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