Listing ETHx on Compound

Proposals
1

Hey folks! Kranthi this side from Stader’s ETH staking product, ETHx with a proposal to add it as a collateral asset on Compound’s ETH & USDC markets

Background

Stader is a non-custodial liquid staking platform with $180Mn+ TVL across 7 PoS blockchains (Ethereum, Polygon, Bnb, Hedera, Fantom…) with Ethereum being the latest to launch in early July. Stader’s LST on Matic (MaticX) is quite popular on Compound USDC v3 Polygon with 6M Matic collateralized

ETHx is created to improve accessibility & support decentralization of Ethereum by allowing anyone to spin up a validator with just a 4 ETH bond; the lowest in the industry and 80% lower than solo staking. This coupled with the unique multipool architecture of permissionless & permissioned Node operators furthers decentralization without compromising scalability. Users can deposit any amount of ETH with Stader and receive proportionate ETHx, an ERC-20 C-token which represents staked ETH; that appreciates in value over time due to the staking rewards and is represented in the exchange rate

ETHx is currently at $72M TVL (40K ETH) across 800+ validators (90% permissionless) spread over 170+ Node Operators who bonded over $7M to cover for slashing / penalties. In terms of liquidity depth, ETHx is at $25M across Curve, Balancer, PanCakeSwap, Wombat etc. ETHx is also live on Ledger & OKX with more integrations to follow

References/Useful links

Motivation

LSTs are the perfect use case for the Compound ETH market which is quite evident from all the success it has seen with other LSTs. From Compound’s perspective any new asset is a source of additional revenue and expands the ecosystem as a whole. And a relatively risk free yield-bearing ETH correlated asset should be a straightforward proposition

Risks

The introduction of ETHx provides an opportunity for diversification and broadening the collateral base while mitigating concentration risks. However, we do acknowledge the concerns around the potential risks associated with ETHx too. They can be broadly segmented into three buckets and are addressed as such

1. Security

While Stader might be new to Ethereum, we have built LSTs on 6 chains prior to this and security has always been paramount for Stader. All our smart contracts across every chain have been audited at least twice. The ETHx smart contract in particular has been triple audited by leading smart contract security partners Sigma Prime, Halborn & Code4rena; complete with Forta on-chain monitoring and a $1Mn bug bounty on Immunefi

2. Governance

Stader’s governance is led by the Stader DAO - a wide variety of $SD holders who participate in key decisions pertaining to the protocol. Here are the Stader Governance Forum & Snapshot

ETHx has an Oracle Node Operator Genesis Committee of 7 distinguished community members composed of top validators and esteemed Ethereum community members. You can learn more about the ETHx ONO committee here

3. Centralisation

Stader is a non-custodial & decentralized liquid staking solution based on DAO governance. $SD is Stader’s native governance token. ETHx is based on the foundation of decentralizing Ethereum with permissionless node operators getting the majority of the TVL (currently at ~90%).

The ETHx contract upgrades are managed by Admin time-lock contract with a 6 on 9 Multi sig (2 Stader members and 7 external members) as the proposer. Composition of the committee can be found here

You can learn more about how Stader envisions embracing the path of decentralization here

4. Redemptions

ETHx, like all of Stader’s prior LSTs went live with redemptions enabled from Day 1. So, the ETH is not locked and can always be redeemed by unstaking & withdrawing on Stader Dapp anytime. Withdrawal requests are processed either from the deposit pool or by exiting validators. Users can also swap their ETHx for ETH on any of the DEXs or aggregators for instant liquidity

Parameters

ETHx currently has $72M in TVL and total liquidity of $25M on ecosystem DEXs. My proposal is to set the parameters for ETHx on Compound ETH market as

Collateral Factor: 90%

Liquidation Factor: 93%

Liquidation penalty: 3%

and the parameters for the USDC Market as

Collateral Factor: 65%

Liquidation Factor: 70%

Liquidation penalty: 12%

Your support and consideration of our proposal is greatly appreciated! Look forward to hearing from you soon and happy to provide additional resources and support to the community if needed

Best regards,
Kranthi

11 Likes
2

I support the proposal.
It is great to have a highly decentralised LST as collateral in Compound.

Congratulations on your 160+ node operators. This is 5x Lido’s size and orders of magnitude bigger than most of LSTs out there.

3 Likes
3

As a Compound user, I’ve been waiting for new LSTs to be listed for a really long time. Compound approach prioritizing conservative parameters on the safest assets has always resonated with me, but I think we have been falling behind lately.
Shanghai upgrade has already been live for half a year, so it’s already safe to affirm that it has been a complete success. With withdrawals implemented into the core protocol, staking solved one of its biggest tail risks, so listing newer LSTs seems a sound move (with reasonable parameters according to their market conditions).

After doing some research about ETHx, I feel comfortablr about their security. They weren’t cheap on auditing their product nor in their bug bounty offer. They also launched with withdrawals already implemented, which is a huge green flag for me (see Swell, which has been depegged for a month already, due to not having withdrawals implemented).
I have even found that they had a 2k ETH withdrawal last week, which given their TVL is a decent sized unstake, and it had 0 impact on their peg. They even recovered that TVL days after, so they seem to be doing good.

I’d be happy to see this proposal going forward, specially regarding the addition of ETHx to the USDC Ethereum Market, as it doesn’t have any LST listed there yet. Parameters seem conservative and a low initial cap could be set up and gradually increased along ETHx growth (if applies)

3 Likes
4

This is an exciting proposal from @gonemultichain. We support bringing ETHx to Compound.

The recent discussions in the staking ecosystem around dominance and self-limiting have generated a lot of interest around finding ways to distribute the powers of validation among a larger set of providers in a more equal manner. It’s our opinion that this starts with diversifying the opportunities for providers to benefit the holders of their LSTs in DeFi.

Franklin DAO is a delegate in both Compound and Stader DAOs. We believe this would benefit both ecosystems. ETHx is a great example of an incoming token to expand these opportunities for Stader as a provider. Stader’s many innovations around ETHx particularly their 4ETH bond requirements help make staking more accessible and increase the security of their staking token.

We would like to see @Gauntlet opinion on parameters for this market, albeit we support this proposal and moving forward with listing ETHx.

5 Likes
5

We also support this proposal. The integration of decentralized LSTs such as ETHx and rETH stands as a formidable strategy to amplify lending operations within Comet. This initiative is particularly timely and pertinent given that AAVE has yet to embrace this integration, and there exists a substantial market demand for it.

Other delegates have addressed the counterparty risk associated with ETHx. From a market risk perspective, a $6M transaction involving ETHx/WETH results in an approximate 1% slippage. This would leave more space for the supply cap.

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5 Likes
6

Stader is becoming one of the most well-recognized LSD protocols in terms of ETH descentralization. ETHx TVL growing substantially with almost $50M needs protocols in the Defi space like Compound to better give utility to the LSD ETHx token and allow ETH staking to be naturally integrated within the Defi space.
Some of the relevant data under ETHx can be seen here: https://dune.com/stader_labs/ethx-general-metrics
Cheers and hopefully I can deposit my ETHx as collateral in Compound soon.

4 Likes
7

[Gauntlet] ETHx Initial Parameter Recommendations: Ethereum v3 WETH Comet (11/3/23)

Simple Summary

Gauntlet recommends the following parameters for listing ETHx on the Ethereum Compound v3 WETH comet.

Parameter Value
Collateral Factor 90%
Liquidation Factor 93%
Liquidation Penalty 2.5%
Supply Cap 5,000 ($9M)

Analysis

ETHx has a circulating supply of 37k, with a market cap of $68M. As seen below, 5k ETHx can currently be swapped for WETH at 7.79% slippage.

Screen Shot 2023-11-03 at 1.32.27 PM
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Sufficient DEX liquidity for LSTs in USDC comets is very important since liquidators have to quickly swap the LST into USDC with minimal slippage to realize an arbitrage. However, in the WETH comet, a liquidator can purchase ETHx using WETH and then unstake ETHx at a later date to realize the arbitrage, assuming no breaches in the LST’s smart contract.

The larger concern for low DEX liquidity may instead be price manipulation risk, depending on the type of ETHx price oracle Compound uses.

To start conservatively, we recommend setting an initial supply cap of $9M, with the standard WETH comet LST collateral asset parameters.

Parameter Value
Collateral Factor 90%
Liquidation Factor 93%
Liquidation Penalty 2.5%
Supply Cap 5,000 ($9M)

Next Steps

  • We welcome community feedback
5 Likes
8

I also support idea of listing ETHx on Compound, however i suggest that we take USDC Comet as priority one, rather then WETH Comet, which is frankly a very niche market. To illustrate that lets take a look at USDC Comet on Base. Clearly, when users do have a choice of collateral between staked Eth or plain Eth they prefer staked one, to extend that there is 10x more demand, as staked ETH is almost at the cap, while plain eth hardly at 10% of the cap, where caps are approx $15M and $20M respectively.

However, more options are better, so it makes sense to launch it on both USDC and ETH Comets, but due to liquidity limitations i’d suggest we could start with $4M initial cap for each one. That can also potentially show us which market will have more usage and demand for it.

1 Like
9

Gauntlet team and Compound community,

Thanks a ton for your support and for sharing the ETHx parameters. Would love to proceed further. Kindly let us know the next steps / any info you need from us.

Lastly, ETHx on-chain liquidity has improved significantly since the assessment. So, just want to add the current snapshot for reference

As of today (7th Nov), ETHx has a liquidity depth of at $29M across Curve ($18M), Balancer ($4M), PanCakeSwap ($3M), Uniswap ($2M), Wombat ($2M) etc which translates to a 6.5K ETHx swap at ~7.7% slippage, 6K at ~3.7% and 5K at ~0.6% respectively.

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Would @Gauntlet team like to consider the updated liquidity?

3 Likes
10

Hello everyone,
Matt from RedStone Oracles here. We’re glad to see a positive reception of the proposal by the Compound community and we can only vouch for Stader’s professionalism. Following up on @Gauntlet recommendations, here is a bit of context from our perspective on the ETHx Price Feed:

ETHx currently has ~$29M on-chain liquidity distributed across trading venues such as Balancer, Curve, Pancakeswap and Wombat Exchange, which is enough for us to have a robust market Price Feed. The liquidity and slippage are under constant supervision via our dedicated monitoring (already well battle-tested during Terra, FTX, SVB crashes and more) to make sure each of the included data sources is secure at all times.
Once we detect a sudden rise in slippage and/or sudden drop in liquidity we automatically detach the source eliminating the risk of price manipulation.

The price is updated onchain each time it deviates 0.5% (deviation threshold) or if 6 hours have elapsed (heartbeat).

We are excited to see this proposal come to life and we remain available for Delegates and Risk Analysis Partners for any oracle-related discussion. At the same time, we are happy to share opinions and referrals of working with RedStone from our partners such as Sommelier, Enzyme, Venus, Angle, Mento, Alchemix, Raft, Gravita and a number of others.

3 Likes
11

Very happy to see ETHx whitelisted and to witness their growth.

Since my last comment in this post 17d ago, I can see in their Dune Dashboard:

  • ETH staked is up from 22k to 40k.
  • Node Operators are up from 160 to 182.
1 Like
12

Hi @Sirokko,

We assessed the potential inclusion of ETHx as collateral in the USDC comet and concluded it doesn’t align with the community’s risk preferences. $4M supply cap for ETHx is minimal in comparison to the blue-chip tokens like WBTC ($488M supplied) and is minimal given the risks ETHx could pose. There’s a substantial amount of USDC at stake in the Ethereum USDC comet—$367M—that could be exposed to price manipulation risks due to ETHx’s lower liquidity. Additionally, liquidators face a risk being unable to arb ETHx if liquidity decreases. It’s essential for us to prioritize highly liquid assets as collateral in the comet with the largest TVL to safeguard the interests of our users and the protocol.

2 Likes
13

Hi @knight_mayr ,

We appreciate the feedback. Since the majority of our analysis focuses on worst-case scenarios, we still prefer to start using conservative numbers. A temporary increase in the ETHx/WETH pool’s DEX liquidity doesn’t guarantee its longevity, and decreasing supply caps is challenging once they’re fully utilized, especially if liquidity conditions shift. If our recommended ETHx supply cap becomes fully utilized and DEX liquidity remains robust, we are happy to reassess the ETHx supply cap.

1 Like
14

Great to see ETHx improvements in terms of TVL and liquidity depth during these last weeks. Seems like that 5k ETH swap price impact has lowered to -0.5%.

Also happy to see this post getting traction, hope to see both ETHx and rETH as new collaterals onboarded soon.

2 Likes
15

Fair enough @Gauntlet. Will get started on the PR with these parameters and we can monitor the liquidity scenario

2 Likes
16

Dear Compound Community,
Checking up on the proposal since it’s been a while.
ETHx has seen some impressive growth in the meantime and doubled the ETH staked to 80k. Our team is here to support Compound in whatever way we can to set up the market. We are happy to cooperate with the experts from Gauntlet and Open Zeppelin in moving the proposal forward and answering questions.

We will be available on the next Compound dev call too for the same.

4 Likes
17

ETH staked is now 80k and Node Operators, 224, meaning a quadrupling of the numbers vs OP @knight_mayr. Thanks for the comment @mattgurbiel, I also hope this goes through.

3 Likes
18

Franklin DAO still stands in support of this proposal given the consistent growth experienced by ETHx and the rest of the Stader Ethereum ecosystem.

We’d love to see discussions spark around this topic once again and get the proposal moving forward.
We second @mattgurbiel on our willingness to cooperate on next steps if applicable.

5 Likes
19

RedStone Oracles Review

After conducting a review of RedStone Oracles, OpenZeppelin can confirm that the fundamental architecture of the RedStone Classic system is robust and should reliably deliver accurate price feeds, provided specific conditions and trust assumptions are met:

  • Maintaining the diversity of RedStone Oracle Nodes is crucial to ensure that price aggregation remains decentralized, without oversight from any centralized authority. An adequate count of nodes is essential for the system’s integrity. As stated by the RedStone team, there are currently more than 30 active independent nodes being run by two other entities beyond RedStone themselves. This number does not seem enough to confirm the security of the system but RedStone actively onboards new operators and an expansion in the number of nodes would definitely increase the system’s decentralization and improve overall trust in its performance.

  • The data availability layer, which utilizes RedStone gateways, Streamr gateways, and the Arweave network for previous data, should remain operational and accessible to the network for data retrieval.

  • There should be at least one consistent relayer available to refresh the correct price whenever there is a significant price fluctuation beyond a predetermined threshold or when the price remains unchanged for an extended duration. RedStone maintains a network of main and fallback relayers. As a third redundancy layer, it also utilises the relaying services of Gelato. The relayer does not need to be a trusted actor as the prices are delivered as signed data.

Should the above mentioned criteria be kept, the oracle network’s current configuration is expected to uphold both price liveness and price accuracy.

The classic model of RedStone Oracles incorporates the AggregatorV3Interface from Chainlink, facilitating straightforward integration with various protocols.

Concerning the final trust assumption noted, even in scenarios where relayers are unsuccessful in timely or accurately relaying price feeds, or if they encounter challenges in the future, the Compound community has the option to operate its own relayers. This action could effectively ensure accurate and timely delivery of price feeds.

It is important to acknowledge that, while the RedStone price feed may operate correctly and deliver accurate prices consistently, the inclusion of ETHx as a collateral token in Compound V3 requires a separate analysis on its own.

5 Likes