Add rsETH as collateral on Arbitrum and wrsETH as collateral on Optimism, Base, and Scroll

New Markets
1

Summary

Kelp DAO is seeking community support for adding its Liquid Restaking Token, rsETH, to Compound Markets on Optimism (USDC), Base (WETH), Arbitrum (WETH), Scroll (USDC). In addition, rsETH depositors into the respective Compound markets will accumulate additional Kelp miles and EigenLayer points.

General

  • Token Asset Name -

    • rsETH & wrsETH

  • A description of the project and the token -

    • KelpDAO (Kelp Liquid restaking | restake ETH, stETH & ETHx) is one of the largest liquid restaking protocol built on top of the Eigen Layer. Restakers on Kelp get access to multiple benefits like restaking rewards, staking rewards, and DeFi yields.

  • Latest stats:

    • USD 830 Mn+ (~266k Eth) TVL

    • 50K+ restakers onboarded

    • Live across mainnet and 9 L2s such as Arbitrum, Optimism, Base, Scroll, Linea etc.

    • Withdrawals are enabled on Kelp and rsETH holders can unstake rsETH for any of the LSTs and ETH on KelpDAO

    • Bridging of rsETH across L2s is facilitated by infrastructure by LayerZero

    • KelpDAO has undergone multiple security audits by top-tier audit firms including Sigma Prime, Code4rena, and MixBytes. More about KelpDAO’s security here: Kelp DAO Audit reports

  • Benefits to Compound Community

    • From Compound’s perspective, any new asset is a source of additional revenue and expands the ecosystem as a whole. LRTs are a great use case for Compound as it is one of the fastest growing ecosystems.

  • With rsETH being one of the top LRTs, integrating it as a collateral asset will create new demand on Compound. This will be beneficial for both Compound and Kelp.

  • The proposal author their contact info

  • The relationship between the author of the new market proposal and the token

    • DeFi & Partnerships team member at KelpDAO

  • Social channels -

Specifications:

Token Metrics and Token details on the mentioned L2s- (Liquidity summary)

Parameters
Looking forward to hearing feedback from Compound Community and risk managers regarding parameters -

  • Collateral Factor
  • Liquidation Factor
  • Liquidation penalty
2 Likes
2

A Structured product from Cian is interested in utilizing the Arbitrum ETH market with rsETH as collateral.

With our recent push to incentivize Arbitrum markets with the LTIPP grant, we saw the Supplied ETH on Arbitrum rise up to $50M. A greater portion of this supplied ETH is still unutilized on the market.

The Cian integration will help boost borrowing and utilization on this pool.
Moreover, we have additional ARB as incentives for the coming months that we can use to boost up the TVL even further beyond $50M and keep the utilization driving up.

The Growth program is internally prioritizing deploying rsETH to Arbitrum over other chains for now and we would be glad to receive community feedback in this direction.

3

[Gauntlet] - rsETH Initial Risk Recommendations on Arbitrum WETH v3 Comet

If the community decides to list rsETH on WETH v3 Arbitrum Comet, Gauntlet recommends the following risk parameters:

Parameter Value
Collateral Factor 80%
Liquidation Factor 85%
Liquidation Penalty 10%
Supply Cap 920

Liquidity Sources

Dex Category TVL (mil) URL
Balancer (Arbitrum) 2.42 Link
Camelot V3 1.44 Link
Uniswap V3 (Arbitrum) 1.10 Link
Ramses V2 0.59 Link
PancakeSwap V3 (Arbitrum) 0.35 Link
Uniswap V3 (Arbitrum) 0.26 Link
Uniswap V3 (Arbitrum) 0.25 Link

Total TVL: 6.41 million

The total TVL for rsETH-WETH pair across Arbitrum is $6.4M. Balancer and Camelot are the largest sources of liquidity followed by Uniswap.

Supply Cap and Liquidation Penalty (LP)

Screenshot 2024-07-26 at 1.44.24 PM

We recommend to align the Liquidation Penalty similar to mainnet. A 5% slippage would amount to ~$3.2M worth of rsETH being sold. Given the above liquidity sources, we recommend setting the supply cap that would cause 5% slippage. This means that the total slippage should the entire supply get liquidated needs to be < LP. Gauntlet recommends a supply cap of 920 rsETH. This swap would cause a slippage of ~5% vs a liquidation penalty of 10%.

Liquidation Factor (LF) and Collateral Factor (LF)

Screenshot 2024-07-26 at 3.40.31 PM
Screenshot 2024-07-26 at 3.40.31 PM991×766 51.6 KB

rsETH’s Market rate has slowly been reaching parity with exchange rate. The below metrics indicate relatively low price volatility and stable convergence to the exchange rate. The 5% buffer between CF and LF provides a safety margin against sudden price movements while allowing efficient capital utilization.

Metric Value
Daily Annualized Volatility 3.88%
Max Drawdown from Exchange Rate 3.06%

Given the above metrics along with the proposed Liquidation Penalty, Gauntlet recommends aligning the LF/CF with values used for Mainnet.

Bridge Risk

Gauntlet would like to flag the community that rsETH has bridge dependency to move assets to other L2s and Mainnet. Historically, Gauntlet advises adopting risk-off measures for assets with such bridge dependencies.

1 Like
4

Proposal 293: Price Feed Review

This proposal will configure the Mainnet WETH Market to use the wrsETH/rsETH Chainlink Price Feed to price the rsETH collateral asset. We confirmed this is the appropriate price feed for exchange rate pricing.

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[Gauntlet] - wrsETH collateral risk recommendations for Base, Optimism, and Scroll for WETH v3 Comets

Gauntlet recommends the following risk parameters for wrsETH across WETH Comets on Base and Optimism. Gauntlet also recommends initializing a WETH Comet on Scroll given the outstanding wrsETH float.

Base Recommendations

Parameter Value
Collateral Factor 88%
Liquidation Factor 91%
Liquidation Penalty 4%
Supply Cap 230

Optimism Recommendations

Parameter Value
Collateral Factor 88%
Liquidation Factor 91%
Liquidation Penalty 4%
Supply Cap 220

Analysis

wrsETH Liquidity sources on Base

Dex Category TVL(mil) Link
aerodrome-base 2.19 Link

Total TVL: 2.19 million

wrsETH Liquidity sources on Optimism

Dex Category TVL(mil) Link
beethoven_x_optimism 2.02 Link

Total TVL: 2.29 million

Supply Cap

Given the use of exchange rate oracles, gauntlet advises setting caps to half of the available unwrap limit for wrsETH to rsETH, since unwrapping wrsETH to access the underlying or staked ETH is only possible through conversion to rsETH.

Chain Unwrap Limit Supply Cap
Optimism 563.13 230
Base 438 220

Collateral Factor, Liquidation Factor and Liquidation Penalty

Gauntlet recommends aligning the CF, LF and LP with those recommended in this post, contigent on the use of Exchange Rate Oracles.

1 Like
6

Thank you @Gauntlet for the recommendations. We will start working with @Pasha and @dmitriywoofsoftware to implement the technical development of the proposal

7

We do not recommend listing wrsETH on the USDC Comet on Scroll given the market liquidity and probable use of market rate oracles. If the community decides to initialize a WETH Comet, Gauntlet will review the feasibility of wrsETH as collateral.

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Add wrsETH to cWETHv3 on Base

PR - Add wrsETH as collateral to WETH market on Base by MishaShWoof · Pull Request #914 · compound-finance/comet · GitHub

Actions

  1. Run Slither. Fails. :x:. Add wrsETH as collateral to WETH market on Base · woof-software/comet@3c1bf4a · GitHub
  2. Forge test. Success.:white_check_mark: Add wrsETH as collateral to WETH market on Base · woof-software/comet@3c1bf4a · GitHub
  3. Gas Profiler. Success.:white_check_mark: Add wrsETH as collateral to WETH market on Base · woof-software/comet@3c1bf4a · GitHub
  4. Scan. Success.:white_check_mark: Add wrsETH as collateral to WETH market on Base · woof-software/comet@3c1bf4a · GitHub
  5. base-weth Scenario. Success.:white_check_mark: Add wrsETH as collateral to WETH market on Base · woof-software/comet@3c1bf4a · GitHub
  6. Unit tests. Success.:white_check_mark: Add wrsETH as collateral to WETH market on Base · woof-software/comet@3c1bf4a · GitHub
  7. Eslint. Success.:white_check_mark: Add wrsETH as collateral to WETH market on Base · woof-software/comet@3c1bf4a · GitHub
  8. Contract linter. Success.:white_check_mark: Add wrsETH as collateral to WETH market on Base · woof-software/comet@3c1bf4a · GitHub
  9. Prepare migration. Success.:white_check_mark: Prepare Migration · woof-software/comet@3c1bf4a · GitHub
  10. Enact migration. Success.:white_check_mark: Enact Migration · woof-software/comet@3c1bf4a · GitHub

Description we use:

Add wrsETH as collateral into cWETHv3 on Base\n\n

Proposal summary\n\n

Compound Growth Program [AlphaGrowth] proposes to add wrsETH into cWETHv3 on Base network. This proposal takes the governance steps recommended and necessary to update a Compound III WETH market on Base. Simulations have confirmed the market’s readiness, as much as possible, using the Comet scenario suite. The new parameters include setting the risk parameters based off of the recommendations from Gauntlet.\n\n

Further detailed information can be found on the corresponding proposal pull request and forum discussion.\n\n\n

Proposal Actions\n\n

The first proposal action adds wrsETH to the WETH Comet on Base. This sends the encoded addAsset and deployAndUpgradeTo calls across the bridge to the governance receiver on Base.