[Gauntlet] wstETH Comet Listing Recommendation
Summary
Below are the initial parameter recommendations for the ETH Mainnet v3 wstETH Comet:
Risk Parameters
| Asset | Collateral Factor | Liquidation Factor | Liquidation Penalty | Supply Cap |
|---|---|---|---|---|
| rsETH | 88% | 91% | 4% | 10k |
| pzETH | 85% | 88% | 8% | 600 |
| ezETH | 88% | 91% | 6% | 15k |
| weETH | 90% | 93% | 4% | 15k |
We do not recommend initializing the following liquid restaking tokens (LRTs) due to their lack of DEX liquidity and the non-atomic nature of current withdrawals, which may take 1-4 days to process. Additionally, curators have the authority to delay withdrawals by up to 90 days.
- steakLRT (from Steakhouse)
- rstETH (from prp.org)
Similar to the LRTs above, pzETH is a curated LRT on mellow.finance though this LRT has liquidity on ETH Mainnet.
IR Curve Parameters
| Parameter | Recommended Value |
|---|---|
| Annual Supply Interest Rate Base | 0 |
| Annual Supply Interest Rate Slope Low | 0.012 |
| Supply Kink | 0.85 |
| Annual Supply Interest Rate Slope High | 1 |
| Annual Borrow Interest Rate Base | 0.01 |
| Annual Borrow Interest Rate Slope Low | 0.014 |
| Borrow Kink | 0.85 |
| Annual Borrow Interest Rate Slope High | 1.15 |
Comet Parameters
Storefront Price Factor: 70%
Gauntlet recommends keeping the Store Front Price Factor at the same value as the Ethereum v3 WETH Comet.
Target Reserves: 5000
After Gauntlet’s forum post analyzing Target Reserves, Gauntlet recommends the following Target Reserves.
Initial Reserves: 100
Analysis
The wstETH Comet will facilitate borrowing of wstETH for the purpose of restaking stETH within liquid restaking protocols. This Comet is anticipated to meet the demand in Symbotic and Mellow.Finance’s permissionless layer. While Gauntlet generally advises caution when listing yield-bearing liquid tokens like wstETH as base Comet assets, the potential demand from liquid restaking markets could drive market expansion and stimulate interest from LRT protocols, as highlighted by the OP.
The ION protocol has started to address this market, demonstrating $3.4M in wstETH borrowings, indicative of existing demand. The borrowing rates in these markets have shown relatively high APYs. In contrast, Aave’s current market reflects an average Borrow APY of approximately 0.50% over the past 30 days.
Gauntlet advises caution regarding the listing of a wstETH Comet with collateral liquid restaking tokens (LRTs), as this could potentially be leveraged to execute a vampire attack on the LIDO protocol. If LRT markets are introduced and incentives from LIDO are sought, it is imperative for the Compound community to coordinate with the LIDO Alliance to ensure alignment with strategic partners.
Volatility
Although wstETH is closely correlated with these LRTs, it exhibits marginally higher volatility compared to WETH. Gauntlet advises listing these assets with exchange rate oracles while remaining mindful of the increased volatility in market prices.
Yield Risk
The yield from LRTs can be volatile and is influenced by various factors such as validator performance, network conditions, and staking competition. Yield rates can fluctuate, and there is no guarantee of consistent returns. Gauntlet would like to flag this potential risk to the community.
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.
Slashing Risk
Since this Comet involves different staking products, there is risk from a double slashing event to both assets.
pzETH Liquidity
| DEX | Pool Address | TVL(mil) |
|---|---|---|
| curve | 0x8c65cec3847ad99bdc02621bdbc89f2ace56934b | 4.95 |
| uniswap_v3 | 0xfc354f5cf57125a7d85e1165f4fcdfd3006db61a | 1.36 |
IR Curve Parameters
Gauntlet is calibrating the interest rate (IR) parameters for the wstETH Comet to be consistent with those used for the WETH Comets. The supply APY at the kink is designed to be twice the current rate observed in other lending markets, while the borrow APY will be established at 2.19%. Considering that this represents a novel market, we have opted to set the kink at 85%. This adjustment aims to create a more gradual rate gradient, facilitating market equilibrium and accommodating potential increased demand for higher APY from borrowers.
The chart above demonstrates that the generation of Comet WETH reserves will be positive when utilization exceeds 15%.
Considering the market equilibrium assumption of reaching 85% utilization, the following chart forecasts annualized reserves corresponding to various borrowing amounts. At $63M borrowed, the Comet would generate annual reserves of $788k.
Gauntlet is currently assessing the role of incentives within the Comet. We recommend initiating the Comet without providing incentives initially. This approach will allow for an evaluation of its performance and the development of strategic partnerships before any incentives are introduced.
Next Steps
- We welcome community feedback.