Treehouse Protocol proposes to list tETH as Collateral on Compound. Below is a proposal for doing so.
Background
Treehouse Protocol is the decentralized arm of Treehouse Labs, is leading the charge in revolutionizing the decentralized fixed income market. Focused on building the fixed income layer for digital assets, Treehouse introduces innovative fixed income products and primitives. Our primary offerings are:
tAssets (Liquid Staking Tokens 2.0): These tokens aim to unify fragmented on-chain interest rate markets for Proof of Stake (PoS) chains. tAssets borrowing native assets (e.g ETH) against their liquid staking token (e.g wstETH), amplifying potential yields by increasing the overall staked position beyond just the native network rewards. While our first iteration of tAssets is tETH, which addresses fragmentation in Ethereum’s interest rate market, we intend to eventually have other iterations of tAssets such as tSOL and tAVAX. Since launching in September 2024, Treehouse has reached a Total Value Locked (TVL) of 162M USD and is actively expanding to other L2s.
Decentralized Offered Rates (DOR) Mechanism: DOR is a consensus-based benchmark system for setting reference rates in the fixed income space. It mirrors the role of benchmarks like LIBOR (London InterBank Offered Rate) and SOFR (Secured Overnight Financing Rate) in traditional finance, but with a key difference: DOR is fully transparent and objective. Traditional rates were prone to manipulation, as they relied on subjective inputs from a small panel of banks. DOR, however, leverages decentralized mechanisms to ensure accuracy and transparency in rate-setting.
The DOR process involves multiple steps and stakeholders:
Operators set the rate parameters and maintain system integrity.
Panelists provide interest rate forecasts based on their market insights.
Delegators rely on their share of the Operator’s reward pool and querying fees from Referencers for financial incentives.
Referencers depend on Panelists to provide accurate rate predictions, ensuring reliable data for research and pricing of financial products.
Current user base:
4.3K+ tETH Holders and growing
48.5K Twitter Followers
18K Discord Members
12K+ Galxe Followers
500+ Unique Holders of our NFT, Treehouse Squirrel Council
Motivation
Listing tETH on Compound presents a compelling opportunity to strengthen Compound’s position in the DeFi market by expanding its collateral offerings. As a yield-bearing token built on Ethereum, tETH is designed to capture interest rate arbitrage opportunities within the ETH market, providing users with robust yield-generating potential. Key motivations for adding tETH include:
Increased Borrowing and Lending Activity: Allowing tETH as a collateral type will drive sustained borrowing and lending activity within the Compound ecosystem. tETH’s ability to capture yield from multiple sources—staking yields, market efficiencies, and Compound’s supply rate—makes it attractive for users seeking to maximize returns. This can increase liquidity across Compound’s markets and generate additional fees for the protocol.
Diversification of Yield-Bearing Asset Base: the integration of tETH will diversify Compound’s portfolio of yield-bearing assets, aligning with its long-term focus on scalable Layer-1 solutions. By supporting a product that integrates Ethereum staking yields and market yield efficiencies, Compound can offer users a broader selection of collateral, appealing to a wider range of DeFi participants and fostering a more resilient asset base.
Alignment with Compound’s Vision for Scalable DeFi: tETH offers a solution in the fixed income layer that aligns with Compound’s commitment to scalable and reliable Layer-1 assets. As Compound continues to grow and expand its impact in the DeFi space, incorporating yield-bearing assets like tETH will support market stability, helping users access efficient yield capture mechanisms and enhancing the protocol’s resilience to market volatility.
Why tETH?
tETH is part of Treehouse’s suite of tAssets (Liquid Staking Tokens 2.0), specifically designed to unify the fragmented on-chain interest rate markets. By enabling ETH holders to generate yield through both staking and market arbitrage, tETH maximizes capital efficiency without sacrificing stability. As an asset backed by real yields and enhanced through Ethereum’s staking ecosystem, tETH represents an ideal candidate for Compound’s collateral listing. Key benefits include:
Yield Generation: tETH earns staking rewards while simultaneously capturing arbitrage opportunities across the ETH market, offering competitive yields that can attract more users to Compound’s ecosystem.
Enhanced Liquidity: By supporting tETH, Compound can capture additional liquidity from users interested in maximizing returns on their yield-bearing assets.
Boosted Protocol Revenue: Listing tETH will enable Compound to capture additional fees as demand for lending and borrowing tETH-linked assets rises.
Conclusion
Incorporating tETH as a collateral option aligns with Compound’s vision to expand its yield-bearing asset base, foster greater liquidity, and promote sustainable growth across its platform. Listing tETH will enable users to better leverage their yield-bearing assets, increase market efficiency, and strengthen Compound’s position as a leading DeFi lending protocol. We invite the community to support this proposal to help drive the next phase of growth for Compound Finance.
I’d suggest waiting for the next two audits to be complete before considering. The last 3 audits have found things to be fixed although they were not “high” priority. Per their website:
Omniscia (Coming Soon)
BlockSec (Coming Soon)
Gauntlet - Parameter Recommendations for tETH on Mainnet WETH/wstETH Comets
Simple Summary
If the community wishes to initialize tETH as collateral on the Mainnet WETH and wstETH Comets, Gauntlet recommends the following risk parameters, assuming an exchange rate oracle to price the collateral.
tETH direct redemption currently requires at least 200 wstETH worth of tETH. Further, claiming a processed redemption takes “approximately 7 days”.
Supply Cap and Liquidation Penalty
Given the above liquidity, we recommend setting liquidation penalty on the more conservative side at 4% for both the WETH comet and the wstETH comet. Assuming an exchange rate oracle for the markets, supply cap can be set at 5,000 for the wstETH comet and 4,000 for the WETH comet, which allows for ~15% of the current supply to be deposited across both comets. We believe this limit is appropriate given the non-atomic redemption mechanism and relatively high tETH/WETH and tETH/wstETH volatilies. This achieves a high degree of capital efficiency while accounting for low risk of slashing-induced liquidation.
Collateral Factor (CF) and Liquidation Factor (LF)
Based on the provided metrics and the proposed liquidation penalty, Gauntlet recommends setting a collateral factor (CF) of 88% and a liquidation factor (LF) of 91% for both the WETH comet and the wstETH comet. These choices again aim to balance capital efficiency with risk mitigation.
Thank you for your feedback. To clarify, the “coming soon” audits mentioned are related to DOR and not tETH. The audits for tETH have been fully completed, with a total of six conducted. We hope this removes the blockers related to listing tETH on Compound.
Add tETH as collateral into cWstETHv3 on Mainnet\n\n
Proposal summary\n\n
Compound Growth Program [AlphaGrowth] proposes to add tETH into cWstETHv3 on Ethereum network. This proposal takes the governance steps recommended and necessary to update a Compound III wstETH market on Ethereum. Simulations have confirmed the market’s readiness, as much as possible, using the Comet scenario suite. The new parameters include setting the risk parameters based on the recommendations from Gauntlet.\n\n
Add tETH as collateral into cWETHv3 on Mainnet\n\n
Proposal summary\n\n
Compound Growth Program [AlphaGrowth] proposes to add tETH into cWETHv3 on Ethereum network. This proposal takes the governance steps recommended and necessary to update a Compound III WETH market on Ethereum. Simulations have confirmed the market’s readiness, as much as possible, using the Comet scenario suite. The new parameters include setting the risk parameters based on the recommendations from Gauntlet.\n\n
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