Summary
Chaos Labs supports a new Etherfi/Stablecoin Aave v3 instance on Mainnet and provides the recommended parameters below.
Motivation
We support the proposed deployment with the intention of using stablecoin borrowing. We have observed virtually unlimited demand to use weETH as collateral. However, to this point, it has almost entirely been for leveraged yield strategies, in which a user borrows an ETH-correlated asset against their weETH. This has likely crowded out some users who prefer to use the asset in a manner similar to WETH, borrowing stablecoins against it.
Additional Considerations
- WETH liquidity on all chains that offer weETH has been stretched to its limit, requiring careful management to ensure that borrow demand does not cause utilization to surge above UOptimal, causing an increase in borrow rates that makes leveraged yield strategies unprofitable. This new market could relieve some pressure by increasing the non-E-Mode borrowing power of weETH, leading to relatively less looping and more stablecoin borrowing.
- However, given that virtually all borrowing against weETH up to this point has been WETH, it remains to be seen how much demand there will be in this new market. For this reason, we recommend starting with supply caps using our standard methodology, in which they are set at two times the amount of liquidity available under the Liquidation Bonus.
- Stablecoin rates must be calibrated carefully to ensure suppliers are properly compensated; proposed supply incentives will be useful in this market. Additionally, we agree that GHO borrow rates can be set temporarily lower in this instance to stimulate demand.
- We recommend disabling borrowing of weETH to prevent weETH-weETH looping, which may take up valuable supply cap space. Additionally, we recommend disabling USDC as collateral to prevent farming of proposed supply incentives.
Specification
For GHO, we recommend a starting cap of 5.25M GHO (5% of total supply) and a borrow rate set 0.5 percentage points lower than the main GHO facilitator.
| weETH | USDC | |
|---|---|---|
| Isolation Mode | No | No |
| Enable Borrow | No | Yes |
| Enable Collateral | Yes | No |
| E-Mode Category | N/A | N/A |
| Loan To Value | 78% | - |
| Liquidation Threshold | 81% | - |
| Liquidation Bonus | 6% | - |
| Reserve Factor | - | 10% |
| Liquidation Protocol Fee | 10% | - |
| Supply Cap | 50,000 | 140,000,000 |
| Borrow Cap | 0 | 135,000,000 |
| Debt Ceiling | N/A | N/A |
| uOptimal | - | 90% |
| Base | - | 0% |
| Slope1 | - | 6.5% |
| Slope2 | - | 60% |
| Stable Borrowing | Disabled | Disabled |
| Flashloanable | Yes | Yes |
| Siloed Borrowing | No | No |
| Borrowable in Isolation | No | No |