Overview
Chaos Labs supports listing rsETH/wrsETH on Aave’s Arbitrum and Base instances. Below, we provide an analysis and recommendation.
Analysis
Chaos Labs has previously provided a risk assessment for rsETH on Ethereum, finding that it was suitable for listing. rsETH on Arbitrum uses the OFT standard to facilitate transfer across chains, while wrsETH is a wrapped version of OFT rsETH that is used on some networks to facilitate integrations in DeFi.
rsETH’s popularity on Aave has grown rapidly, almost entirely driven by its E-Mode with wstETH, allowing users to leverage rsETH against the previously little-borrowed wstETH.
Following this demonstrated demand on Ethereum, we propose a listing that allows users to leverage the asset on Arbitrum and Base.
Market Cap and Liquidity on Arbitrum and Base
rsETH currently has a supply of 6,149 on Arbitrum, having decreased significantly since its peak in April, though this can be expected to increase when it is listed on Aave. The asset’s liquidity has been somewhat volatile, with a large spike from June to September; it has deteriorated since.
wrsETH’s total supply on Base is 5,160 and its liquidity is concentrated in two pools on Aerodrome. Its liquidity has been volatile, though it has maintained a consistent floor of ETH liquidity since October.
The proposed listing parameters will limit the assets’ reliance on on-chain DEX liquidity.
LTV, Liquidation Threshold, and Liquidation Bonus
We recommend setting the assets’ non-E-Mode LTV and LT to 0.05% and 0.10%, respectively, aligning the values with those in the Prime instance. This will prioritize leveraged strategies while effectively eliminating uncorrelated borrowing that could strain the assets’ DEX liquidity in the event of liquidations.
E-Mode
We recommend aligning the assets’ E-Modes with that on Ethereum.
Supply Cap and Borrow Cap
We recommend setting the assets’ supply cap to 2x the liquidity available at a price impact equivalent to the asset’s Liquidation Penalty. This leads to a recommendation of 900 rsETH on Arbitrum and 400 wrsETH on Base. We do not recommend allowing borrowing given limited use cases and demand.
Specification
Following the above analysis, we recommend the following parameter settings:
| Parameter | Value | Value |
|---|---|---|
| Asset | rsETH | wrsETH |
| Market | Arbitrum | Base |
| Isolation Mode | No | No |
| Borrowable | No | No |
| Collateral Enabled | Yes | Yes |
| Supply Cap | 900 | 400 |
| Borrow Cap | - | - |
| Debt Ceiling | - | - |
| LTV | 0.05% | 0.05% |
| LT | 0.10% | 0.10% |
| Liquidation Bonus | 7.50% | 7.50% |
| Liquidation Protocol Fee | 10.00% | 10.00% |
| Variable Base | - | - |
| Variable Slope1 | - | - |
| Variable Slope2 | - | - |
| Uoptimal | - | - |
| Reserve Factor | - | - |
| Stable Borrowing | Disabled | Disabled |
| Flashloanable | Yes | Yes |
| Siloed Borrowing | Disabled | Disabled |
| Borrowable in Isolation | No | No |
| E-Mode Category | rsETH/wstETH | rsETH/wstETH |
rsETH/wstETH E-Mode on Arbitrum & Base
| Parameter | Value | Value |
|---|---|---|
| Asset | rsETH | wstETH |
| Collateral | Yes | No |
| Borrowable | No | Yes |
| LTV | 92.50% | - |
| LT | 94.50% | - |
| Liquidation Penalty | 1.00% | - |
Disclaimer
Chaos Labs has not been compensated by any third party for publishing this recommendation.
Copyright
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