[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)
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)
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.