Gauntlet - Initial Parameter Recommendations for rswETH on Ethereum Comet on Compound v3
Simple Summary
Should the community wish to list rswETH on Compound v3 ETH Comet, Gauntlet provides the following parameter recommendations.
| Parameter | Value |
|---|---|
| Collateral Factor | 80% |
| Liquidation Factor | 85% |
| Liquidation Penalty | 10% |
| Supply Cap | 1,000 |
Analysis
rswETH Liquidity sources
rswETH has predominantly accrued TVL in pools alongside its base pairs. The table below presents key rswETH pools and their respective TVLs.
| Dex Category | TVL(mil) | URL |
|---|---|---|
| balancer_ethereum (rswETH/weETH/ezETH) | 9.96 | Link |
| pancakeswap-v3-ethereum (rswETH/WETH) | 9.23 | Link |
| curve (weETH/rswETH) | 1.23 | Link |
Total TVL: $20.42mil
The primary WETH liquidity source for rswETH-WETH is the PancakeSwap pool. The rswETH dominates composition in the above mentioned pools. The peripheral sources of liquidity involving LRT/LRT pairs are not accounted for in the cap recommendations. Currently, the withdrawal queue can take up to 14 days for redemption of rswETH to native ETH.
Supply Cap and Liquidation Penalty
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 1,000 rswETH (~$3,500,000), this swap would cause a slippage of ~5% vs a liquidation penalty of 10%
Liquidation Factor (LF) and Collateral Factor (CF)
rswETH like most other LRTs trades at a discount to the exchange rate.
| Metric | Value |
|---|---|
| Annualized Volatility | 4.12% |
| Max Drawdown from Exchange Rate | 0.99% |
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%
Oracles
As mentioned in the [Franklin DAO] Request for comment on: Market pricing vs. exchange rate pricing for LSTs and potential oracle implementations post, Gauntlet supports exchange rate oracles for rswETH within this correlated Comet if the community decides to move forward with this strategy.
Yield Risk
Currently LRTs such as rswETH 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.