Add Market ezETH on ETH Mainnet

[kratikl]

Summary

We would like to propose on addition of ezETH market to Compound V3 on Ethereum Mainnet

Motivation

LRTs are a great use case for Compound - the fastest growing sector in 2024. Renzo is one of the first LRTs with $950M+ in TVL, 15K+ holders, and 50K+ txs. ezETH has a proven track record of being a low-volatility asset owing to a deep liquidity pool.

Integrating ezETH as a collateral asset will potentially create new demand for borrowable assets on Compound. This will bring a larger user base to both Compound and Renzo.

Proposed Collateral

We propose adding the following asset as collaterals for the ezETH market

ETH

ezETH

We invite the community to suggest and give inputs for any other collateral assets.

Relevant Statistics and Links

Website: https://www.renzoprotocol.com/
Twitter: https://twitter.com/RenzoProtocol
Contract address: ezETH (Renzo Restaked ETH) Token Tracker | Etherscan
Docs: Intro | Renzo Protocol
Source code: GitHub - Renzo-Protocol/contracts-public: Renzo Protocol Public
Contract: ezETH (Renzo Restaked ETH) Token Tracker | Etherscan
Audits: https://github.com/HalbornSecurity/PublicReports/blob/master/Solidity Smart Contract Audits/Renzo_Protocol_EVM_Contracts_Smart_Contract_Security_Assessment_Report_Halborn_Final.pdf
Oracles: Chainlink ezETH-ETH price feeds live on 20th of March

Total Value Locked: $950 Million

Total supply: 215K+ Renzo Restaked ETH

24H trading volume: $41,203,780

Why Renzo:

Backed by Maven11, Robot Ventures, IOSG, OKX Ventures and more Renzo is a Liquid Restaking Token (LRT) and Strategy Manager for EigenLayer. It is the interface to the EigenLayer ecosystem securing Actively Validated Services (AVSs) and offering a higher yield than ETH staking.

The protocol abstracts all complexity from the end-user and enables easy collaboration between them and EigenLayer node operators.

Users can deposit native ETH or LSTs and receive ezETH - The liquid restaking token representing a user’s restaked position at Renzo. .

ezETH is one of the largest LRTs with $950M+ TVL, a fast growing user base, and ezETH/ETH pair is one of the most liquid low-volatile pairs with $65M+ in TVL and $40M+ in daily volumes.

Points

Renzo awards ezPoints and EigenLayer Restaked Points based on users’ ezETH holdings. Every user that deposits ezETH in Compound will also be awarded ezPoints and EigenLayer points 1:1.

Next Steps

Adding ezETH enables Compound protocol users to get the full benefits of the Liquid Restaking. Furthermore, it positions Compound as the premier protocol within the liquid Restaking space.

We invite the community to consider this application for listing the USDT market and welcome suggestions in this direction.

Additionally, we look forward to the community to suggest

Collateral Factor

Reserve Factor

Borrowing Limit

[ck857]

that is a good idea . Just do it

[stETHwen]

Hey mate, i just went over your gov proposal and was wondering if you are trying to be the first gov clown or something.

In all seriousness, i don’t see how this can be collateral, prior to for example stETH being collateral.
As ezETH compounds(pun intended) risk on top of all the staked ETH the ezETH sausage consists of.

[Gauntlet]

Gauntlet - Initial Parameter Recommendations for ezETH and Ethereum WETH Comet on Compound v3

Simple Summary

Should the community wish to proceed with @kratiki’s new market listing proposal, Gauntlet provides the following parameter recommendations for a new WETH Comet on Mainnet with ezETH as collateral. Gauntlet recommends the following parameters for listing ezETH and the new ETH Comet:

ezETH Parameter	Value
Collateral Factor	80%
Liquidation Factor	85%
Liquidation Penalty	10%
Supply Cap	2800

Analysis

ezETH Liquidity sources

Dex Category	Pool Assets	TVL (mil)	24H Volume (mil)	ezETH TVL (mil)	URL
Balancer	ezETH/WETH	74.63	47	46.7	link
Curve	ezETH/WETH	3.6	0.4	1.9	link
Uniswap V3	ezETH/WETH	1.2	7.9	0.5	link
Total	-	79.43	55.6	49.1	-

The balancer ezETH-WETH pool is the largest source of liquidity for ezETH, however, the composition of this pool is largely ezETH making up more than 60% of the TVL.

ezETH/ETH Liquidity on Balancer

Apart from the above ezETH, liquidity is available in tripool of ezETH/rswETH/weETH having total TVL of $39.6M as ancilliary sources of liquidity. However since we are more concerned with the liquidity with respect to WETH, we only limit our sources to WETH pools.

Liquidity Reserving Tokens (LRTs) entail both uncertainty regarding liquidity profiles and associated slashing risks. While LRTs may reserve liquidity for in-protocol, instant redemptions, withdrawals are subsequently rate-limited by the underlying protocols once the pool is depleted. This limitation could potentially affect liquidity availability. Therefore, Gauntlet advises adopting a highly conservative approach to parameters and suggests capping the supply to $10 million or 2800 tokens.

Oracle Risk

Chainlink’s price feed has only been live for a few weeks and is market rate based which could expose the protocol to both inorganic/artificial inflation in the staking rate as well as downward price deviations from the underlying. Gauntlet would like to highlight this potential risk to the community.

Yield Risk

Currently LRTs such as ezETH have elevated yields due to points program. EigenLayer maturity and AVS launch will cause yield shocks and consequentially elevate slippage magnitude and liquidity on DEXs. Gauntlet would like flag this potential risk to the community.

Storefront Price Factor: 60%

Gauntlet recommends keeping the storefront price factor at 60% for this new WETH Comet.

Target Reserves: 10,000

After Gauntlet’s forum post analyzing Target Reserves, Gauntlet recommends a target reserve of 10k for this new WETH Comet.

IR Curve Parameters

Gauntlet recommends the following IR parameters for this ETH Comet:

Parameter	Recommended Value
Annual Supply Interest Rate Base	0
Annual Supply Interest Rate Slope Low	0.020
Supply Kink	0.9
Annual Supply Interest Rate Slope High	1
Annual Borrow Interest Rate Base	0.005
Annual Borrow Interest Rate Slope Low	0.0235
Borrow Kink	0.9
Annual Borrow Interest Rate Slope High	1

The chart above demonstrates that the generation of WETH Comet reserves will be positive when utilization exceeds 64%.

Considering the market equilibrium assumption of reaching 90% utilization, the following chart forecasts annualized reserves corresponding to various borrowing amounts. At $6.5M borrows, the Comets would generate annual reserves of ~$38.7k.

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 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.

Daily COMP Supply Rewards	Daily COMP Borrow Rewards
3	0

Here’s an update on the current COMP rewards structure in Ethereum v3 WETH (LRT):

• Daily COMP Supply Rewards: 3 COMP
• Daily COMP Borrow Rewards: 0 COMP

Assuming full usage of supply caps and current liquidation factors, the total borrowing power would be $8.5M.

Here’s a breakdown based on our assumptions:

• Borrow Usage (80%): This leads to a borrowing volume of $6.8M.
• Utilization (90%): Corresponding to a supply volume of $7.5M.

With the above utilization and the present Interest Rate curve:

• Supply APR: 1.80%
• Borrow APR: 2.62%

Given the current COMP price of $89:

• Supply Distribution APR: 1.13%
• Borrow Distribution APR: 0%

This results in the following Net APRs:

• Net Supply APR: 2.93%
• Net Borrow APR: 2.62%

The chart above illustrates the Distribution Annual Percentage Rates (APRs) across various supply levels, assuming a 90% utilization rate. It’s noteworthy that Supply APR will exceed 2% until the market’s supply reaches $4.5M. These incentive distributions are strategically designed to accelerate the new WETH Comet. The current projected net APRs are within reasonable ranges.

Next Steps

We welcome community feedback.