Add weETH as Collateral to USDT, USDC and USDS markets on Mainnet

[RupertPumpkin]

Ether.fi would like to propose the addition of weETH as collateral to Stablecoin markets on Mainnet. Based on the demand and our integrations with structured products, we are confident that it will generate borrowing demand on the market.

Motivation

eETH is an LRT that allows users to stake their ETH, accrue staking rewards, and receive additional rewards through native restaking on EigenLayer. More than 2,198,632 ETH ($8.81B) in TVL has been deposited into the ether.fi protocol and has been natively restaked in EigenLayer.

ether.fi stands as the pioneering decentralized and non-custodial delegated staking protocol featuring an LRT (eETH). A notable feature of ether.fi is the control it provides stakers over their keys. The team behind the protocol is guided by the following principles:

1. Decentralization is the foremost objective. ether.fi is unwavering in its commitment to maintaining the protocol’s non-custodial and decentralized nature, ensuring that stakers always have control over their ETH.
2. ether.fi operates as a legitimate business with a sustainable revenue model, with the team dedicated to its long-term success. There is no place for deceptive or unsustainable financial practices.
3. ether.fi is committed to always acting in the best interest of the Ethereum community. In the event of any missteps, the team at ether.fi will take responsibility and swiftly rectify the situation.

The weETH market on Compound can become a growth engine, tapping into the LRT sector (the quickest growing one in 2024).

Risks:

ether.fi’s LRT eETH is 100% redeemable. Users who deposit ETH into the protocol can withdraw their stake at any time. The protocol maintains a buffer of ETH in liquidity reserves to facilitate instant withdrawals on Ethereum Mainnet while also growing over 30,000 ETH in on chain liquidity pools across multiple chains to facilitate low slippage on large swaps.

Relevant Statistics and Links

ether.fi website

Twitter
CoinGecko 1
Contract address: 0xCd5fE23C85820F7B72D0926FC9b05b43E359b7ee
Audits
Whitepaper
Dune Dashboard Analytics Suite for ether.fi

Points support

Users who deposit weETH into Compound will accumulate ether.fi and LRT^2 governance points to be used for future incentives. The full list of integrations can be found on the ether.fi DeFi page.

Next Steps

The protocol invites the community to consider this application for listing the weETH Collateral and welcomes suggestions in this direction.

[Sudipan_Chainrisk]

[CHAINRISK] weETH Market Evaluation

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Excited to see this proposal. Here’s a market analysis of the weETH asset by Chainrisk to provide transparent insights into potential upsides for listing it on Compound.

Market Data

All data given below are as of 11th December 2024

Market Cap: $6.96B

At $6.96 billion, the market cap indicates a moderate level of investor interest and market presence for weETH.

24h Volume: $8.81M

The 24-hour trading volume of $8.81 million suggests healthy trading activity, indicating that weETH is actively traded among investors.

Circulating Supply: 1,783,632 weETH

The circulating supply of 1,783,632 weETH tokens reflects the total number of tokens currently available for trading, calculated as the total coins created minus any coins that have been burned.

Fully Diluted Value: $6.97 B

The FDV of $6.97 billion provides insight into the potential future valuation of weETH if all tokens were to be issued.

Current Rankings

• CoinMarketCap: 6

Volatility Analysis

Asset Volatility

Liquid Staking Basis (LSB)

This rank is for rehypothecated crypto (e.g. staked, restaked, or wrapped).

The LSB represents the price difference between weETH (liquid staking token) and its underlying asset, ETH. It measures the deviation of the weETH price from the ETH price.

weETH is a value-accrual type LSD token and therefore can be expected to have a constant increase in LSB value. The chart below shows the constantly increasing trend (linear) of the weETH LSB value over time:

Closeness to Underlying (c2u)

The descriptive statistics for the ‘Closeness to Underlying’ (c2u) between weETH and ETH indicate that weETH generally trades at a slight premium to ETH.

Trading Volume to Market Capitalization Ratio

It is an indicator of liquidity. A trading volume-to-market capitalization ratio of 0.1265% indicates a low level of liquidity, making it a bit difficult to buy or sell the cryptocurrency close to its true value on exchanges.

Historical Performance

The historical price data includes:

Historical Price:

Historical Market Cap:

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Liquidity Analysis

Token On-Chain Liquidity

The three most liquid pools are the Uniswap Pool with $57.15M, followed by Balancer with 16.69M and then Curve pools with $474.30K in TVL.

Slippage

The DefiLlama slippage estimator (Token Liquidity) tool shows that a weETH-> USDC trade of $3.8M (10000 weETH) over KyberSwap will produce 0.60% trade slippage in weETH.

Supported CEXes & DEXes

CEXes: The weETH Token is currently not listed on any centralized exchanges.

DEXes: The weETH token is actively traded across a few of decentralized exchanges (DEX), including Curve, Uniswap and Balancer.

Markets on decentralized exchanges:

Projected Revenue Estimate:

Current Market Position

Morpho:

weETH has established itself as a collateral asset on Morpho, facilitating the borrowing of WETH. The current supply of weETH stands at $10.87 million, with a borrowing volume of approximately $10.00 million. The annual percentage yield (APY) for borrowing is 1.94%, reflecting a competitive rate in the decentralized finance (DeFi) landscape. Historically, total borrowing reached around $10.32 million, indicating robust demand and utilization metrics.

Aave:

weETH has established itself as a collateral asset on Morpho, facilitating the borrowing of WETH. The current supply of weETH stands at $4.47 billion, with a borrowing volume of approximately $13.30 million. The annual percentage yield (APY) for borrowing is 1.08%.

Calculation Methodology

Revenue from lending protocols can be estimated using the formula:

Estimated Revenue = Total Borrow × APY

Assuming an average total borrow of $12 million worth of weETH and an APY of 2%, the projected annual revenue would be calculated as follows:

Estimated Revenue = 12,000,000×0.02 = $240,000

To further understand how varying borrowing levels and APYs could impact revenue projections, a sensitivity analysis can be conducted:

If the community shows sufficient interest, we’re happy to share our recommendations for the asset.

[Gauntlet]

[Gauntlet] - Parameter Recommendations for weETH on Mainnet Stablecoin Comets

Simple Summary

Should the community decide to onboard weETH as collateral across Mainnet stablecoin Comets, Gauntlet proposes the following risk parameters::

USDC Comet

Collateral	Supply Cap	Collateral Factor	Liquidation Factor	Liquidation Penalty
weETH	12,000	75%	80%	10%

USDT Comet

Collateral	Supply Cap	Collateral Factor	Liquidation Factor	Liquidation Penalty
weETH	12,000	75%	80%	10%

USDS Comet

Collateral	Supply Cap	Collateral Factor	Liquidation Factor	Liquidation Penalty
weETH	12,000	70%	75%	10%

Analysis

weETH Liquidity sources

weETH TVL in pools has been trending upwards over the last 100 days increasing by 12.5% over the same period. Most of the TVL has been coalescing in Uniswap.

Pool Type	Pool Name	Pool TVL (USD)	24H Volume (USD)	URL
Uniswap V3	weETH / WETH 0.01%	$37.23M	$7,131,514.71	Link
Curve	weETH / rsETH	$24.33M	$1,677,297.54	Link
Uniswap V3	weETH / WETH 0.05%	$20.14M	$65,515.52	Link
Curve	weETH / WETH	$14.02M	$4,644,020.61	Link
Balancer Ethereum	weETH/rETH / rETH / weETH 0.01%	$9.10M	$7,346.31	Link
Curve	weETH / weETHs / weETHk	$4.67M	$141,920.86	Link
Balancer Ethereum	weETH/ezETH/rswETH / ezETH / weETH / rswETH 0.04%	$4.32M	$3,781.37	Link
Uniswap V3	weETH / WETH 0.3%	$2.28M	$0.00	Link
Curve	weETH / weETHs	$0.50M	$7,948.45	Link
Curve	tETH / weETH	$0.50M	$0.00	Link
Curve	weETH / rswETH	$0.38M	$0.00	Link
Curve	weETHk / weETH	$0.36M	$875.36	Link
Curve	weETH / WETH	$0.14M	$1,884.71	Link

Total TVL: $117.6 million

As mentioned in our initial analysis for weETH, the weETH-WETH 0.01% Uniswap v3 pool remains the largest source of WETH liquidity on mainnet. However, since the base assets are stablecoins, it is crucial to evaluate the individual liquidity and trading routes to these base assets when determining the appropriate Liquidation Penalty and Supply Caps.

Supply Cap and Liquidation Penalty

weETH/USDC Slippage

Given the above liquidity sources, we recommend that the total slippage should the entire supply get liquidated be less than the LP. Gauntlet recommends a supply cap of 12,000 weETH (~$51,000,000) for the USDC Comet, this swap would cause a slippage of ~2% vs a liquidation penalty of 10%.

weETH/USDT Slippage

weETH/USDS Slippage

For the USDT and USDS Comets, we recommend setting the Liquidation Penalty at 10% and supply caps at 12,000 weETH. These conservative initial caps (where a ~15,000 weETH market sell would result in ~5% slippage) provide a conservative starting point. We suggest evaluating market demand and performance at this level before implementing any further increases.

Liquidation Factor (LF) and Collateral Factor (CF)

weETH/USDC Volatility and Returns

weETH/USDT Volatility and Returns

weETH/USDS Volatility and Returns

Based on the provided metrics and the proposed Liquidation Penalty, Gauntlet recommends setting a Liquidation Factor (LF) of 80% and a Collateral Factor (CF) of 75% for the USDC and USDT Comets. For the USDS Comet, given the increased volatility observed in the pair, we propose a more conservative approach with an LF of 75% and a CF of 70%. These adjustments aim to balance capital efficiency with risk mitigation.

Yield Risk

Currently LRTs such as weETH have elevated yields due to points programs which are likely to cause yield shocks (From Pendle, currently the underlying APY is 3.8% vs Implied APY of 3.6%) and consequentially elevate slippage magnitude and liquidity on DEXs. Gauntlet would like flag this potential risk to the community.

Next Steps

• We welcome community feedback