84afb3 |
0.02 |
weETH and rsETH are presently circulating on the OP chain, albeit with very low liquidity. Gauntlet will continue monitoring these LRT markets and recommend their addition once liquidity conditions improve.
Gauntlet recommends including WBTC in this Comet listing. As evidenced by our v2 markets, 50% of WETH borrowing is backed by WBTC collateral. This statistic underscores the demand among WBTC holders to borrow WETH, indicating significant utility and usage.
Furthermore, WBTC exhibits a high correlation with WETH, boasting a correlation ratio of 0.98. This correlation creates an optimal scenario for attaining higher leverage while mitigating risk.
Storefront Price Factor: 70%
Gauntlet recommends keeping the Store Front Price Factor at the same value as the Ethereum v3 WETH Comet.
Target Reserves: 5000
After Gauntlet’s forum post analyzing Target Reserves, Gauntlet recommends the following Target Reserves.
IR Curve Parameters
IR Curve Parameters
Gauntlet recommends the following IR parameters for the WETH Comet:
| Parameter |
Recommended Value |
| Annual Supply Interest Rate Base |
0 |
| Annual Supply Interest Rate Slope Low |
0.0185 |
| Supply Kink |
0.85 |
| Annual Supply Interest Rate Slope High |
1 |
| Annual Borrow Interest Rate Base |
0.01 |
| Annual Borrow Interest Rate Slope Low |
0.014 |
| Borrow Kink |
0.85 |
| Annual Borrow Interest Rate Slope High |
1.15 |
The chart above demonstrates that the generation of Comet WETH reserves will be positive when utilization exceeds 61%.
Considering the market equilibrium assumption of reaching 85% utilization, the following chart forecasts annualized reserves corresponding to various borrowing amounts. At $6.8M borrowed, the Comet would generate annual reserves of $23k.
Incentive Parameters
Our COMP rewards recommendations are designed to offer appealing distribution APRs when the comets are first launched and when supply caps are highly utilized.
Gauntlet is recommending higher supply rewards to incentivize a more significant inflow of supply tokens into the protocol. This is important in the early stages of protocol growth since WETH supply is required before borrowers can join. Daily COMP rewards are subject to change as TVL rises and the markets evolve.
WETH Comet Incentives
| Daily COMP Supply Rewards |
Daily COMP Borrow Rewards |
| 4 |
3 |
Here’s an update on the current COMP rewards structure in Arbitrum v3 WETH:
- Daily COMP Supply Rewards: 4 COMP
- Daily COMP Borrow Rewards: 3 COMP
Assuming full usage of supply caps and current liquidation factors, the total borrowing power would be $10.8M.
Here’s a breakdown based on our assumptions:
- Borrow Usage (80%): This leads to a borrowing volume of $7.5M.
- Utilization (85%): Corresponding to a supply volume of $9M.
With the above utilization and the present Interest Rate curve:
- Supply APR: 1.57%
- Borrow APR: 2.19%
Given the current COMP price of $60:
- Supply Distribution APR: .98%
- Borrow Distribution APR: .87%
This results in the following Net APRs:
- Net Supply APR: 2.59%
- Net Borrow APR: 1.32%
The chart above illustrates the Distribution of Annual Percentage Rates (APRs) across various supply levels, assuming an 85% utilization rate. It’s noteworthy that APRs exceeding 2% will persist until the market’s supply reaches $4M. These incentive distributions are strategically designed to accelerate the WETH Comet. The current projected net APRs are within reasonable ranges.
Next Steps
We welcome community feedback.
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