[ARFC] Onboarding sfrxETH to Aave V3 Ethereum



Chaos Labs supports listing sfrxETH on Aave V3 Ethereum as part of the community strategy to increase the offering of Aave protocol with more LSD 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 considerations related to centralization and third-party risk. If the community aims to reduce exposure to sfrxETH, adopting more conservative supply and borrow caps should be considered.

Liquidity and Market Cap

When analyzing market cap and trading volumes of assets for listing, we look at data from the past 180 days. The average market cap of sfrxETH over the past 180 days is ~$300M, and the average daily trading volume was $600K (CeFi & DeFi).

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Liquidation Threshold

Considering the volatility and the correlation of sfrxETH to ETH, we recommend setting the LT to 77%, similar to the rETH parameters on Ethereum V3. (a relatively similar token in terms of market cap and liquidity)

sfrxETH / ETH Volatility

Supply Cap, Borrow Cap, and Liquidation Bonus

Following Chaos Labs’ approach to initial supply caps, we propose setting the Supply Cap at 2x the liquidity available under the Liquidation Penalty price impact.

Given the concentrated liquidity of sfrxETH, we recommend a 5% Liquidation Bonus and a supply cap of 40,000 sfrxETH.

Based on our observations, the utilization rate for LSDs has been low. Therefore, we have taken a conservative approach toward LSDs borrow caps of 4,000 sfrxETH. However, if there is a significant increase in demand and utilization, we will reassess the caps according to the utilization pattern.

IR Curve Parameters

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


Given the liquidity and risk profile of the asset, we support including sfrxETH in the ETH-correlated E-mode category.


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

Parameter Value
Isolation Mode No
Borrowable Yes
Collateral Enabled Yes
Supply Cap (sfrxETH) 40,000
Borrow Cap (sfrxETH) 4,000
Debt Ceiling -
LT 77.00%
LTV 74.50%
Liquidation Bonus 5%
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
Flahloanable Yes
Siloed Borrowing No
Borrowed in Isolation No
E-Mode Category ETH-correlated