# \[ARFC\] Add rsETH to Aave V3 Ethereum

**URL:** <https://governance.aave.com/t/arfc-add-rseth-to-aave-v3-ethereum/17696>\
**Category:** New Asset\
**Created:** [May 14, 2024, 6:36am UTC](https://governance.aave.com/t/arfc-add-rseth-to-aave-v3-ethereum/17696 "2024-05-14T06:36:30Z")\
**Posts on this page:** 1\
**Showing post:** 2

<div class="post-metadata">

**Author:** ![ChaosLabs](https://dub1.discourse-cdn.com/flex013/user_avatar/governance.aave.com/chaoslabs/32/6850_2.png) [@ChaosLabs](https://governance.aave.com/u/ChaosLabs)\
**Post date:** [May 16, 2024, 9:19pm UTC](https://governance.aave.com/t/arfc-add-rseth-to-aave-v3-ethereum/17696/2 "2024-05-16T21:19:55Z")

</div>

## **Overview**

Chaos Labs supports listing rsETH on Aave V3 Ethereum as part of the community’s strategy to increase the offering of Aave protocol with more LST/LRT assets. Following is our analysis and risk parameter recommendations for the initial listing.

_Note: The following analysis is conducted solely from a market risk viewpoint, excluding centralization and third-party risk considerations. If the community aims to reduce exposure to rsETH, adopting more conservative supply and borrow caps should be considered._

### **Liquidity and Market Cap**

The amount of ETH restaked with Kelp DAO has grown rapidly, from 65K ETH in mid-January to 255K ETH today. Note that withdrawals were opened on May 4, 2024, which led to a 10K ETH decrease in TVL.

 ![Untitled - 2024-05-16T171922.488](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/e/eee4e5e6c11eda94b35327a7607a19bcdff61e3e.png)

Currently, users may stake using ETHx, WETH, stETH, or sfrxETH. Rewards are reflected in the price of the token rather than rebasing. Since inception, it has registered $6.67M in average daily volume.

On Ethereum, its liquidity is concentrated on Balancer V2 ($38M TVL, paired with WETH) and Uniswap V3 ($14M TVL, paired with WETH).

### **rsETH / ETH Volatility**

 ![Untitled - 2024-05-16T171925.871](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/0/067fe1ad645a6228e669bf3ded9f1ab5652aaea7.png)

### **Liquidation Threshold**

Considering the volatility and the correlation of rsETH to ETH, we recommend setting the LT to 75%, mirroring weETH on Ethereum V3.

### **Supply Cap, Borrow Cap, and Liquidation Bonus**

Chaos Labs’ approach to initial supply caps is generally proposed through setting the Supply Cap at 2x the liquidity available under the Liquidation Penalty (7.5%) price impact, which leads us to recommend a starting supply cap of 8,000 rsETH.

Based on our observations, the utilization rate for LRTs and LSTs has been low due to additional borrowing costs. Therefore, we have taken a conservative approach and recommend a borrow cap of 800 rsETH. However, if there is a significant increase in demand and utilization, perhaps due to external incentives, we will reassess the caps according to the utilization pattern.

### IR Curve Parameters

We recommend aligning the interest rate parameters with those of weETH on Ethereum to ensure consistency across similar assets on Aave v3.

### Oracle Setting and E-mode

Following analysis, we find that rsETH has consistently traded below the reward-adjusted ETH price implied by its exchange rate. This persistent discount has been punctuated by periods of a widening discount, reaching nearly 3% in March and breaching 2% in April. The limited history since withdrawals were enabled shows that the discount remains, albeit with less severe spikes.

 ![Untitled - 2024-06-04T162628.733](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/e/e6a49b8c14adea2ac19a4fa4ead68beaa1264e51.png)

Given these factors, we first recommend utilizing the market price when listing this asset and not a calculated price feed. Additionally, we do not recommend listing this asset in E-Mode, given its tendency to face wide discounts, which could spark liquidation cascades in a highly leveraged market using a market oracle price. Below are our updated specifications.

### Recommendations

Following the above analysis, we recommend listing rsETH with the following parameter settings:

| Parameter | Value |
| --- | --- |
| Isolation Mode | No |
| Borrowable | Yes |
| Collateral Enabled | Yes |
| Supply Cap (rsETH) | 8,000 |
| Borrow Cap (rsETH) | 800 |
| Debt Ceiling | - |
| LTV | 72.50% |
| LT | 75.00% |
| 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 |
| Flashloanable | Yes |
| Siloed Borrowing | No |
| Borrowed in Isolation | No |
| E-Mode Category | N/A |

### **CAPO recommendations:**

| maxYearlyRatioGrowthPercent | ratioReferenceTime | MINIMUM\_SNAPSHOT\_DELAY |
| --- | --- | --- |
| 8.75% | monthly | 7 days |

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_[View the full topic](https://governance.aave.com/t/arfc-add-rseth-to-aave-v3-ethereum/17696)._