Overview
Chaos Labs supports listing rETH on Aave V3 Arbitrum as part of an overarching strategy to increase the offering of AAVE protocol with more LSD assets. We have relied on the recent analysis to onboard rETH on Aave V3 on Ethereum and considered the Arbitrum on-chain liquidity to make the below recommendations.
Liquidity and Market Cap
When analyzing market cap and trading volumes of assets for listing, we look at data from the past 180 days. The average market cap of rETH over the past 180 days was $307M, and the average daily trading volume was $3.9M (CeFi & DeFi). We find the market cap adequate and the trading volumes reasonable as long as they are considered when setting appropriate supply and borrow caps.
Liquidation Threshold
Considering the volatility and the correlation of rETH to ETH, we recommend a LT of 74% to match the rETH parameters on Ethereum V3.
We support listing rETH as borrowable under reasonable caps, as we do not observe a significant risk to the protocol by allowing to borrow rETH, as long as it is bound by a well-defined cap.
rETH / ETH Volatility
On-Chain Liquidity
Supply Cap, Borrow Cap, and Liquidation Bonus
Following Chaos Labs’ approach to initial supply caps, as introduced with the Metis deployment recommendations, we propose setting the Supply Cap at 2x the liquidity available under the Liquidation Penalty price impact.
Given the concentrated liquidity of rETH, we recommend a 7.5% Liquidation Bonus and a derived supply cap of 1000 rETH.
Based on our observations, the utilization rate for LSDs has been very low. Therefore, we have taken a conservative approach toward LSDs borrow caps of 150 rETH. However, if there is a significant increase in demand and utilization, we will reassess the caps according to the utilization pattern.
Oracle
Given that the rETH Oracle price on Ethereum quotes the asset price from the smart contract, we believe the Arbitrum Oracle should be similar as it mainly reflects the perceived counterparty risk, as explained in Chaos Labs’ approach to analyzing LSD assets. This approach will also better facilitate the future inclusion of rETH in E-Mode.
Recommendations
We recommend aligning the interest rate parameters with those of rETH on Ethereum to ensure consistency across different Aave v3 deployments. It is worth noting that rETH is not yet included in the V3 Ethereum eMode, and therefore it has been excluded from this proposal.
Following the above analysis, we recommend listing rETH with the following parameter settings:
| Parameter | Value |
|---|---|
| Isolation Mode | No |
| Borrowable | Yes |
| Collateral Enabled | Yes |
| Supply Cap (rETH) | 1,000 |
| Borrow Cap (rETH) | 150 |
| Debt Ceiling | N/A |
| LTV | 67.00% |
| LT | 74.00% |
| Liquidation Bonus | 7.50% |
| Liquidation Protocol Fee | 10.00% |
| Variable Base | 0.0% |
| Variable Slope1 | 7.00% |
| Variable Slope2 | 300.00% |
| Uoptimal | 45.00% |
| Reserve Factor | 15.00% |
| Stable Borrowing | Disabled |
| Stable Slope1 | 13.00% |
| Stable Slope2 | 300.00% |
| Base Stable Rate Offset | 3.00% |
| Stable Rate Excess Offset | 5.00% |
| Optimal Stable To Total Debt Ratio | 20.00% |
| Flahloanable | No |
| Siloed Borrowing | No |
| Borrowed in Isolation | No |