[ARFC] Onboarding of weETH to Aave v3 on Base

Title: [ARFC] Onboarding of weETH to Aave v3 on Base

Author: ACI ( Aave Chan Initiative)

Date: 2024-05-13


ARFC has been updated with Risk Parameters provided by Chaos Labs

Summary:

This ARFC seeks to add Ether.fi Liquid Restaking Token weETH to Aave V3 on Base.

After the successful onboarding of both weETH to Aave v3 Ethereum and Arbitrum, and latest ARFC to Increase Supply and Borrow Caps for weETH on both networks due to huge demand, this proposal will go direct-to-AIP following the asset onboarding framework.

Motivation:

eETH is an LRT that allows users to stake their ETH, accrue staking rewards, and receive additional rewards through native restaking on EigenLayer.

Ether.fi has also launched eETH on Arbitrum, allowing users on the L2 to get exposure to the LRT yield and points. As weETH has already been approved for onboarding to Aave v3 Ethereum and Arbitrum by the DAO, this proposal aims to extend the onboarding of weETH to Aave v3 on Base.

Proof of Liquidity and Deposit Commitments:

Anyone who deposits weETH into Aave on Base will accumulate ether.fi and EigenLayer points to be used for future incentives.

Specification:

weETH on Base: 0x04C0599Ae5A44757c0af6F9eC3b93da8976c150A

Chainlink weETH Market Feed: Price Feed Contract Addresses | Chainlink Documentation

weETH/ETH: EACAggregatorProxy | Address 0xFC1415403EbB0c693f9a7844b92aD2Ff24775C65 | BaseScan

weETH/eETH exchange rate: EACAggregatorProxy | Address 0x35e9D7001819Ea3B39Da906aE6b06A62cfe2c181 | BaseScan

Risk Parameters have been provided by Risk Service Providers so ARFC has been updated following their feedback.

Parameter Value
Isolation Mode No
Borrowable Yes
Collateral Enabled Yes
Supply Cap (weETH) 150
Borrow Cap (weETH) 30
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
E-Mode Category ETH-correlated

CAPO recommendations:

Given weETH employs buffered withdrawals for its underlying ETH equivalent exchange rate, the weETH/ETH exchange rate/USD will be utilized as the oracle alongside the correlated asset price oracle. We present our recommendations below.

maxYearlyRatioGrowthPercent ratioReferenceTime MINIMUM_SNAPSHOT_DELAY
8.75% monthly 7 days

Useful Links

Ether.fi

weETH Arbitrum onboarding

weETH Onbaording

Disclaimer

This proposal is powered by Skywards. The Aave Chan Initiative is not directly affiliated with Ether.fi and did not receive compensation for creation this proposal.

Next Steps

  1. Discussion period on the governance forum with addition of risk parameters.
  2. Publish an AIP vote for final confirmation and enforcement of the proposal.

Copyright

Copyright and related rights waived via CC0.

3 Likes

Overview

Chaos Labs supports listing weETH on Aave V3 Base as part of the community strategy to increase the offering of Aave protocol with more LST/LRT 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 weETH, adopting more conservative supply and borrow caps should be considered.

Liquidity and Market Cap

Recently listed on Aave V3 Ethereum, weETH’s TVL in ETH terms has continued to climb, while it has stagnated at around $4B in USD terms because of price changes. Over the last 180 days, weETH’s average market cap is $1.02B and its daily trading volume is $26.24M.

weETH / ETH Volatility

Untitled - 2024-05-16T174956.132

Liquidation Threshold

Considering the volatility and the correlation of weETH to ETH, we recommend setting the LT to 75%. This mirrors the other LSTs on Ethereum V3, albeit with a slight adjustment to account for lower liquidity and the asset’s relative novelty.

Supply Cap, Borrow Cap, and Liquidation Bonus

While Chaos Labs’ approach to initial supply caps is generally proposed through setting the Supply Cap at 2x the liquidity available under the Liquidation Penalty price impact, given minimal weETH historical data, we initially recommend a 1x value, also noting that on-chain supply is still relatively low at 838 weETH. Given the current DEX liquidity and on-chain supply of weETH, we recommend a 7.5% Liquidation Bonus and a supply cap of 150 weETH.

Based on our observations, the utilization rate for LST/LRTs has been low due to additional borrowing costs, though weETH’s is slightly higher than similar assets because of external incentives. Therefore, we have taken a slightly less conservative approach towards its borrow cap, recommending it be set to 30 weETH.

IR Curve Parameters

We recommend aligning the interest rate parameters with those of similar assets to ensure consistency on Aave v3.

E-mode

Given the asset’s overall liquidity and risk profile, we support including weETH in the ETH-correlated E-mode category. The EtherFi protocol currently has a 122K ETH withdrawal buffer in its native liquidity pool, and weETH can always be redeemed for the underlying ETH depending on the involvement of the user within the protocol.

Recommendations

Following the above analysis, we recommend listing weETH with the following parameter settings:

Parameter Value
Isolation Mode No
Borrowable Yes
Collateral Enabled Yes
Supply Cap (weETH) 150
Borrow Cap (weETH) 30
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
E-Mode Category ETH-correlated

CAPO recommendations:

Given weETH employs buffered withdrawals for its underlying ETH equivalent exchange rate, the weETH/ETH exchange rate/USD will be utilized as the oracle alongside the correlated asset price oracle. We present our recommendations below.

maxYearlyRatioGrowthPercent ratioReferenceTime MINIMUM_SNAPSHOT_DELAY
8.75% monthly 7 days

Screenshot 2024-02-27 at 14.35.41

1 Like

Following @ChaosLabs feedback, the current ARFC has been updated.

The current proposal will go direct to AIP as established by the new asset onboarding framework, and once the AIP is published, will be posted in forum for everyone to participate.