Compound Listing Proposal for pufETH from Puffer Finance

[puffer]

Puffer Finance proposes listing pufETH as collateral on Compound’s Ethereum markets. pufETH’s unique liquid restaking properties, combined with its substantial adoption and integration across DeFi platforms, make it a valuable addition to Compound, potentially enhancing borrowing activity and liquidity in the protocol and future appchains.

Governance Incentives for Compound Voters:

Voters who support the listing of pufETH on Compound will be rewarded with Puffer Points, which will be redeemable for Puffer’s PUFI governance token. This reward incentivizes voter participation and engagement with Puffer Finance’s governance, while also offering long-term benefits for those contributing to the ecosystem’s growth.

DefiLlama

Motivation

pufETH is the liquid restaking token within the Puffer Finance ecosystem, which is built on the EigenLayer. It allows holders to participate in Ethereum Proof-of-Stake (PoS) while earning additional rewards from restaking. Since its launch, pufETH has seen rapid adoption and integration across multiple DeFi platforms.

https://quest.puffer.fi/defi

Key highlights include:

• Significant Total Value Locked (TVL): Puffer Finance currently holds a $1.39 billion TVL in ETH and an additional $641 million TVL across various DeFi integrations, including Pendle, Curve, Zircuit, Pencil, and Karak.

• Major DeFi Integrations: pufETH has a $120 million TVL in its pufETH-wstETH pool on Curve, showcasing its growing liquidity and demand.

• Robust Security and Trust: Puffer has undergone multiple audits by 10 different firms, ensuring the security and reliability of its protocol. This extensive auditing process underscores Puffer’s commitment to safety and user protection.

• Permissionless Innovation: Puffer pioneered anti-slashers for PoS as a technology to allow for permissionless validator participation. This decentralization-first mindset and novel technology reduces tail risk from slashing.

• Backed by Leading Investors: Puffer Finance is supported by some of the most prominent names in the industry, including Binance Labs, Brevan Howard, Avon Venture (Fidelity), Franklin Templeton, Coinbase Ventures, and Kraken Ventures, among others. This backing not only adds credibility but also highlights the potential growth and impact of the Puffer ecosystem.

Risks:

While the proposal presents compelling reasons to list pufETH, some risks need consideration:

Protocol Maturity: Although Puffer Finance has shown rapid growth, it is still relatively new, and its long-term stability is yet to be fully tested.

Conclusion:

Listing pufETH on Compound will offer users the ability to borrow against an asset that provides staking and restaking rewards, potentially increasing Compound’s appeal and liquidity. Given Puffer Finance’s substantial TVL, extensive DeFi integrations, security audits, and backing by top-tier investors, this proposal presents a strategic opportunity for Compound to align with a leading-edge DeFi project and expand its asset offerings.

[Gauntlet]

[Gauntlet] pufETH Asset Listing on Compound V3 Ethereum WETH markets

Summary

Gauntlet’s recommendations are contingent upon the implementation of pufETH withdrawal functionality, as the ability for ETH stakers to redeem their staked assets is a critical requirement for maintaining adequate liquidity and mitigating systemic risk.

If the community decides to list pufETH on Compound V3 Ethereum, Gauntlet recommends the following risk parameters for listing pufETH on the Compound V3 Ethereum WETH market:

Ethereum WETH Comet

Asset	Collateral Factor	Liquidation Factor	Liquidation Penalty	Supply Cap
pufETH	88%	91%	5%	4500

Analysis

pufETH is a liquid restaking token within the Puffer Finance ecosystem. It represents staked ETH (Ethereum) in Puffer’s liquid staking protocol, where users can earn staking rewards while still retaining liquidity through the pufETH token. This restaking model enables users to maximize their yield by participating in both staking and additional DeFi opportunities without locking up their ETH.

In Ethereum staking, unstaking requires validators to exit the active validator set. For ETH staking, this process can take time due to Ethereum’s queue system. Users can expect an unbonding period (usually 7 to 14 days based on common liquid staking practices), during which ETH is still earning rewards but cannot be immediately withdrawn.

If a user prefers to avoid the unbonding period, pufETH can potentially be sold on secondary markets. However, the liquidity available on these markets is key to minimizing slippage and ensuring a fair price.

At present, withdrawals are not yet available for pufETH. The Puffer team has been working to develop a withdrawal system for ETH stakers, which is expected to be available in early Q4. Gauntlet advises the community to consider listing pufETH once the withdrawal feature is enabled.

Onchain Market Cap

• pufETH has ~$1.2B onchain market cap on ETH.

Liquidity Sources

Ethereum

pool_name	pool_type	pool_url	pool_tvl_usd	volume_24h_usd
pufETH / wstETH	curve	Link	$92.82M	$657.76K
pufETH / wstETH	curve	Link	$6.70M	$15.62K
pufETH/wstETH / wstETH / pufETH 0.02%	balancer_ethereum	Link	$3.67M	$0.00
pufETH / WETH	curve	Link	$1.33M	$20.15K
pufETH / WETH 0.3%	uniswap_v3	Link	$1.27M	$5.65K

Total DEX TVL : $105.78M

Total DEX Volume 24H ($) : $699.19K

Volatility Analysis

pufETH → WETH

Metric	Value
Min Price Change Log	-1.77%
Max Price Change Log	2.26%
Annualized Daily Log Volatility	8.38%
30D Log Volatility	4.90%

The volatility metrics for pufETH indicate that it deviates from the price of WETH with a 30-day volatility of ~5%, indicating minimal deviations from the mean price over the past month.

Supply Cap and Liquidation Penalty (LP)

Based on the available liquidity, we recommend setting a supply cap that would cause 5% slippage, ensuring that the total slippage, should the entire supply get liquidated, remains less than the Liquidation Penalty.

Based on the available liquidity sources, Gauntlet suggests setting a supply cap of 4,500 (~$10M) for Ethereum WETH Comet, with the option to raise it if market demand increases.

Liquidation Factor, Collateral Factor and Liquidation Penalty

Gauntlet recommends setting the Liquidation Factor at 91% and the Collateral Factor at 88% for Ethereum WETH Comet to balance risk management with capital efficiency. The 3% buffer between the Liquidation Factor and Collateral Factor on the WETH Comet ensures a safety margin that guards against sudden market fluctuations, while still allowing users to leverage their assets effectively.

Next Steps

We welcome community feedback on the proposed risk parameters for pufETH Asset Listing on Compound V3 Ethereum WETH market.

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Note: The data provided in this document is accurate as of the publication date. Market conditions and liquidity levels may change, and it is advisable to regularly review these parameters to ensure they remain appropriate.