[Temp Check] Add wstETH as a collateral on Base ETH Market, USDC Market on Arbitrum and Ethereum Mainnet

[pennblockchain]

Thank you for pointing this out @zetaproject and thank you @Gauntlet for a prompt response.

The proposal does in fact adhere to Gauntlet’s risk parameters correctly. However it does deviate from the recommendations for market pricing vs exchange rate pricing.

Given that Gauntlet recommends very conservative risk parameters at the start, we’ve approached this this proposal alongside Lido as an initial step to assess wstETH demand on Compound.

@Gauntlet

If the community decides to pursue exchange rate oracles, preventive measures can be implemented to mitigate LST risks associated with price dislocation and EOA concerns:

• Severe Dislocation Mechanism: Protocols may implement measures, like halting new supplies or setting collateral factors (CF) to zero, to prevent an increase in LST supply during significant market dislocations, despite their rarity and unpredictability.
• Oracle Feed Threshold Mechanism: Implement a smart contract on the Oracle feed of all assets, particularly those dependent on exchange rate feeds, to prevent the price from exceeding a certain ratio. This strategy helps prevent potential upward price manipulation and protects protocol deposits.

We believe this is an opportunity to explore exchange rate pricing on Compound with arguably the foremost incumbent liquid staking protocol. Although we do acknowledge the risks, and their potential to impact Compound in a major way we’re also confident in the robustness of Lidos validator set and ability to uphold credibility as it relates to reporting their exchange rate. We’re also bullish on the implementation of these kinds of risk mitigations to further bolster exchange rate pricing. Despite these considerations, future changes could be made to introduce Gauntlet’s proposed mitigations or switch to market pricing before the conservative parameters are relaxed.

We also anticipate that in the future the risk of slashings will continue to decrease as node operators become more sophisticated and adopt new technologies such as DVT and TEEs which Lido has already put into motion with simple DVT.

@zetaproject

Additionally, the oracle used in the proposal mislabels a Chainlink ETH/USD price feed as “stETHToETH” pricefeed.

In response to this other point, the issue here is that the WstETHPriceFeed contract contains hardcoded descriptions assuming that the stETH/ETH is used in combination while it can be, in fact, combined with the ETH/USD pricefeed:

compound-finance/comet/blob/main/contracts/pricefeeds/WstETHPriceFeed.sol#L22

So this is just a discrepancy in the contract’s documentation rather than a functional discrepancy.

Moving forward we also encourage the movement towards consistent price feeds for LSTs and would love to see this go to a collective decision. Franklin DAO would be happy to put this proposal forward individually or co-author it with any other willing parties. On this note it’s our opinion that in order to support LRTs in a scalable manner, exchange rate pricing makes sense to support.