This ARFC presents the community with the opportunity to add RPL to the Ethereum v3 Liquidity Pool.
Abstract
Rocket Pool is an Ethereum staking protocol. The protocol reduces ETH staking capital and hardware requirements to increase Ethereum’s decentralization and security. Rocket Pool lets customers stake trustlessly to a network of node operators to do this. Adding support for RPL on Ethereum V3 would allow RPL holders to obtain a passive yield on their holdings without the need to deploy mini-pools.
On their side, RPL borrowers would be able to participate in Rocket Pool staking without the need to invest in RPL.
Motivation
RPL is the governance and utility token for RocketPool, a major decentralized liquid staking Token protocol. RocketPool has solidified itself as a Protocol which is actively contributing to Ethereum’s decentralization by making Operating a Node easy and accessible. By supporting RPL on Aave V3 Ethereum we would create an alternative for RPL holders who wish to earn yield on their asset.
Chaos Labs supports listing RPL on Ethereum V3 as a non-collateral asset, as proposed above and as voted on in the [TEMP-CHECK] Snapshot. As in previous cases, we recommend launching with more conservative caps, which can be increased after analyzing usage patterns and volume on Aave and the broader market.
We recommend launching with the following parameters:
Parameter
Value
Isolation Mode
No
Borrowable
Yes
Collateral Enabled
No
Supply Cap (RPL)
150,000
Borrow Cap (RPL)
120,000
Debt Ceiling
N/A
LTV
0%
LT
N/A
Liquidation Bonus
N/A
Liquidation Protocol Fee
10%
Variable Base
0.00%
Variable Slope1
7.00%
Variable Slope2
300.00%
Uoptimal
45.00
Reserve Factor
20.00%
Stable Borrowing
Disabled
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 RPL over the past 180 days was ~$700M, and the average daily trading volume was ~$10M (CeFi & DeFi).
Gauntlet supports listing RPL on Aave V3 Ethereum. The following table contains Gauntlet’s recommended initial parameters.
Risk Parameter
Recommended Value
Isolation Mode
NO
Enable Borrow
YES
Enable Collateral
NO
Borrowable in Isolation
NO
Loan To Value
N/A
Liquidation Threshold
N/A
Liquidation Bonus
N/A
Reserve Factor
20%
Liquidation Protocol Fee
10%
Borrow Cap
105,000
Supply Cap
105,000
Debt Ceiling
N/A
Base
0%
Slope1
7%
Uoptimal
45%
Slope2
300%
RPL is the Rocket Pool governance token (distinct from rETH, Rocket Pool’s liquid staking derivative). RPL serves as a governance token for the Rocket Pool protocol and as collateral for node operators. Node operators are required to hold a certain ETH value in RPL, so they are incentivized to top up their collateral when RPL falls in value relative to ETH. This mechanism keeps the RPL price fairly highly correlated to ETH, though it is not pegged to the value of ETH.
We recommend the following parameters for RPL on Aave V3 Ethereum:
Isolation Mode - No Borrowable - Yes Collateral Enabled - No E-mode - No
Supply and Borrow Caps
Supply Cap (in tokens) - 105,000 / Borrow Cap (in tokens) - 105,000
Our supply and borrow cap recommendations are set in accordance with Gauntlet’s borrow and supply cap methodology. We recommend capping borrow and supply at half of RPL’s average daily trade volume across DEXs and CEXs.
Liquidation Protocol Fee - 10%
Gauntlet recommends an LPF of 10%, matching the LPF for other similar assets.
Reserve Factor - 20%
Gauntlet recommends a reserve factor of 20% for RPL on Ethereum, matching the RF of most other non-stablecoins on Ethereum.
IR Curves
We recommend the same IR curves used for other protocol governance tokens on Ethereum, such as LDO, MKR, and AAVE.
As the Gauntlet supply and borrow cap are slightly more conservative than the Chaos ones, we suggest launching with them and increasing at a later stage.
As there is alignment on the rest of the parameters, we recommend the following set of parameters for the on-chain vote:
following governance usage the proposal will be escalated to the Snapshot stage with the most conservative of both recommendations, in this case Gauntlet recommendations.
However, the use-case of RPL in Aave V3 is to borrow it to deploy mini-pools using mainly rETH as collateral. Interest rate strategy does not provide benefits with a Uoptimal that low, and proposed initial parameters were crafted with the mini-pool yield in mind; this upcoming asset is meant to be heavily borrowed, and LPs are, by definition, long-term holders looking for additional yield on their RPL investment without the need to operate pool themselves.
Implementing recommended interest rate strategy will hurt protocol revenue and asset desirability in the protocol and will not provide additional safety benefits.
furthermore, a punitive slope2 as designed with 300% will potentially hurt borrowers beyond needed to incentive them to withdraw from staking and repay their debt. staking withdraws are not an overnight process and the current recommended parameters, will “scare away” potential borrowers hurting the asset use-case in Aave. an 87% slope2 parameter is a better approach.
that is why we request both risk team to reconsider their recommendation with the following parameters
We support the proposed IR curve parameters to promote the use case presented above.
We do want to highlight our main concern around the Slope2 figure being potentially not high enough to consistently deter borrowing beyond the UOptimal point. However, to validate the use case, we think it is reasonable to launch with the recommended parameters and monitor usage, and if necessary, we will propose modifications to these parameters.
Thanks for the additional context, @MarcZeller! Yes, that makes sense as to the motivation for these IR curves. We are happy to support launching with the proposed IR curves. Gauntlet will monitor the RPL borrow usage and may recommend a steeper Slope2 parameter if users borrow close to 100% of total supply.
Snapshot was approved by governance, this proposal will be escalated to AIP stage as soon as a CL price feed is available. Chainlink is working on it and should be soon
