[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