Summary
Llamarisk supports onboarding USDe, sUSDe, and weETH on the zkSync market. These assets would be onboarded not only to the Aave v3 zkSync market but also to the whole network, as the liquidity for all three tokens is non-existent. Liquidity levels are expected to grow as the market is planned to be incentivized. Further market growth would then be made possible by applying the same aggressive supply cap growth methodology as Aave is currently using to bootstrap and grow other L2 markets (and networks themselves), namely Scroll and Base. This methodology has been evaluated by Llamarisk, as outlined in our recent reports: 1, 2.
Detailed evaluation
Current state of Ethena
After growing to $3.6B of TVL, Ethena protocol has declined these past two months. The TVL at the time of writing is now $2.6B, which is rational given current market conditions and associated lower funding rates. In addition to BTC and ETH perpetuals, Ethena introduced SOL as a perpetual futures trading asset and will introduce an RWA asset (UStb collateralized by Blackrock’s BUIDL fund) to benefit during periods of weak funding conditions. This will help further diversify the risk and increase scaling opportunities regarding open interest.
Ethena has also recently introduced an initial phase of governance, onboarding risk providers to govern different risk parameters, such as reserve fund capitalization, liquid redemption buffer, take rates, collateral allocation between different CEX, etc. LlamaRisk is also part of this risk council and has covered different pain points of the protocol in a dedicated Ethena research.
Given this consolidation of the project and the necessity to first introduce liquidity to the network, we believe USDe and sUSDe should be onboarded with the same set-up as in other Aave markets, only with a lower TVL as an initial measure until liquidity is bootstrapped and reaches adequate levels.
weETH Considerations
Presently, weETH liquidity on the zkSync network is notably scarce. However, a similar LST asset, wstETH, has already been onboarded to the market with conservative initial caps.
Current market parameters for wstETH on Aave v3 zkSync. Source: Aave, 30th of September, 2024
Similar borrow/supply caps and Mainnet market parameters could be used for weETH as an initial set-up.
Aave V3 Specific Parameters
The parameters were coordinated with @chaoslabs and are the following:
| Parameter | weETH | USDe | sUSDe |
|---|---|---|---|
| Isolation Mode | No | Yes | Yes |
| Emode | ETH Correlated | No | No |
| Borrowable | Yes | Yes | No |
| Borrowable in Isolation | No | No | No |
| Collateral Enabled | Yes | Yes | Yes |
| Stable Borrowing | No | No | No |
| Supply Cap | 300 | 500,000 | 400,000 |
| Borrow Cap | 150 | 50,000 | n/a |
| Debt Ceiling | N/A | 500,000 | 400,000 |
| LTV | 72.5% | 65% | 65% |
| LT | 75% | 75% | 75% |
| Liquidation Bonus | 7.5% | 8.5% | 8.5% |
| Liquidation Protocol Fee | 10% | 10% | 10% |
| Reserve Factor | 45% | 25% | 20% |
| Base Variable Borrow Rate | 0% | 0% | n/a |
| Variable Slope 1 | 7% | 9% | n/a |
| Variable Slope 2 | 300% | 75% | n/a |
| Uoptimal | 30% | 80% | n/a |
A 10% buffer between LT and LTV has been applied for USDe and sUSDe to further reduce risks during this bootstrapping phase.
Note: This assessment follows the LLR-Aave Framework, a comprehensive methodology for asset onboarding and parameterization in Aave V3. This framework is continuously updated and available here.
Price feeds
Price feeds for all these assets on the zkSync network have been created and are made available by Chainlink:
- USDe / USD Market Rate feed:
0x4899faF0b6c36620168D00e3DbD4CB9361244c4d - sUSDe / USDe Exchange Rate feed:
0x97920183c36B022B46D6C14b9dA36c5f31A98C6A - weETH / eETH Exchange Rate feed:
0x8D3184a992f93729b249407C33F1e78abE0d650e
Disclaimer
This review was independently prepared by LlamaRisk, a community-led non-profit decentralized organization funded partly 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.