[ARFC] Onboard rsETH to Scroll V3 Instance

Governance
1

[ARFC] Onboard rsETH to Scroll V3 Instance

Author: ACI

Date: 2025-01-21

ARFC updated with risk parameters 2025-01-30

Summary

This is an ARFC to onboard rsETH to the Aave V3 Scroll Instance allowing Aave users to supply rsETH as collateral. We propose these be added to wstETH E-mode. This proposal will be under Direct to AIP, as rsETH is already on other Aave Instances.

Motivation

In order to provide new opportunities for Aave users to carry out the popular strategies involving liquid staking tokens and liquid restaking tokens whilst also providing more options for upcoming incentive programs on Scroll, we propose the following:

  • Onboard rsETH to Scroll Instance.
  • Create relevant E-Modes : wstETH/rsETH.

rsETH is a popular LRT tokens which have seen widespread usage on the Core and Prime Instances. We believe alongside an incentive program, this combination of LRT assets and E-Mode configurations is an opportunity to grow the TVL of the Scroll Instance. We expect that there will be relevant incentives with the next Scroll Sessions program, making this an ideal time to onboard these tokens.

Specification

rsETH will be onboarded to Scroll with relevant E-Modes created with wstETH.

Risk Parameters:

Risk Parameters have been provided by Risk service providers during the ARFC phase and this ARFC has been updated accordingly. 2025-01-30

Parameter Value
Asset wrsETH
Market Scroll
Isolation Mode No
Borrowable No
Collateral Enabled Yes
Supply Cap 600
Borrow Cap -
Debt Ceiling -
LTV 0.05%
LT 0.10%
Liquidation Bonus 7.50%
Liquidation Protocol Fee 10.00%
Variable Base -
Variable Slope1 -
Variable Slope2 -
Uoptimal -
Reserve Factor -
Stable Borrowing Disabled
Flashloanable Yes
Siloed Borrowing Disabled
Borrowable in Isolation No
E-Mode Category wrsETH/wstETH

wrsETH/wstETH E-Mode on Scroll

Parameter Value Value
Asset wrsETH wstETH
Collateral Yes No
Borrowable No Yes
LTV 92.50% -
LT 94.50% -
Liquidation Penalty 1.00% -

Useful Links

rsETH:

Disclaimer

ACI is not directly affiliated with the issuers of the assets mentioned in this proposal and did not receive compensation for creating this proposal.

Next Step

  1. Publish a standard ARFC, collect community & service provider feedback before escalating proposal to AIP.
  2. Publish an AIP vote for final confirmation and enforcement of the proposal.

Copyright

Copyright and related rights waived under CC0.

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Please consider aligning wstEth curve to the curve on Mainnet if you wanna make this option attractive!

3

ACI has edited initial proposal to remove all references to a potential onboarding of ezETH to Scroll V3 Instance and focus at this time to onboard rsETH.

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Overview

Chaos Labs supports listing wrsETH on Scroll. Below are our analyses and recommendations.

wrsETH

Market Cap and Liquidity on Scroll

wrsETH currently has a total supply of 1,759 on Scroll. Its liquidity is concentrated on Ambient, where it is in a $2.73M pool with ETH, and Nuri, where it is in two pools. We have previously provided listing recommendations for the asset on multiple networks, finding it to be a suitable collateral token.

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LTV, Liquidation Threshold, and Liquidation Bonus

We recommend setting the wrsETH’s 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’ somewhat limited DEX liquidity in the event of liquidations.

E-Mode

We recommend aligning the asset’s E-Mode 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 600 wrsETH. 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
Asset wrsETH
Market Scroll
Isolation Mode No
Borrowable No
Collateral Enabled Yes
Supply Cap 600
Borrow Cap -
Debt Ceiling -
LTV 0.05%
LT 0.10%
Liquidation Bonus 7.50%
Liquidation Protocol Fee 10.00%
Variable Base -
Variable Slope1 -
Variable Slope2 -
Uoptimal -
Reserve Factor -
Stable Borrowing Disabled
Flashloanable Yes
Siloed Borrowing Disabled
Borrowable in Isolation No
E-Mode Category wrsETH/wstETH

wrsETH/wstETH E-Mode on Scroll

Parameter Value Value
Asset wrsETH 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

Copyright and related rights waived via CC0

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Summary

LlamaRisk recommends onboarding rsETH on the Scroll V3 instance. Since the main use case is to leveraged-loop rsETH with wstETH, an rsETH-wstETH E-mode makes sense. Although the liquidity available for rsETH is limited, the fact that rsETH will be correlated with its debt asset wstETH allows for a larger supply cap.

A contract function — used for bridging funds — previously allowed an EOA to withdraw user funds to itself, representing a significant risk for users and Aave. After reaching out to the team, they promptly fixed the issue by upgrading the contract. We note that no Timelock is slowing down contract upgrades or parameter updates, something that could increase safety for users.

Liquidity

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image822×734 39.3 KB

Source: Kyberswap, January 29th, 2025

We found 160 wrsETH ($467k) of liquidity within a 7.5% price impact.

The top 3 liquidity pools by TVL are:

Access Control

Kelp is using LayerZero for bridging the assets deposited on Scroll to the Ethereum mainnet, where it is restaked. Only ETH can be deposited for rsETH on Scroll. A LayerZero endpoint is used to receive the rsETH/ETH exchange rate.

Here are the controlling wallets:

The Kelp architecture on Arbitrum is made of the two following contracts:

  • RSETHPool: deployed behind a TransparentUpgradeableProxy contract from OpenZeppelin. Allows for the minting of rsETH on Scroll by depositing ETH, which is then bridged to Ethereum mainnet for restaking within EigenLayer.
  • RSETH_OFT: LayerZero ERC20 contract representing rsETH on Scroll.
  • RsETHTokenWrapper: deployed behind a TransparentUpgradeableProxy contract, a thin wrapper around rsETH that is redeemable for it on a 1-1 basis.

The two following roles control the RSETHPool contract:

  • DEFAULT_ADMIN_ROLE: assigned to the 2/6 Multisig, can set the fee, pause/unpause deposits, update the oracle for rsETH, update the L1 vault address, update the Stargate pool, add/remove accepted tokens, and update the LayerZero destination chain.
  • BRIDGER_ROLE: assigned to the EOA, can withdraw fees and trigger the sending of funds to the bridge (bridgeAssets() method).

The RSETH_OFT contract is owned by the 2/6 Multisig.

The RsETHTokenWrapper contract has the following roles:

  • DEFAULT_ADMIN_ROLE: assigned to the 2/6 Multisig, can remove rsETH from the list of allowed collateral.
  • BRIDGER_ROLE: not assigned, can deposit assets to collateralize the wrsETH tokens minted.
  • MINTER_ROLE: assigned to the RSETHPool contract, can mint new units of wrsETH.

No timelocks slowing down contract upgrades or parameter changes were found. The EOA was previously able to send all ETH in the RSETHPool to itself, which was a significant risk. We contacted the Kelp team, who promptly deprecated the contract function associated with upgrading the contract.

Price feed

Although a Chainlink price feed for rsETH on Scroll is available, we recommend using the internal exchange rate of rsETH together with CAPO. The internal exchange rate for rsETH on Scroll is pushed through LayerZero, the risk of which is already borne by Aave since the minting and burning of rsETH on Scroll also happens through LayerZero. This will also depend on BGD’s preference and technical evaluation.

Aave V3 Specific Parameters

(discussed and aligned with @ChaosLabs)

Parameter rsETH
Isolation Mode No
Emode Yes
Borrowable No
Borrowable in Isolation No
Collateral Enabled Yes
Stable Borrowing No
Supply Cap 600
Borrow Cap -
Debt Ceiling -
LTV 0.05%
LT 0.10%
Liquidation Bonus 7.5%
Liquidation Protocol Fee 10%
Reserve Factor -
Base Variable Borrow Rate -
Variable Slope 1 -
Variable Slope 2 -
Uoptimal -
E-mode wrsETH/wstETH

rsETH/wstETH E-Mode on Scroll

Parameter Value Value
Asset wrsETH wstETH
Collateral Yes No
Borrowable No Yes
LTV 92.5% -
LT 94.5% -
Liquidation Penalty 1.00% -

Disclaimer

This review was independently prepared by LlamaRisk, a community-led non-profit 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.

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Update: A legacy function in the RSETHPool contract previously allowed the BRIDGER_ROLE (assigned to an EOA) to send all funds in the contract to itself and bridge the asset to L1. This resulted in a significant risk for users and the Aave DAO, as a malicious takeover of the wallet with that role could have rendered rsETH undercollateralized.

Following our communication with the Kelp DAO team, they have successfully addressed the identified concern by deploying a contract upgrade (transaction link) which deprecated the vulnerable function. We appreciate their swift response and commitment to protocol security.