Overview
Chaos Labs supports listing wstETH on Aave V3’s BNB Chain deployment. Below is our analysis and initial risk parameter recommendation.
BNB Chain Liquidity
The wstETH token in question on BNB Chain is a bridged version of wstETH created by Wormhole and Axelar. The ownership and pauser capability of the token was recently transferred from a multisig to the Lido DAO governance contracts and Emergency Brakes MultiSig. Following a report from Oxorio regarding issues with the initial proposed deployment, the Wormhole-Axelar team remedied the issues, after which the Lido DAO voted to recognize the bridge as canonical. Currently, on-chain supply is growing rapidly, and so is its DEX liquidity.
The two biggest DEX Liquidity Pools for wstETH , on BNB, are on Thena and Pancakeswap. Both liquidity pools are for the wstETH/ETH pair and currently hold 1,400 ETH of liquidity together.
The most liquid route on DEX aggregators currently shows negligible price impact on a 1,000 wstETH market sell.
Usage on Aave
wstETH is one of the most popular collateral assets across all borrow/lend protocols and is currently listed on Aave deployments across multiple chains. Its supply on Ethereum, its main market, has steadily grown over the last year. Meanwhile, borrows have been volatile and relatively low across all deployments, as expected for a yield-bearing asset.
wstETH Volatility
wstETH has a daily annualized volatility relative to ETH of 5.45% over the last 180 days and 2.61% over the last 30 days. Its maximum price drop relative to ETH was 1.26% over the former time frame.
LTV, Liquidation Threshold, and Liquidation Bonus
Considering wstETH’s volatility, we recommend setting the LTV to 72% and the LT to 75%.
Given wstETH’s liquidity, volatility, and historical depegs, we recommend a liquidation penalty of 7.5%, ensuring that liquidating non-WETH wstETH-collateralized positions are profitable to liquidate even in times of stress.
Supply and Borrow Cap
Following Chaos Labs’ approach to initial supply caps, we propose setting the Supply Cap at 2x the liquidity available under the Liquidity Penalty price impact. However, given the limited on-chain supply of 3500 wstETH, we amend our approach to set initial supply caps at 50% of the asset’s on-chain supply. Thus, we recommend a supply cap of 1700 wstETH.
Given limited historical demand for similar ETH-derivative assets, we recommend setting the borrow cap at 10% of the supply cap.
E-mode
We recommend including wstETH in the ETH-correlated E-mode category.
Pricing wstETH
Given that wstETH’s BNB on-chain DEX liquidity is limited, but it shows robust peg stability and demonstrated mean reversion, we recommend pricing the asset according to its exchange rate.
Recommendations
Following the above analysis, we recommend listing wstETH on Aave’s BNB Chain deployment. We recommend the following parameter settings.
| Parameter |
Value |
| Isolation Mode |
No |
| Borrowable |
Yes |
| Collateral Enabled |
Yes |
| Supply Cap |
1,900 |
| Borrow Cap |
190 |
| Debt Ceiling |
- |
| LTV |
72% |
| LT |
75% |
| Liquidation Bonus |
7.5% |
| Liquidation Protocol Fee |
10.00% |
| Variable Base |
0.00% |
| Variable Slope1 |
7.00% |
| Variable Slope2 |
300.00% |
| Uoptimal |
45.00% |
| Reserve Factor |
15.00% |
| Stable Borrowing |
Disabled |
| Flashloanable |
Yes |
| Siloed Borrowing |
No |
| Borrowable in Isolation |
No |
| E-Mode Category |
ETH-correlated |
CAPO
We recommend aligning to existing markets of wstETH on other chains.
| MINIMUM_SNAPSHOT_DELAY |
ratioReferenceTime |
maxYearlyRatioGrowthPercent |
| 7 days |
monthly |
9.68% |
