Overview
Chaos Labs supports listing osETH on Aave V3 Ethereum as part of the community’s strategy to increase the offering of Aave protocol with more LST assets. Following is our analysis and risk parameter recommendations for the initial listing.
Note: The following analysis is conducted solely from a market risk viewpoint, excluding centralization and third-party risk considerations. If the community aims to reduce exposure to osETH, adopting more conservative supply and borrow caps should be considered.
Liquidity and Market Cap
osETH is an ETH liquid staking token offered by StakeWise. The token represents ETH staked in Vaults, which earn ETH rewards from validators. Similar to wstETH, its accrued rewards are reflected in the asset’s price relative to ETH. It is minted using an overcollateralized position, meaning stakers receive relatively less osETH than the ETH used to stake. This is intended to protect from slashing events. Redemption of osETH for ETH is always set to the underlying exchange rate, determined by StakeWise oracles based on the performance of Vaults.
The current supply is 33.26K osETH, representing a market cap of roughly $100M. Its liquidity is concentrated on Curve, Balancer V2, and Uniswap V3.
osETH / ETH Volatility
Liquidation Threshold
Considering the volatility and the correlation of osETH to ETH, we recommend setting the LT to 75%, mirroring similar assets on Ethereum V3.
Supply Cap, Borrow Cap, and Liquidation Bonus
Chaos Labs’ approach to initial supply caps is generally proposed by setting the supply cap at 2x the liquidity available under the liquidation penalty price impact, which would lead to a recommendation of 28,000 osETH.
However, we recommend first a more conservative cap of 10,000 osETH to observe user behavior as anticipated before enabling more aggressive caps via risk steward.
Based on our observations, the utilization rate for LRTs and LSTs has been low due to additional borrowing costs. Therefore, we have taken a conservative approach and recommend a borrow cap of 1000 osETH. However, if there is a significant increase in demand and utilization, perhaps due to external incentives, we will reassess the caps according to the utilization pattern.
IR Curve Parameters
We recommend aligning the interest rate parameters with those of weETH on Ethereum to ensure consistency across similar assets on Aave v3.
E-mode
Given the asset’s overall liquidity and risk profile, we recommend including osETH in the ETH-correlated E-mode category.
CAPO recommendations:
Considering the stable nature of osETH yield and the relatively low staking rates since its launch, along with the granular and streamlined reward approach, we suggest initializing osETH CAPO parameters similar to wstETH.
| maxYearlyRatioGrowthPercent | ratioReferenceTime | MINIMUM_SNAPSHOT_DELAY |
|---|---|---|
| 8.75% | monthly | 7 days |
Specification
Following the above analysis, we recommend listing osETH with the following parameter settings:
| Parameter | Value |
|---|---|
| Isolation Mode | No |
| Borrowable | Yes |
| Collateral Enabled | Yes |
| Supply Cap (osETH) | 10,000 |
| Borrow Cap (osETH) | 1000 |
| Debt Ceiling | - |
| LTV | 72.50% |
| LT | 75.00% |
| Liquidation Bonus | 7.50% |
| Liquidation Protocol Fee | 10.00% |
| Variable Base | 0.0% |
| Variable Slope1 | 7.00% |
| Variable Slope2 | 300.00% |
| Uoptimal | 45.00% |
| Reserve Factor | 15.00% |
| Stable Borrowing | Disabled |
| Flashloanable | Yes |
| Siloed Borrowing | No |
| Borrowed in Isolation | No |