[Gauntlet] - osETH Asset Listing Recommendation on Ethereum Mainnet
Simple Summary
Gauntlet recommends listing this asset within the existing WETH Comet with the following parameters:
| Parameter | Value |
|---|---|
| Collateral Factor | 80% |
| Liquidation Factor | 85% |
| Liquidation Penalty | 10% |
| Supply Cap | 10,000 |
osETH TVL in pools has been trending upwards. The below table outlines major osETH/WETH pools and their TVLs.
Total TVL: 93.75mil
The Balancer osETH-WETH pool stands out as the primary liquidity source with $93.7M worth of WETH. It’s worth noting that there are additional liquidity pools involving LST/LRT pairs that contribute to the overall liquidity profile of osETH. These peripheral sources of liquidity are not accounted for in the list above. The withdrawal queue for osETH redemption on StakeWise typically depends on the current network conditions and the number of users exiting their staking positions. For Ethereum-based staking withdrawals, it can take from a few days to about a week for smaller exit volumes, and up to around seven days for larger volumes of withdrawals, as observed with other staking protocols (Main Hub | StakeWise V3) (ethereum.org).
Supply Cap and Liquidation Penalty
A 5% slippage would amount to ~$42M worth of osETH being sold. Given the above liquidity sources, we recommend setting the supply cap that would cause 5% slippage i.e half of the liquidation penalty although our methodology allows for higher supply caps. This means that the total slippage should the entire supply get liquidated needs to be < LP. Gauntlet recommends a supply cap of 10,000 osETH, this swap would cause a slippage of ~5% vs a liquidation penalty of 10%.
Liquidation Factor (LF) and Collateral Factor (CF)
| Metric | Value |
|---|---|
| Annualized Volatility | 5% |
| Max Drawdown from Exchange Rate | 1% |
Given the above metrics along with the proposed Liquidation Penalty, Gauntlet recommends
Liquidation Factor = 1 - (LP+Volatility)
This would give an LF of 85%, and a CF of 80%
Use of Exchange Rate Oracles
If exchange rate oracles are implemented, Gauntlet can recommend more capital efficient parameters as the asset remains insulated from market movements, although exposes it to tail-end risks. The exchange rate based risk parameters could facilitate higher caps and Liquidation Factors along with more conservative Liquidation Penalties. Gauntlet supports exchange rate oracles for rsETH within this correlated Comet if the community decides to move forward with this strategy.
Yield Risk
The yield from staking ETH and earning osETH can be volatile and is influenced by various factors such as validator performance, network conditions, and staking competition. Yield rates can fluctuate, and there is no guarantee of consistent returns. Gauntlet would like flag this potential risk to the community.
Next Steps
We welcome community feedback.