Add rsETH Market on Ethereum Mainnet

Summary

Proposal to add rsETH market to Compound V3 on Ethereum Mainnet

References/Useful links:

Price feeds

Background

Kelp DAO was founded by Amitej G and Dheeraj B, who previously founded Stader Labs, a multichain liquid staking platform with $750M+ in TVL.

About rsETH

rsETH is a Liquid Restaked Token (LRT) issued by Kelp DAO designed to offer liquidity to illiquid assets deposited into restaking platforms, such as EigenLayer. It aims to address the risks and challenges posed by the current offering of restaking

  • Kelp has more than 213k ETH worth of assets restaked by over 20k users.
  • DeFi integrations across Balancer, Curve, Pendle, Maverick
  • rsETH is present on 5+ L2s including Arbitrum, Optimism, Blast, Scroll, and Mode

By providing liquidity for the restaked positions, rsETH allows for a seamless experience to engage with DeFi protocols and maximize rewards.

Motivation

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.

Specifications:

  1. Governance: Kelp token isn’t live yet as TGE hasn’t happened yet. The protocol is planning to transition to decentralized governance after TGE.

  2. Oracles: Kelp works with Chainlink, Redstone, and API3 to create price feeds of rsETH.

  3. Audits: Kelp’s smart contracts are audited by Sigma Prime, MixBytes and Code4rena.

Sigma Prime Report: https://kelpdao.xyz/audits/smartcontracts/SigmaPrime.pdf

MixBytes: https://kelpdao.xyz/audits/smartcontracts/mixbytes.pdf

Code4rena: (Code4rena | Keeping high severity bugs out of production)

  1. Centralization vectors: Centralization vectors currently are around upgradeability via proxy 3 on 5 multi-sig and front-end hosting. We will move to on-chain upgrades post-TGE.

  2. Market History: Kelp has seen meteoric growth in TVL in the last few months with TVL over 200k ETH and >20k holders of rsETH.

rsETH also has deep liquidity available across pools on Balancer, Curve, and Uniswap v3

Balancer - rsETH/ETH:

Balancer - rsETH/ETHx: Balancer

Uni - rsETH/ETH: Uniswap Info

Uni - rsETH/ETHx: Uniswap Info

Curve - rsETH/sfrxETH: Curve.fi

Parameters

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

Collateral Factor

Liquidation Factor

Liquidation penalty

3 Likes

I think LRTs represent a wonderful growth opportunity for Compound, and Kelp has a great footing, large base of restakers, and strong TVL.

Hope to see it soon as collateral!

EigenLayer + Compound = Infinite Sum Games.

Kelp LRTs has had an incredible performance in the Defi sphere and restaking narrative becoming one of the largest players in the market with 730M TVL.
As users and Defi practitoners, we would need rsETH diversification in terms of Defi possibilities in the market and I cannot think of a better option than Compound MM.
Much appreciate it
techfuture

1 Like

I’ve looked over the LRTs and farming them myself, and must say the defi opportunities and the liqudity flowing is impressive. 10-20B market opportunity

Kelp has a solid performance and founders have a good track record with Stader. It seems a beneficial move for Compound.

1 Like

As a Compound user, I would say this is an exciting proposal and I think rsETH would be a phenomenal asset to add. The liquid restaking ecosystem is currently booming and the Kelp is one of the biggest and the fastest growing protocols built on Eigenlayer with a solid team and a track record. I support this proposal

1 Like

Gauntlet’s Recommendations - rsETH Listing on WETH v3 Comet

Simple Summary

Gauntlet recommends not listing rsETH for the time being due to limited availability of liquidity sources.

Analysis

rsETH Liquidity sources

Dex Category Pool Assets TVL (mil) 24H Volume (mil) rsETH TVL ($ mil) URL
Balancer rsETH/WETH 25.26 22.7 8.3 link
Uniswap V3 rsETH/WETH 2.06 0.5 0.05 link
Total - 27.32 23.2 8.35 -

The balancer rsETH-WETH pool is the largest source of liquidity for rsETH with just close to $17M in WETH in pool balances. Although rsETH has pools with ETHx, the total liquidity available in these pools is not significant with a total rsETH/ETHx pool value of ~$6.5M.

Liquidity Risk

Liquidity Restaking Tokens (LRTs) present inherent uncertainties concerning liquidity profiles and associated slashing risks. While LRTs serve to reserve liquidity for instant in-protocol redemptions, withdrawals are constrained by rate limitations imposed by the underlying protocols once the reserve pool is exhausted. This limitation poses a potential challenge to maintaining liquidity availability. Presently, Kelp does not offer withdrawals, and liquidity levels remain below optimal thresholds.

Oracle Risk

Based on the oracles outlined in the KelpDAO documentation, particularly referencing the getAssetPrice() function in the LRTOracle contract, it appears that rsETH utilizes multiple oracles to price the assets (sfrxETH, stETH, ETHx) it accepts as deposits. This reliance on multiple oracles heightens the level of oracle risk associated with the protocol. By relying on aggregating oracle price feed rather than a single one, the protocol becomes more susceptible to potential discrepancies or inaccuracies in the price data provided by these sources. This expanded dependency amplifies the potential impact of oracle-related issues on the stability and reliability of rsETH’s operations. We would like the DAO to clarify if the oracles work as infered above or if there’s a simpler reference based oracle that rsETH utilizes.

Yield Risk

Presently, Liquidity Reward Tokens (LRTs) are experiencing heightened yields attributed to the points program. However, the upcoming maturity of EigenLayer and the launch of AVS are anticipated to introduce yield shocks. These developments are expected to significantly increase slippage magnitude and impact liquidity on decentralized exchanges (DEXs) as users swap out of their leveraged yield positions. Gauntlet seeks to bring attention to this potential risk within the community.

Recommendation

Given the above - Gauntlet recommends postponing the listing of rsETH until these challenges are addressed and liquidity conditions improve to at least $30M in WETH liquidity or less than 10% slippage for a $10M WETH swap is met. If the community desires to proceed with listing this market, we can implement a temperature check to poll the community. If the preferences of long-time community members and partners of the Compound community is to list rsETH even with the above-mentioned risks in the poll, Gauntlet will then provide conservative recommendations for integrating the asset into WETH Comet as proposed in this forum post.