Add Market ETH on Optimism

Summary

Compound Growth Program proposes the addition of an ETH market to Compound V3 on Optimism

Motivation

In line with our commitment to grow Compound’s presence as the premier lending protocol on Optimism, the addition of an ETH market on Optimism will provide users an additional avenue to utilize their assets through Compound. The ETH market will be the third market on Optimism following the USDC Market and the upcoming USDT Market.

Point of Contact: @bryancolligan @sharp

Proposed Collateral

We propose adding the following assets as collateral for the market

Ticker Project Name Project Website
wstETH Lido https://lido.fi/
rETH RocketPool https://rocketpool.net/
cbETH CoinBase Wrapped Staked ETH https://www.coinbase.com/cbeth

We invite the community to provide input on these assets and suggest any additional collateral assets.

Relevant Documents and Links

Next Steps

We invite the community to consider this application for listing the ETH market and welcome suggestions in this direction. After getting suggestions and risk recommendations from Community members, we will kickstart the coding process for the market.

Additionally, we look forward to the community’s input on an appropriate

Collateral Factor

Reserve Factor

Borrowing Limit

3 Likes

Great idea to have ETH market on Optimism. Looking forward to support from the community and configurations from Gauntlet!

4 Likes

Kenneth here, I’m a Defi Protocol Relations contributor at Lido DAO.

Personally am excited to see this market getting deployed on Optimism especially since this would create another market for the stronger use cases of stETH - leveraged staking.

Looking forward to see this market get pushed through!

2 Likes

A point worth mentioning is that cbETH may not have sufficient liquidity on Optimism atm.

Would also additionally, like to suggest sfrxETH that has comparable liquidity to rETH. An analysis from @Gauntlet will make things clearer on the question of inclusion of sfrxETH.

1 Like

[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.

2 Likes

Development is the key to success :slight_smile:

1 Like