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
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