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.
WETH Comet
| Collateral | Supply Cap | Collateral Factor | Liquidation Factor | Liquidation Penalty |
|---|---|---|---|---|
| tETH | 4,000 | 88% | 91% | 4% |
wstETH Comet
| Collateral | Supply Cap | Collateral Factor | Liquidation Factor | Liquidation Penalty |
|---|---|---|---|---|
| tETH | 5,000 | 88% | 91% | 4% |
Analysis
DEX Liquidity
| Pool Type | Pool Name | Pool TVL (USD) | 24H Volume (USD) | URL |
|---|---|---|---|---|
| Curve | tETH / wstETH | $11.04M | $253K | Link |
| Balancer | tETH/wstETH / wstETH / tETH 0.05% | $5.29M | $1.01K | Link |
| Curve | tETH / weETH | $2.33M | $2.17K | Link |
Total TVL: $18.66M
Though there is currently no direct tETH/WETH pool, wstETH/WETH DEX liquidity is sufficiently high:
| Pool Type | Pool Name | Pool TVL (USD) | 24H Volume (USD) | URL |
|---|---|---|---|---|
| Balancer | wstETH / wstETH-WETH-BPT / WETH 0.01% | $41.29M | $27.43M | Link |
| Uniswap V3 | wstETH / WETH 0.01% | $16.91M | $16.26M | Link |
Total Supply
From mid-October to December 2024 tETH market cap has more than doubled, from the equivalent of 32K ETH to 66K ETH.
tETH/WETH Volatility and Returns
tETH/wstETH Volatility and Returns
Redemption Mechanism
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.
Next Steps
- We welcome community feedback