# \[ARC\] Add wstETH to Aave v3 on Optimism **URL:** \ **Category:** New Asset\ **Created:** [December 6, 2022, 6:26pm UTC](https://governance.aave.com/t/arc-add-wsteth-to-aave-v3-on-optimism/10932 "2022-12-06T18:26:22Z")\ **Posts on this page:** 1\ **Showing post:** 4
**Author:** ![Llamaxyz](https://dub1.discourse-cdn.com/flex013/user_avatar/governance.aave.com/llamaxyz/32/2044_2.png) [@Llamaxyz](https://governance.aave.com/u/Llamaxyz)\ **Post date:** [January 16, 2023, 5:26pm UTC](https://governance.aave.com/t/arc-add-wsteth-to-aave-v3-on-optimism/10932/4 "2023-01-16T17:26:08Z")
# wstETH - Aave Risk Assessment ## General Lido allows users to earn staking rewards on the Ethereum without locking ETH or maintaining staking infrastructure. This is achieved through the stETH token which represents a tokenized staking deposit. As stETH is a rebasing token, it creates challenges as not all DeFi integrations support rebasing tokens. To overcome these challenges, wstETH was developed. wstETH utilises a constant balance mechanism that uses an underlying share system to reflect the earned staking rewards. As with Aave v3 on Ethereum, Aave v3 on Optimism is to use wstETH. At the time of writing, there are [933,821.62](https://etherscan.io/token/0x7f39c581f595b53c5cb19bd0b3f8da6c935e2ca0) units of wstETH in circulating supply on mainnet, worth about $1,553,384,266 on the 14th Jan 2023. wstETH on Optimism represents a claim on the wstETH on mainnet, where the asset is held within the bridge contract. After 162 days of trading (launch date 5th August 2022), there are [14,703.80](https://optimistic.etherscan.io/token/0x1f32b1c2345538c0c6f582fcb022739c4a194ebb#balances) units of tokens in circulating supply and [301,566](https://optimistic.etherscan.io/token/0x1f32b1c2345538c0c6f582fcb022739c4a194ebb) transfers have taken place on the Optimism network. | General Information | | | | | --- | --- | --- | --- | | Genesis Date | 05/08/2022 | | | | Ticker | wstETH | Price | 1,673.57 | | Circulating Supply (Optimism) | 14,704.35 | Number of Holders (Optimism) | 2,401 | | Circulating Supply (Ethereum) | $1.55B | Number of Holders (Ethereum) | 933,821.62 | | Market Cap (Optimism) | $24.6M | Number of Transfer (Optimism) | 301,566 | Note: The number of holders metric above is skewed as it only reflects those that hold wstETH and counts all deposits into a single contract as one holder. To fully grasp the wstETH distribution, the distribution of liquidity provider receipt tokens deposited into various smart contracts such as gauges needs to be assessed. This will lead to significant increase in the number of holders of wstETH on Optimism. There are several wstETH liquidity pools on Optimism, Velodrom $14.8M, Beethoven $6.09M, Curve $10.5M and Kyber Swap $3.3M as of the 14th Jan 2022 for a total of $34.8M in TVL across the liquidity pools. ![](https://lh5.googleusercontent.com/8Xak7HY9F62SZFP50vKQxNYyCNpa9z5uPQmXoQjNcyyUNp6YuG5mmXBD6suTYHd_aQtUYdk73fjMTDM3o3h7JHplFaVfNdAD3nF2MLRyMi9KybjGF3lI0JPMPTMPyvQBhWoF6ExCjxfv5dd4GHOxYiyce_siguppvhI6MkWIqE6KRpOiF1y6KLI9wqoUHQ) Data [Source](https://dune.com/lido/wsteth-on-optimism). The below summaries relevant addresses specific to liquidity, bridges and tokens: wstETH Ethereum Contract Address: [0x7f39C581F595B53c5cb19bD0b3f8dA6c935E2Ca0](https://etherscan.io/token/0x7f39c581f595b53c5cb19bd0b3f8da6c935e2ca0?a=0x76943c0d61395d8f2edf9060e1533529cae05de6) Ethereum Bridge Address: [0x76943C0D61395d8F2edF9060e1533529cAe05dE6](https://etherscan.io/address/0x76943c0d61395d8f2edf9060e1533529cae05de6) wstETH Optimism Address: [0x1F32b1c2345538c0c6f582fCB022739c4A194Ebb](https://optimistic.etherscan.io/address/0x1F32b1c2345538c0c6f582fCB022739c4A194Ebb) wstETH Optimism Bridge Governance Executor Address: [0xefa0db536d2c8089685630fafe88cf7805966fc3](https://optimistic.etherscan.io/address/0xefa0db536d2c8089685630fafe88cf7805966fc3) Velodrom Liquidity: [0xbf205335de602ac38244f112d712ab04cb59a498](https://optimistic.etherscan.io/address/0xbf205335de602ac38244f112d712ab04cb59a498) Beethoven Liquidity: [0xba12222222228d8ba445958a75a0704d566bf2c8](https://optimistic.etherscan.io/address/0xba12222222228d8ba445958a75a0704d566bf2c8) Curve Liquidity: [0xb90b9b1f91a01ea22a182cd84c1e22222e39b415](https://optimistic.etherscan.io/address/0xb90b9b1f91a01ea22a182cd84c1e22222e39b415) Kyber Swap Liquidity: [0xda74DB17023750D02b83BE2559a4EaA013B65C54](https://optimistic.etherscan.io/address/0xda74db17023750d02b83be2559a4eaa013b65c54) ## wstETH Smart Contract Risk: stETH had been audited several times, with audits from [Sigma Prime, Quantstamp and MixBytes](https://github.com/lidofinance/audits). Lido also has an active [Immunefi bug bounty](https://immunefi.com/bounty/lido/) program as well. Lido wrote its own bridging contract for the Optimism native bridge, which was audited by [Oxorio](https://github.com/lidofinance/audits/blob/main/Oxorio%20Lido%20L2%20Smart%20Contracts%20Security%20Audit%20Report%2007-2022.pdf) in July 2022. The conclusion section from Oxorio’s report indicates all findings were addressed or are considered not an issue. ![](https://lh4.googleusercontent.com/nJ_Q3TYcZcaerLZVkbI45Xm2C2J4glqwtmFgEOj-CUpLhKoNHe9Jm7QhWddZqFuuhX65Yg71z2veU7SdPytsp9GC1sXzxyJqTUAzJLFS23wnRG5GpGVpE3fneSSAr-1LDdVx5jEpNo6iJa-iC94clk3MPFmo2PwJPo3je_dM6DKy2WvkHiS81n8KYKUUjw) ## wstETH Counterparty Risk: With stETH already listed on Aave v2 and wstETH to be listed on Aave v3 on Ethereum at launch, here we will focus on the Counterparty Risk specific to Optimism. As the Optimism bridge is owned by Lido DAO on Ethereum, no action can be taken on the bridge without explicit Lido DAO approval with exception to pausing the bridge. L1 and L2 upgrades are implemented via governance approval on Ethereum and utilise the Aave Governance Cross-Chain bridges contracts. There is a 3 of 5 multisig on Optimism that performs the Emergency Brake role, which can pause deposits and withdrawals in the bridge contract. Do note resuming operations can only be performed by the Aragon Agent. Details about the signers on the multisig are mentioned in the original proposal. With Chainlink set to monetise their oracle feeds, by onboarding wstETH, Aave will likely incur a fee for using two oracles. As Aave utilises a token/USD oracle feed, for wstETH, the oracle will need to calculate wstETH to stETH to USD in order to generate a wstETH/USD oracle feed for use on Optimism. This means Aave will utilise two Chainlink feeds in supporting the wstETH asset listing. wstETH/stETH: [0xe59EBa0D492cA53C6f46015EEa00517F2707dc77](https://optimistic.etherscan.io/address/0xe59EBa0D492cA53C6f46015EEa00517F2707dc77) stETH/USD: [0x41878779a388585509657CE5Fb95a80050502186](https://optimistic.etherscan.io/address/0x41878779a388585509657CE5Fb95a80050502186) Data source can be found [here](https://docs.chain.link/data-feeds/price-feeds/addresses?network=optimism#Optimism%20Mainnet). As a result, Llama believes the community should opt for a Reserver Factor of 15%, similar to the ETH Reserve on v2 and the pending v3 deployment. This will improve the overall economics of listing wstETH on v3. ## Risk Parameters Provided above by Gauntlet, with exception to a revised BorrowCap and Reserve Factor. In addition, Llama would like to suggest the creation of an eMode Category for ETH correlated assets on Optimism. This will enable users to recursively deposit wstETH and borrow ETH to generate yield on ETH and other chosen types of collateral. Details relating to eMode can be found [here](https://docs.aave.com/faq/aave-v3-features#high-efficiency-mode-e-mode). ## ETH eMode Category: | Category | Assets Included | Loan to Value | Liquidation Threshold | Liquidation Bonus | | --- | --- | --- | --- | --- | | Ethereum Correlated | wstETH wETH | 93% | 90% | 1% | The above reflects the same parameters suggested for the Ethereum v3 deployment and is expected to attract users to the v3 deployment. Given the BorrowCap suggested by Gauntlet is very limited (940 wstETH units) the risk proposed by the introduction of the eMode is minimal. It is likely that Aave will experience demand for wstETH borrowing as users seek to compound their rewards by depositing into the various liquidity pools to earn additional yield. Ie: Deposit collateral, borrow wETH + wstETH and deposit into a liquidity pool to earn yield. Borrowing both wETH and wstETH enables users to avoid any loss of yield from the price impact by converting one asset to another prior to depositing into any liquidity pool. ## wstETH Market Risk: With Shanghai approaching, expected late Q1 2023, it is possible to see volatility in spot pricing between the LSD as each provider enables withdrawals from their respective staked ETH products. This is being discussed on a separate [Governance Forum Thread](https://governance.aave.com/t/arc-aave-protocol-plan-for-shanghai-upgrade/11323). ## Interest Rate Curve The following Interest Rate Curve is proposed for wstETH on Optimism. This is the same Interest Rate Curve as wstETH being proposed for wstETH on v3 Ethereum. | Category | Value | | --- | --- | | Base | 0.25% | | Slope1 | 4.50% | | Slope2 | 80.00% | | Uoptimal | 45.00 | | Reserve Factor | 15.00 | ![Screenshot 2023-01-24 at 19.09.15](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/6/628ce5391f119c5b986a70dd3895e10a7c8ad66d.png) BorrowCap based upon Gauntlet’s SupplyCap, utilising Chaos Lab’s public BorrowCap methodology: Borrow Cap = Supply Cap \* (Uoptimal + 0.1) **New proposed BorrowCap = 6,000 \* (0.45+0.1) = 3,300** The figure below shows daily trading volume, 3,675.27 units of wstETH for the later half of January 2023, exceeding the borrow cap of 3,300 units. The chart below also shows the trading volume to be distributed across several decentralised exchange liquidity pools. There are 9,031 wstETH spread across the main liquidity pools, see chart below, which exceeds the BorrowCap by about 50%. ![](https://lh3.googleusercontent.com/_nyj1henuYqbPZdJ7D8uIKxFtK4kldF80zus9MnE4J0ajXHWPb7D_3YkQ3tjM660b96cFlwNX4Ntslf1sxJzDCCmTcYoBBV7hX4ClR25OGNAI3_gBJEevEnwj1ITvfKD3xdIRxgp1pz7jC2fp8geOZRBTeJ_1FqwxNC7CBjIWMO1FuB_wY9EZ0dtpX6QQQ) Date [Source](https://dune.com/lido/wsteth-on-optimism) ![](https://lh6.googleusercontent.com/tlBxEbIkTG8wu_tQwFYiLpgFNgBMF5TqWLhy6Smodhb1OPpZUXU3yXelrSUdIq2Bu8nKIF4LLjPD4vJR6Jm33S-kOpF5dk-ZEJ96jx4hGPuUfEy-29oGIbRFetr6aUktvr6jNZqz69NMmC-zrfhZ4HhSokuAB4JKGBhiSx9pWa84Jzu9yfUu5ioLAQYEww) Date [Source](https://dune.com/lido/wsteth-on-optimism) The main wstETH liquidity pools are incentivized by a range of token emissions: ![](https://lh3.googleusercontent.com/Up2BBUKdsRSOBo81DSjTdjDRmOhloARGVrlyJCo9jsyyr5t45LDCZzJDgamrgmwDqGd8jaPTTB7_oeI7gD5-sP11Hw4THTpkHGRwyE50V7V8Zja6-PJHZPEVZDAkInWRYiw_6qK1EMDCFG-OHBq-f0C-jCD9iJlf6emfbRHt3Z_WEiMVFILdeYqLWnrPvQ) ![](https://lh6.googleusercontent.com/tmDZJqICUCcxcVPuLpY_N7-LiRxUuQRN0ktZqaOB9LlEIkCwdgNAMvBXwfTn5Yp3Y_iN4S6gtMPaPkG9Xk_eS3j4rL7XsS_4JTsWoIK4_yc7gaIVljkTR3UfqCm_jm7vMYHglpykpWITgnra10F6mrn89ugZ1YzI8RrNSr6cfwro6MBn0ojnCRpbpf2hZA) ![](https://lh4.googleusercontent.com/7P3e1J-OEBDdxgWPRe_Tq_n2-Vd2NHIlXztesDjjS9BFXGCOuo6hhQ6JYYB8wMyIftAZs963KHLu1jCPbuTXRr7LYyRGhchscQO67tjHGZrQPTTcQOeoQ_sMBOYYAkmAP06rpx9F2WvX6gZNyLuskdmO88OW-cuHJ_m28ohmalUljHh7YUlG6Tit6zTb6A) ![](https://lh5.googleusercontent.com/KHzLqXBrn4K4xx4S-2ePPfE1sWC0Gxo_2_Kt6gqLZWaY0iCuYPNzcViTz4eDN43P8WAmjhTENOotAebXTNePtfKCuJRa5et7-z8gcT8gLIMzPpqy247ctNJ4BDk6G6W0F-nu2aDboI1sWbBnm33Kdqi9Er-uIF_Ppimx2Dc658JcOl9thImLTS8H0VtGcQ) ![](https://lh5.googleusercontent.com/t42X7Fh_KZjE9ds2VVD7PASVpHUCM52fjdp7x6BFXks4Q8NpnR5HjDiQ1oSnAP6q8T5GdiZghPMdHzSok8Mow-GreRZJycPR3ZbINet7UoojqvmodyPCH_v1yYO5D9wptyImd_JZUtZyjtF3eg5mZIPa-iY6I-ban9K3Gjd95Wr-Rmn256Hik5XWCPlx1A) ![](https://lh4.googleusercontent.com/qzq_bYPv7fYyRIX_k7FXR6UeMoouQJki93Ko_xB8O57ql6wnnDhT2WYhogp0_ICi2m30P2qYwU_U1978W1KZi4vgFka8trEePfGJxtyiFuwALKSfFqnn1VIfujUOCNcKrCTNr5NCW-m6eacOKozQ6t0cQKDI2XIJ165Xtm3IEpMV1_oGq8KhIDSIkB2LFg) Data [Source](https://dune.com/lido/wsteth-on-optimism) --- _[View the full topic](https://governance.aave.com/t/arc-add-wsteth-to-aave-v3-on-optimism/10932)._