Community Feedback Request: Onboard wstETH on Compound V2
Summary
Warden Finance is seeking feedback from the community around the idea of onboarding wstETH as a collateral asset on Compound v2. Although we understand much of the focus has been put towards onboarding new assets on Compound v3, we still think listing wstETH on Compound v2 could drive significant value for the Compound ecosystem as a whole.
Opportunity Overview
Onboarding wstETH represents a sizable opportunity to promote the growth and competitiveness of Compound v2. Adding wstETH as a collateral asset would allow users to borrow against yield bearing ETH which would drastically reduce the opportunity cost for borrowers.
Listing wstETH as collateral would also allow users to execute the leveraged staked ETH strategy where users borrow ETH to gain exposure to wstETH. Listing wstETH is therefore likely to increase ETH borrow and supply rates on Compound v2. The amount of ETH borrowing resulting from listing ETH would still be somewhat constrained by the ETH borrow cap and ETH’s conservative interest rate model. If the community wishes to proceed with the onboarding of wstETH as a collateral asset we think it would be appropriate to reevaluate ETH’s interest rate curve.
wstETH as proven to be a very popular collateral asset on other lending protocols such as:
- AAVE v2 stETH (Ethereum): $1.75b total supply
- AAVE v3 wstETH (Ethereum): $400m total supply
Although we understand that the community currently focuses on growing Compound v3, we think there is a strong argument to be made that some users are currently more comfortable using Compound v2. We think it is important to improve the attractiveness of Compound v2 to stETH holders as it will grow the Compound ecosystem as a whole.
Usage data for the past months supports this rationale and shows that, even with little to no COMP rewards and less than optimal supply/borrow rates, a certain portion of the Compound v2 user base is sticking to the protocol and averse to migrating elsewhere whether that would be Compound v3 or Aave.
- TVL: $1.29b
- Total supplied: $1.78B
- Total borrowed: $536.41M
- Protocol revenue: ~$50k daily
- Protocol utilization: 30.17%
- 258.9k ETH supplied ($473.68M, 55% of total protocol supply)
- -17% ETH supplied YTD
- No supply/borrow COMP rewards
This stickiness could be explained by the fact that Compound v2 covers some of the use cases Compound III can’t offer (or doesn’t offer right now):
- Lend wstETH for additional yield
- Borrow stablecoins against wstETH
Onboarding wstETH represents a simple opportunity to capture a higher share of the growing ETH staking market and to increase the protocol’s revenue (ex: additional ETH reserve fees, wstETH fees) with marginal additional risk exposure for the protocol.
About Wrapped Lido Staked Ether (wstETH)
wstETH is the non-rebasing version of stETH, the ETH liquid staking derivative token used to represent staked ether on Lido. It is currently by far the most popular liquid staking solution, with $11.5B TVL.
Lido has recently enabled stETH withdrawals, allowing users to unstake ETH through the protocol. The update has the effect of significantly reducing the risk of stETH depeg.
wstETH is also the most liquid staking derivative available, with $1.57B total DEX liquidity. The extent of this liquidity allows swapping up to $10m of wstETH volume with under 0.8% slippage.
Detailed information related to wstETH risk profile is available on Warden Finance platform.
Other listing considerations
As unveiled by the Hundred Finance exploit, there are security issues related with onboarding new markets on Compound v2. These issues can be mitigated by adopting Hexagate’s recommendations for launching new markets.
Conclusion
Considering the growing demand for wstETH, the stickiness of the Compound v2 user base and the low-risk profile of the asset, we think onboarding wstETH as collateral on Compound v2 represents an opportunity to attract more borrowers on the Compound ecosystem and generate additional protocol revenue while introducing minimal additional risk into the system.
We encourage everyone to engage in this discussion, as community collaboration is vital in making informed decisions that align with the best interests of all Compound stakeholders.