Gauntlet recommendations for rETH on Arbitrum
The following table contains Gauntlet’s recommended initial parameters for rETH on Arbitrum. We recommend rETH be initialized with e-mode enabled to allow rETH to grow most naturally and to capture its intended usage in the early stages. We discuss in more detail below.
| Risk Parameter | Gauntlet Rec |
|---|---|
| Isolation Mode | NO |
| Enable Borrow | YES |
| Enable Collateral | YES |
| Borrowable in Isolation | NO |
| Loan To Value | 67% |
| Liquidation Threshold | 74% |
| Liquidation Bonus | 7.5% |
| Reserve Factor | 15% |
| Liquidation Protocol Fee | 10% |
| Borrow Cap | 85 |
| Supply Cap | 325 |
| Debt Ceiling | N/A |
| Base | 0% |
| Slope1 | 7% |
| Uoptimal | 45% |
| Slope2 | 300% |
rETH is Rocket Pool’s liquid staking derivative. It does not rebase, instead gradually increasing in value relative to ETH. On Ethereum mainnet, users can mint and burn rETH in exchange for ETH via the Rocket Pool smart contract. However, rETH on Arbitrum needs to be bridged back to mainnet in order to be arbitraged against the smart contract. This creates the possibility of temporary divergences between the rETH price on Arbitrum and the underlying ETH contained in the pool.
rETH has previously been listed on Aave V3 Ethereum. For the initial rETH listing on Arbitrum, we follow many of the same parameters that it has on Ethereum.
We recommend the following parameters for rETH on Aave V3 Arbitrum:
Isolation Mode - No
Borrowable - Yes
Collateral Enabled - Yes
E-mode - Though e-mode is not covered in the proposal, we recommend adding rETH to the ETH-correlated category e-mode, as we anticipate this will be the primary usage of rETH collateral. From a risk perspective, enabling e-mode from the onset vs at a later time is preferred in order to allow rETH to grow most naturally and to capture its intended usage in the early stages. As we’ve discussed before, e-mode vs non e-mode borrowing exhibit different risk profiles, and potentially raising supply caps before e-mode has been enabled can be tricky.
Supply and Borrow Caps
Supply Cap (in tokens) - 325 / Borrow Cap (in tokens) - 85
Given that emode is not enabled in the original proposal, our supply and borrow caps are set in accordance with our borrow and supply cap methodology, which is bounded by the 25% DEX liquidity. However, as we have stated above, we recommend rETH to be initialized with e-mode.
Conditioned on rETH pricing being appropriately configured with the CSPA, as well as the majority of user debt to be in ETH, the supply cap can be raised to 50% of the circulating supply, as described in our LST methodology.
LTV - 67% / LT - 74%
Gauntlet recommends the same rETH LTV and LT on Arbitrum as on Ethereum.
Liquidation Bonus - 7.5%
Gauntlet recommends the same rETH Liquidation Bonus on Arbitrum as on Ethereum.
Liquidation Protocol Fee - 10%
Gauntlet recommends an LPF of 10%, matching the LPF for rETH on Ethereum.
Reserve Factor - 15%
Gauntlet recommends a reserve factor of 15% for rETH on Arbitrum, matching the RF on Ethereum.
IR Curves
We recommend the same IR curves used for rETH on Ethereum:
| Parameter | Recommendation |
|---|---|
| Base Variable Borrow Rate | 0% |
| Variable Rate Slope 1 | 7% |
| Optimal Usage Ratio | 45% |
| Variable Rate Slope 2 | 300% |