[ARFC] LRT and wstETH Unification

Governance
1

title: [ARFC] LRT and wstETH Unification
author: @TokenLogic
created: 2025-04-08

Summary

This publication presents a comprehensive overview of proposed LRT and LST risk parameters updates across Ethereum, Base and Arbitrum instances of Aave v3.

Motivation

This publication incorporates the feedback and recent discussion into a single holistic publication. For ease of reference, those publications are referenced below:

Each of the following sub-section presents insights into how each parameter is to be adjusted.

Prime Instance - wstETH and WETH eMode

The Prime instance, previously Lido instance, presents a tailored wstETH eMode configuration that offers enhanced capital efficiency relative to other instances of Aave v3. With a Liquidation Threshold (LT) of 96.50% for wstETH on Prime relative to 95.00% elsewhere, a position with a Health Factor of 1.01 can support a leverage ratio of 22.44 on Prime relative to 16.83 on other instances of Aave Protocol.

With all other variables held constant, a small difference in the wstETH deposit yield on Prime relative to the Core instance, has a meaningful impact on the overall return of the wstETH/WETH yield strategy. With a strong focus on sustaining a wstETH deposit yield derived from LRT/wstETH leverage, the wstETH/WETH yield strategy is expected to outperform on Prime relative to other venues supporting the same wstETH/WETH strategy.

Provided suitable ETH liquidity is available, implementing favourable eMode terms on Prime relative to other instances of Aave is expected to lead to significant growth in wstETH deposits. A LT of 96.50% exceeds the previous forum discussion supportive of implementing a 96.00% LT, whilst also isolating the LT increase specifically to the Prime instance that reflects a clear focus to progress Prime into a sustainable ETH correlated instance of Aave v3.

Reference: [Risk Stewards]wstETH/wETH eMode Update - Ethereum, Arbitrum & Base Instances

wstETH/wETH Legacy eMode Update

Parameter Value
Asset wstETH, WETH
Max LTV 93.5
Liquidation Threshold 95.5
Liquidation Penalty 1.00%

New wstETH/wETH v3.2 liquid eMode

Parameter Value Value
Asset wstETH WETH
Collateral Yes No
Borrowable No Yes
Max LTV 95.00% -
Liquidation Threshold 96.50% -
Liquidation Penalty 1.00% -

Complimenting the abundance of USDS liquidity provided by the Sky Ecosystem via D3M, this publication proposes increasing the LTV and LT on Prime to improve the capital efficiency of WETH and wstETH relative to other instances of Aave v3. With the support of Sky via D3M and Gho Stewards via Direct Gho Minter Facilitator providing liquidity on demand, the Prime instance is able to offer consistent stablecoin supply and less volatile borrow rates to users.

The combination of improved capital efficiency and less volatile borrow rates elevates the competitive positioning of the Prime instances within the broader ecosystem.

WETH LTV/LT Update

Parameter Current Proposed
LTV 82.00% 84.00%
LT 83.00% 85.00%

wstETH LTV/LT Update

Parameter Current Proposed
LTV 80.00% 82.00%
LT 81.00% 83.00%

rsETH LTV & LT Update

To promote a level playing field between LRTs, a proposal was submitted and approved by Risk Service Providers to align the LTV and LT parameters of rsETH with other LRTs, ezETH and weETH.

The following is proposed for rsETH Core, Prime and Base instances:

  • Update rsETH/wstETH eMode: LTV 93%, LT 95% and Liquidation Penalty 1%.

A previous forum post details favourable feedback from Risk Service providers supporting amending the LTV and LT to align with other LRTs.

Reference: [ARFC] rsETH LTV & LT Update

rsETH/wstETH eMode Update
(Prime, Core, Arbitrum and Base)

Parameter Value Value
Asset rsETH wstETH
Collateral Yes No
Borrowable No Yes
Max LTV 93.00% -
Liquidation Threshold 95.00% -
Liquidation Penalty 1.00% -

Enable rsETH to access stablecoin liquidity on Prime, Arbitrum and Base instances.

Create new v3.2 liquid eMode
(Prime)

Parameter Value Value Value Value
Asset rsETH USDS USDC GHO
Collateral Yes No No No
Borrowable No Yes Yes Yes
Max LTV 72.00% - - -
Liquidation Threshold 75.00% - - -
Liquidation Penalty 7.50% - - -

Create new v3.2 liquid eMode
(Arbitrum)

Parameter Value Value Value
Asset rsETH USDC USDT
Collateral Yes No No
Borrowable No Yes Yes
Max LTV 72.00% - -
Liquidation Threshold 75.00% - -
Liquidation Penalty 7.50% - -

Create new v3.2 liquid eMode
(Base)

Parameter Value Value
Asset rsETH USDC
Collateral Yes No
Borrowable No Yes
Max LTV 72.00% -
Liquidation Threshold 75.00% -
Liquidation Penalty 7.50% -

weETH LTV & LT Update

Based upon improving liquidity conditions on both Arbitrum and Base for weETH, this publication proposes increasing the weETH LTV and LTV as recommended by the Chaos Labs and Llama Risk in the reference linked below.

weETH LTV/LT Update
(Arb and Base)

Parameter Current Proposed
LTV 72.5% 75%
LT 75% 77%

Reference: [ARFC] wstETH and weETH E-Modes and LT/LTV Adjustments on Ethereum, Arbitrum, Base - 03.12.25

Base Instance - Liquid eMode v3.2

The introduction of Liquid eModes in Aave v3.2 enables more granular and targeted risk configurations between correlated assets such as LSTs and LRTs. Creating isolated eModes for each pair enhances capital efficiency relative to the current ETH-correlated eModes on the Base instance.

Currently, Aave Protocol supports a single ETH Correlated eMode on Base.

Parameter Value
Asset weETH, wstETH, cbETH, WETH
Max LTV 90.00%
Liquidation Threshold 93.00%
Liquidation Penalty 2.00%

To align the asset parameter configuration on Base instance with other instances of Aave, new v3.2 Liquid eModes are to be deployed with the following parameters. Each new eMode reflects the LTV and LT in use on the Core instance on Ethereum and in doing so unifies the parameters across Core, Arb and Base. Furthermore, by pausing the exisiting ETH correlated eMode and transitioning to more capital efficient v3.2 eModes, it prevents same-asset looping that undermines liquidity incentives from unintended utilisation.

weETH/WETH eMode Update

Parameter Value Value
Asset weETH wETH
Collateral Yes No
Borrowable No Yes
Max LTV 93.00% -
Liquidation Threshold 95.00% -
Liquidation Penalty 1.00% -

wstETH/WETH eMode Update

Parameter Value Value
Asset wstETH wETH
Collateral Yes No
Borrowable No Yes
Max LTV 93.00% -
Liquidation Threshold 95.00% -
Liquidation Penalty 1.00% -

cbETH/WETH eMode Update

Parameter Value Value
Asset cbETH wETH
Collateral Yes No
Borrowable No Yes
Max LTV 93.00% -
Liquidation Threshold 95.00% -
Liquidation Penalty 2.00% -

The above new weETH eModes incorporates the feedback from the forum discussion linked below.

Reference: [ARFC] wstETH and weETH E-Modes and LT/LTV Adjustments on Ethereum, Arbitrum, Base - 03.12.25

Specification

The following adjustments are to be implemented on all instances within the same AIP.

Prime - Ethereum

The Prime instance has the highest LTV/LT for ETH correlated assets.

Pause the current wstETH/wETH Legacy eMode Update

Parameter Value
Asset wstETH, WETH
Max LTV 93.5
Liquidation Threshold 95.5
Liquidation Penalty 1.00%

Update WETH LTV and LT Parameters

Parameter Current Proposed
LTV 82.00% 84.00%
LT 83.00% 85.00%

Update wstETH LTV and LT Parameters

Parameter Current Proposed
LTV 80.00% 82.00%
LT 81.00% 83.00%

Create new v3.2 liquid eMode

Parameter Value Value
Asset wstETH WETH
Collateral Yes No
Borrowable No Yes
Max LTV 95.00% -
Liquidation Threshold 96.50% -
Liquidation Penalty 1.00% -

Create new v3.2 liquid eMode

Parameter Value Value Value Value
Asset rsETH USDS USDC GHO
Collateral Yes No No No
Borrowable No Yes Yes Yes
Max LTV 72.00% - - -
Liquidation Threshold 75.00% - - -
Liquidation Penalty 7.50% - - -

Core - Ethereum

rsETH/wstETH liquid eMode update.

Parameter Value Value
Asset rsETH wstETH
Collateral Yes No
Borrowable No Yes
Max LTV 92.5 93.00% -
Liquidation Threshold 94.5 95.00% -
Liquidation Penalty 1.00% -

Arbitrum

rsETH/wstETH liquid eMode update.

Parameter Value Value
Asset rsETH wstETH
Collateral Yes No
Borrowable No Yes
Max LTV 92.5 93.00% -
Liquidation Threshold 94.5 95.00% -
Liquidation Penalty 1.00% -

Create new v3.2 liquid eMode

Parameter Value Value Value
Asset rsETH USDC USDT
Collateral Yes No No
Borrowable No Yes Yes
Max LTV 72.00% - -
Liquidation Threshold 75.00% - -
Liquidation Penalty 7.50% - -

weETH LTV/LT Update.

Parameter Current Proposed
LTV 72.5% 75%
LT 75% 77%

Base

ezETH/wstETH liquid eMode, no change.

Parameter Value Value
Asset ezETH wstETH
Collateral Yes No
Borrowable No Yes
Max LTV 93.00% -
Liquidation Threshold 95.00% -
Liquidation Penalty 1.00% -

rsETH/wstETH liquid eMode, no change.

Parameter Value Value
Asset rsETH wstETH
Collateral Yes No
Borrowable No Yes
Max LTV 92.5 93.00% -
Liquidation Threshold 94.5 95.00% -
Liquidation Penalty 1.00% -

Create new v3.2 liquid eMode

Parameter Value Value
Asset rsETH USDC
Collateral Yes No
Borrowable No Yes
Max LTV 72.00% -
Liquidation Threshold 75.00% -
Liquidation Penalty 7.50% -

Create weETH/wETH liquid eMode.

Parameter Value Value
Asset weETH wETH
Collateral Yes No
Borrowable No Yes
Max LTV 93.00% -
Liquidation Threshold 95.00% -
Liquidation Penalty 1.00% -

Create wstETH/WETH eMode Update

Parameter Value Value
Asset wstETH wETH
Collateral Yes No
Borrowable No Yes
Max LTV 93.00% -
Liquidation Threshold 95.00% -
Liquidation Penalty 1.00% -

Create cbETH/WETH eMode Update

Parameter Value Value
Asset cbETH wETH
Collateral Yes No
Borrowable No Yes
Max LTV 93.00% -
Liquidation Threshold 95.00% -
Liquidation Penalty 2.00% -

Pause the existing eMode by disabling wETH Borrowing within existing eMode. Users will no be able to borrow wETH debt within the legacy eMode upon implementation.

weETH LTV/LT Update.

Parameter Current Proposed
LTV 72.5% 75%
LT 75% 77%

Disclosure

TokenLogic does not receive any payment for this proposal.

Next Steps

  1. Gather feedback from the community.
  2. If consensus is reached on this ARFC, escalate this proposal to the Snapshot stage.
  3. If Snapshot outcome is YAE, an AIP will implement this proposal.

Copyright

Copyright and related rights waived via CC0.

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Summary

LlamaRisk supports the proposed parameter changes and the establishment of E-modes designed to maximize competitiveness and efficiency. These changes can be safely integrated. Since both ezETH and rsETH are priced within Aave using their internal exchange rate with CAPO, and both protocols assume a 1:1 stETH/ETH ratio, our analysis focuses on slashing risks.

For rsETH, the primary risk stems from ETHx devaluation, which constitutes 14% of rsETH’s composition. Current liquidation capacity becomes strained if ETHx experiences more than a 5.5% price drop. A 5% rsETH depeg would require a 35.7% drop in ETHx’s value—an unprecedented scenario involving extreme network slashing.

For ezETH, borrowing patterns are expected to mirror weETH usage, with most debt denominated in WETH. The critical constraint is limited ezETH/WETH liquidity, which can only handle approximately 935 ezETH at 5% slippage. The ezETH price oracle calculates value based on total protocol TVL divided by token supply, with stETH fixed at a 1:1 ratio with ETH. As with rsETH, slashing is the primary risk for ezETH.

We conducted a deeper analysis of potential slashing penalties for these assets. A ~29.5% LST drawdown on wstETH could occur in a worst-case scenario involving a widespread client issue. While slashing penalties can range from minor (-3.125%) to extreme (-100% in catastrophic cases), such black swan events must be balanced against business opportunities. Our analysis focused on the immediate impact a slashing event could have on Aave rather than the absolute potential drawdown on LST/LRT assets. We found that the delay between the initial slashing penalty and subsequent correlation penalties gives the Aave Guardian sufficient time to pause the market and take appropriate actions if such tail risks materialize.

It is also important to highlight the upcoming Pectra upgrade, scheduled for May 7th, 2025, which will significantly reduce the initial slashing penalty from 1/32 ETH to 1/4096 ETH (-0.024%). This represents a meaningful reduction in penalties, further decreasing the immediate impact of slashing events and strengthening the safety profile of these assets within Aave.

Our research underscores the importance of node operator and consensus client diversity in mitigating the impact of slashing. The relative differences in Loan-to-Value (LTV) and Liquidation Threshold (LT) parameters for LST/LRT assets should reflect this consideration. Lastly, the other proposed parameters, including supply caps, are appropriate and well-aligned with the protocol’s goals.

rsETH LTV & LT Update

rsETH depeg risk is tied to ETHx being 14% of its composition since a 1-1 hardcoded oracle is used for wstETH, and the internal exchange rate of ETHx is used. Market liquidity cannot profitably absorb liquidations if rsETH drops beyond 5.5%. A 5% rsETH depeg requires a 35.7% ETHx drop - an unprecedented scenario requiring extreme network slashing. Given these risk factors, the current LT/LTV parameters for the new rsETH/WETH E-mode market are acceptable.

Detailed Analysis

Analysis at timestamp #1741566100

Since ETHx is 14% of rsETH:

  • 1% rsETH depeg requires a 7.14% ETHx drop
  • 5% rsETH depeg requires 35.7% ETHx drop

These thresholds indicate significant network slashing events would be necessary to cause a meaningful depeg - an unprecedented scenario in liquid staking markets.

Liquidation volume increases substantially once rsETH drops beyond ~5.5%. These liquidation volumes exceed the current market liquidity capacity for profitable execution. The maximum rsETH to ETH swap liquidity the market supports is approximately 1,730-1,800 rsETH for a price impact under 5%.

To analyze the potential rsETH/WETH E-mode market:

  • Newly opened aggressive borrow positions should withstand a minimum 5.5% rsETH price depeg to prevent liquidation volumes from exceeding market capacity
  • The new rsETH/WETH E-mode market is expected to route borrowed WETH into rsETH, reducing ETHx proportion in rsETH
  • If the new market introduces ~154K WETH (backed by 160,000 rsETH) into the rsETH pool, a higher ETHx depreciation of ~41.6% would be needed to trigger a 5% rsETH price drop

Testing positions under various initial LTV with ETHx depeg threshold of ~40%

LT LTV Debt in WETH rsETH Depeg ETHx Depeg
0.95 0.93 154,550 2.11% 19.19%
0.95 0.92 152,888 3.16% 28.71%
0.95 0.91 151,227 4.21% 38.20%
0.95 0.9 149,565 5.26% 47.63%

Due to the Oracle implementation, the depeg primarily depends on ETHx slashing risk. To limit excessive liquidation volumes under a worst-case depeg scenario of -40% on ETHx, borrowers should be constrained to a maximum LTV of 91%.

ezETH LTV & LT Update

Analysis of weETH borrowing patterns suggests ezETH will primarily be used to back WETH loans, with the liquidation bottleneck identified as the ezETH/WETH conversion rather than stETH/WETH liquidity. Current market conditions indicate liquidity can only handle approximately 935 ezETH sales at a 5% price impact. The ezETH oracle implementation (EzETHPriceCapAdapter) calculates token value based on total protocol TVL divided by ezETH supply. For an ezETH/WETH or ezETH/wstETH market, the LRT/BASE_ASSET price only plummets if the TVL computation of ezETH goes down relative to the total supply of ezETH. This is only possible when slashing happens.

Detailed Analysis

LRT Asset Behavior on Aave

Analysis at timestamp #1742829800

Using all positions where weETH is used as collateral, we observe the following debt distribution:

Asset Debt Value Proportion
WETH $2,619,590,852 88.11%
USDT $229,700,564 7.73%
USDC $71,429,464 2.40%
wstETH $18,099,044 0.61%

Assuming ezETH would demonstrate similar behavior to weETH, we can expect ezETH to primarily back WETH debt (~90%) with minimal wstETH debt (~0.6%). The key takeaway is that ezETH/WETH will likely be more popular than ezETH/wstETH pairs. Additionally, since stETH/WETH liquidity is deeper than ezETH/WETH, the bottleneck for profitable liquidations would be the ezETH/WETH conversion. Therefore, examining ezETH/WETH liquidity should suffice for both proposed e-mode markets.

Liquidatable positions for weETH

The following chart shows the WETH debt liquidatable for all positions affected by weETH price changes. Scatter points above the threshold represent liquidations that would not be profitable (occurring beyond a ~0.5% drop in weETH price).

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Analysis indicates that approximately 8,150 weETH can be profitably swapped to WETH to complete liquidations. Beyond this limit, liquidations become unprofitable. This can be validated using current market prices (WETH: $2,085; weETH: $2,212):

image
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ezETH/WETH E-mode

Analysis at timestamp #1742829800

Assumptions:

  • Borrower behavior is assumed to be the same between weETH and ezETH.
  • 100% of the ezETH supply cap (150,000) is utilized to back WETH loans.

Using weETH as a proxy, we created a scaled synthetic borrow position. The scaling is based on the ratio between the current weETH supply and the proposed ezETH supply cap.

  • Current weETH supply: ~1,473,232 weETH
  • Proposed ezETH supply cap: 150,000 ezETH
  • Scaling ratio: ~9.8215

By scaling down each weETH collateral position by this factor, we can model how the market would behave if the entire 150,000 ezETH supply cap were utilized with position distributions similar to weETH. After this scaling, the liquidatable WETH debt vs. ezETH price shock would appear as follows:

image
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Note: The chart is not in log scale as the previous one

Inspecting the 5% price impact point for selling ezETH into WETH, it turns out as ~935 ezETH.

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A synthetic borrowing behavior was inherited from weETH under the ETH-correlated E-mode market and scaled for ezETH parameters. Actual ezETH market liquidity on the Ethereum chain is inspected to draw this comparison:

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We notice ezETH is following the same trend of allowable liquidity for profitable liquidations as weETH just at different multiple. ezETH market turns out less aggressive than the already functioning weETH market because ezETH liquidity is more than the proxy asset weETH for the given parameters and assumptions.

Inheriting the borrower behavior from weETH can be considered once the ezETH market starts to mature; at the start, the positions’ LTV would be lower than the maximum LTV allowed, i.e., 93%. The position at an LTV of 93% filling up the whole supply cap should look as follows:

  • Collateral: 150,000 ezETH; $325,500,000 @ $2170 ezETH
  • Debt: 145,187 WETH; $302,715,000 @ $2085 WETH
    A ~2.1% relative drop is required in ezETH to liquidate the above position.

Analysis reveals that synthetic borrow positions modeled from the weETH market exhibit aggressive characteristics. Combined with thin market liquidity, these risk factors suggest potential depeg events between ezETH and WETH. Examining the Oracle implementation provides the most comprehensive insight to assess this risk properly.

ezETH Oracle analysis

Analysis at timestamp #1742829800

The Oracle implementation for ezETH/ETH is through EzETHPriceCapAdapter.

Only ETH and stETH can be restaked to obtain ezETH. For stETH, the lookupTokenValue() function from the StETHShim contract is used, which returns a stETH<>ETH rate that is hardcoded to 1. For an ezETH/WETH or ezETH/wstETH market, the LRT/BASE_ASSET price only plummets if the TVL computation of ezETH goes down relative to the total supply of ezETH. This is only possible when slashing happens.

Slashing Risk

As previously seen, slashing risk is the main consideration for safely setting up aggressive LT/LTV for these E-modes. Slashing happens when the Ethereum consensus rules detect ‘cheating’ and can, in practice, occur without malice if a consensus client suffers from a bug or the validators’ signing keys are leaked. Although a tail risk event, the impact can be severe, with a minimum penalty of 1 ETH out of 32 (-3.125%) and a maximum penalty of -100% when more than 1/3 of all validators are penalized simultaneously.

The penalties are spread over time: when slashed, a validator suffers immediately from a -1/32 ETH initial penalty (-3.125%). It can potentially suffer from the correlation penalty 18 days later, depending on the total proportion of validators slashed in the 36-day window surrounding the slashing event.

We calculated two worst scenarios for wstETH: one was the largest node operator onto which it relies gets slashed, and one was the largest consensus client onto which it relies gets slashed.

Node Operator

If a node operator leaks its validator signing keys, a malicious actor could attest to those validators in parallel using them, in which case the validators would get slashed.

The Lido node operator set is highly diversified, with the largest node operator onto which Lido relies the most being Everstake at 2.67% (0.73% global network penetration). If Everstake is slashed, its validators will be immediately penalized 1/32 ETH (-3.125%). The Lido collateral would be impacted at 0.03125x0.0267= -0.083%, which is insignificant. Because the global share of Everstake is so small at 0.73%, no correlation penalty would be inflicted 18 days later.

Consensus Client

If a consensus client has a bug, all validators using it can be slashed. The consensus client Lido relies on most is Teku, at 33.7%. The Teku consensus client is estimated to be used by 27.32% of all validators on Ethereum. If Teku is slashed, an instant penalty of 1/32 ETH is inflicted upon the validators using it. The Lido collateral would be impacted at 0.03125x0.337 = -1.05%.

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Source: LlamaRisk slashing simulator

18 days later, the correlation penalty would step in. It depends on the total amount of validators slashed over 36 days centered around the slashing event. Assuming that no validators were slashed 18 days before the slashing event and understanding that no validators will be slashed 18 days after the event, our slashing penalty simulator estimates the correlation penalty to be 24 ETH out of 32. Together with the basic penalty, this would result in a (24+1)/32x0.337 = -26.33%.

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Source: https://clientdiversity.org/

LTV/LT considerations

We considered wstETH, an LST with one of the most diversified node operators and consensus client sets in our calculations. If the node operator slashing scenario was benign, the consensus client slashing scenario was not. In fact, due to the limited number of consensus clients available, all LST/LRTs could suffer from the same fate if one of their consensus clients were to be slashed.

That being said, it is important to note that the penalties spread over time. Notably, an immediate 1/32 initial penalty is inflicted upon slashed validators, with a potential correlation penalty inflicted 18 days later. This initial penalty of 1/32 ETH (-3.125%) does not cross the LTs proposed in this ARFC and trigger liquidations. However, the market would soon price in the coming correlation penalty (if any). Because Aave is either using a 1-1 hardcoded price feed or the internal exchange rate of the underlying protocols, which might differ from the market rates, it is therefore important to pause the markets as soon as possible if slashing is detected to avoid bad debt accumulation in Aave.

Note: the upcoming Pectra upgrade scheduled for May 7th, 2025 will significantly lower the initial slashing penalty from 1/32 ETH to 1/4096 ETH (-0.024%). Because the correlation penalty would remain unchanged 18 days later, it continues to be important to pause the market and prepare accordingly.

Disclaimer

This review was independently prepared by LlamaRisk, a community-led decentralized organization funded in part by the Aave DAO. LlamaRisk is not directly affiliated with the protocol(s) reviewed in this assessment and did not receive any compensation from the protocol(s) or their affiliated entities for this work.

The information provided should not be construed as legal, financial, tax, or professional advice.

3

Overview

Chaos Labs supports the parameter updates proposed in this ARFC, which build on previous risk assessments and materially enhance the capital efficiency of LST and LRT markets across Aave v3 instances.

Motivation

Increase wstETH/WETH eMode LT/LTV on Prime:

We support increasing the wstETH/WETH eMode LT/LTV on Prime to 96.5%, as outlined in a broader risk analysis available here. The key findings demonstrate that wstETH remains resilient under various severe risk scenarios:

  • Operator-level failures, even involving significant node operators, result in minimal ETH losses (<0.1%) with negligible liquidations.
  • Recent protocol upgrades, such as the Pectra upgrade, significantly mitigate initial slashing penalties.
  • Execution Layer (EL) issues are manageable, and validator losses remain limited through effective client switching strategies.

The primary risks identified—Consensus Layer (CL) bugs impacting majority or minority clients—are considered extreme tail-risk events with low likelihood. Furthermore, even under severe CL failure scenarios, the potential impacts are quantifiable. Given Prime’s strategic focus on LST looping and yield strategies, this LT increase aligns closely with usage patterns, enabling greater efficiency and leverage without compromising protocol safety.

Align rsETH LT and LTV across Prime, Core, Arbitrum, and Base:

This adjustment brings consistency across LRTs and reflects rsETH’s correlation with wstETH. Prior analysis of rsETH’s covered in this previous analysis shows that this level of leverage is appropriate and safe given liquidity conditions and historical volatility.

Increase weETH LT/LTV on Arbitrum and Base:

We support this adjustment following our detailed liquidity and peg stability analysis posted here. With improved depth and tighter spreads across both chains, raising parameters modestly enhances user capital efficiency with manageable risk exposure, especially given quick revesion in market stress events.

Introduce weETH, wstETH liquid eModes on Base at 95% LT:

We endorsed these isolated liquid eModes to replace the current shared ETH-correlated eMode. This segmentation supports more granular risk management and prevents unintended utilization from same-asset looping, all while enabling capital efficiency tailored to asset-specific behavior.

Specifications

Prime – Ethereum

wstETH/WETH E-Mode

Parameter wstETH WETH
Collateral Yes No
Borrowable No Yes
Max LTV 95.00% (93.50%) -
Liquidation Threshold 96.50% (95.50%) -
Liquidation Penalty 1.00% -

rsETH/USDS/USDC/GHO E-Mode

Parameter rsETH USDS USDC GHO
Collateral Yes No No No
Borrowable No Yes Yes Yes
Max LTV 72.00% - - -
Liquidation Threshold 75.00% - - -
Liquidation Penalty 7.50% - - -

Core – Ethereum

rsETH/wstETH E-Mode

Parameter rsETH wstETH
Collateral Yes No
Borrowable No Yes
Max LTV 93.00% (92.50%) -
Liquidation Threshold 95.00% (94.50%) -
Liquidation Penalty 1.00% -

Arbitrum

rsETH/wstETH E-Mode

Parameter rsETH wstETH
Collateral Yes No
Borrowable No Yes
Max LTV 93.00% (92.50%) -
Liquidation Threshold 95.00% (94.50%) -
Liquidation Penalty 1.00% -

rsETH/USDC/USDT Liquid E-Mode

Parameter rsETH USDC USDT
Collateral Yes No No
Borrowable No Yes Yes
Max LTV 72.00% - -
Liquidation Threshold 75.00% - -
Liquidation Penalty 7.50% - -

Base

weETH/WETH Liquid E-Mode

Parameter weETH WETH
Collateral Yes No
Borrowable No Yes
Max LTV 93.00% -
Liquidation Threshold 95.00% -
Liquidation Penalty 1.25% -

wstETH/WETH Liquid E-Mode

Parameter wstETH WETH
Collateral Yes No
Borrowable No Yes
Max LTV 93.00% -
Liquidation Threshold 95.00% -
Liquidation Penalty 1.00% -

cbETH/WETH Liquid E-Mode

Parameter cbETH WETH
Collateral Yes No
Borrowable No Yes
Max LTV 93.00% -
Liquidation Threshold 95.00% -
Liquidation Penalty 2.00% -

rsETH/wstETH E-Mode

Parameter rsETH wstETH
Collateral Yes No
Borrowable No Yes
Max LTV 93.00% (92.50%) -
Liquidation Threshold 95.00% (94.50%) -
Liquidation Penalty 1.00% -

rsETH/USDC Liquid E-Mode

Parameter rsETH USDC
Collateral Yes No
Borrowable No Yes
Max LTV 72.00% -
Liquidation Threshold 75.00% -
Liquidation Penalty 7.50% -

Disclaimer

Chaos Labs has not been compensated by any third party for publishing this recommendation.

Copyright

Copyright and related rights waived via CC0

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