ARFC: Add support for LDO on Ethereum v3

[Pauljlei]

Gauntlet Risk Analysis

Thanks, @jbeezy, for this proposal.

Gauntlet has provided a detailed risk analysis on the Shanghai upgrade below, which is incorporated in this set of recommendations for LDO.

@Pauljlei

Volatility

At the moment of writing this post, the discount for stETH/ETH is less than 1%. If the perception of the market about Lido turns negative (e.g., due to the perceived inability of them delivering the underlying ETH), this discount could increase. Historically, this discount has reached values below 20%, but there seems to be significant buy interest above the 6% stETH/ETH discount level for the past year, with only brief deviations below in the second half of June 2022 on some exchanges (around the 3AC insolvency event). As the date for the Shanghai upgrade is approaching, we have seen the discount gradually reducing.

LDO token has a unique profile of being heavily affected by the Shanghai upgrade. Gauntlet has provided analysis on the Shanghai upgrade before here. In particular, we have observed how LDO returns relative to ETH since the start of the year have been buoyed by positive sentiment heading into the Shanghai upgrade. Potential unforeseen mishaps with the stETH redemption process, while unlikely, could thus negatively affect public perception for LDO token, triggering a sell-off and compromising the quality of LDO as collateral.

The community can assess these idiosyncratic risks to decide when / whether to list LDO. Below are the parameters Gauntlet recommends if the community wishes to list LDO.

Recommendation

Supply cap - 6M. We recommend our conservative caps out of an abundance of caution, given the unquantifiable risk presented above.

Borrow cap - 6M. We also recommend our conservative caps here.

Debt Ceiling - $7.5M. Initializing the debt ceiling with 50% of the dollar value of the supply cap will help protect against tail events while providing sufficient room to explore LDO usage.

Isolation Mode - yes

Borrowable - yes

LT - 57%. LDO has a 160% annualized volatility, so 57% accounts for this higher volatility while giving room to explore the usage of LDO collateral.

LTV - 52%

LB - 10900 (9%). Gauntlet recommends 9% LB to properly incentivize liquidations due to the higher volatility of LDO

RF - 20%

LPF - 10%

Rates

Base - 0%

Slope 1 - 7%

Slope 2 - 300%

Stable - 13%

Uopt = 45%