Summary
Chaos Labs introduces two new E-mode categories - ezETH/USDS and ezETH/wstETH - and recommends updated parameters for ezETH on the Lido instance.
Motivation
With the introduction of Aave v3.2 and Liquid E-Modes, it is now possible to assign multiple E-Modes to a single asset. In this recommendation, we analyze the E-Mode parameters for each category and recommend parameters following Chaos Labs’ methodologies.
In our methodology, we consider on-chain liquidity, historical volatility, and daily price fluctuations to recommend supply caps and categorize the asset’s risk class, ensuring alignment between the LT and LTV ratios.
ezETH Supply caps
Based on Renzo Protocol’s documentation, the buffer capacity, which is the amount of collateral available for withdrawal at any given time, is set to 10,000 ETH and renews every beacon chain withdrawal cycle (approximately 10 days).
Chaos Labs’ approach to initial supply caps recommendations is usually at 2x the liquidity available under the Liquidation Penalty price impact in DEXes, which is around 2.5K. Combined with the liquidity available in the liquidity buffer, we recommend 15,000 ezETH. Notably, we can immediately double these caps post-listing to 30,000 through the risk steward and then adjust them every five days if user behavior and liquidity allow. This approach aims to quickly scale to the desired supply cap.
To promote the desired use case in the ezETH/wstETH E-Mode category, we will propose increasing the wstETH borrow caps on the Lido instance in a separate proposal.
Chaos Labs will continue monitoring the ezETH market to provide additional recommendations when needed.
LT and LTV
ezETH/wstETH E-mode category introduces a new pair of ETH-correlated assets and, therefore, remains consistent with the E-mode configurations on the Ethereum instance.
E-mode Category: ezETH/USDS
Relative to USD, ezETH has a daily annualized volatility of 64.5% over the last 180 days and 46.76% over the last 30 days. Its maximum price drop relative to USD was 10.3% over the former time frame.
Given the isolated environment of the ezETH/USDS liquid E-Mode, we recommend setting slightly less restrictive parameters than ezETH would typically receive in the Lido instance on the Ethereum deployment. We find that an LTV of 75% and a Liquidation Threshold (LT) of 78% are permissive enough without exposing the protocol to unnecessary risk to account for the asset’s inherent volatility.
Revised Parameters for ezETH in the Non E-mode Setting
In V3.2, with assets allowed in multiple E-Modes, using ezETH as collateral outside of E-Mode in the Lido instance no longer fits the intended use case, as it introduces additional asset pairs and unnecessary risk. Therefore, in the non E-mode configuration, we suggest setting the Liquidation Threshold (LT) to 0.10% and the Loan-to-Value (LTV) ratio to 0.05%. Additionally, we recommend listing this asset as non-borrowable to prevent point farming looping.
Specification
E-mode Category 1: ezETH / USDS
| Parameter | Value | Value |
|---|---|---|
| Asset | ezETH | USDS |
| Collateral | Yes | No |
| Borrowable | No | Yes |
| Max LTV | 75% | 75% |
| Liquidation Threshold | 78% | 78% |
| Liquidation Penalty | 7.50% | 7.50% |
E-mode Category 2: ezETH / wstETH
| Parameter | Value | Value |
|---|---|---|
| Asset | ezETH | wstETH |
| Collateral | Yes | No |
| Borrowable | No | Yes |
| Max LTV | 93% | 93% |
| Liquidation Threshold | 95% | 95% |
| Liquidation Penalty | 1.00% | 1.00% |
ezETH Risk Parameters (Non E-mode)
| Parameter | Value |
|---|---|
| Asset | ezETH |
| Isolation Mode | No |
| Borrowable | No |
| Collateral Enabled | Yes |
| Supply Cap | 15,000 |
| Borrow Cap | - |
| Debt Ceiling | - |
| LTV | 0.05% |
| LT | 0.10% |
| Liquidation Penalty | 7.5% |
| Liquidation Protocol Fee | 10.00% |
| Variable Base | - |
| Variable Slope1 | - |
| Variable Slope2 | - |
| Uoptimal | - |
| Reserve Factor | - |
| Stable Borrowing | Disabled |
| Flashloanable | Yes |
| Siloed Borrowing | No |
| Borrowable in Isolation | No |
| E-Mode Category 1 | ezETH / USDS |
| E-Mode Category 2 | ezETH / wstETH |