# \[ARFC\] Onboarding weETH to Aave V3 on Scroll **URL:** \ **Category:** Governance\ **Created:** [July 19, 2024, 8:05am UTC](https://governance.aave.com/t/arfc-onboarding-weeth-to-aave-v3-on-scroll/18301 "2024-07-19T08:05:17Z")\ **Posts on this page:** 7\ **Page:** 1
**Author:** ![ACI](https://dub1.discourse-cdn.com/flex013/user_avatar/governance.aave.com/aci/32/4780_2.png) [@ACI](https://governance.aave.com/u/ACI)\ **Post date:** [July 19, 2024, 8:05am UTC](https://governance.aave.com/t/arfc-onboarding-weeth-to-aave-v3-on-scroll/18301/1 "2024-07-19T08:05:17Z")
## **[ARFC] Onboarding weETH to Aave V3 on Scroll** ## **Author: ACI** ## **Date: 2024-07-19** > Proposal updated with Risk Params provided by Risk Service Providers. 2024-07-23 ## **Summary:** This ARFC seeks to add [Ether.fi](http://ether.fi/) Liquid Restaking Token weETH to Aave V3 on Scroll. After the successful onboarding of weETH to [Aave v3 Ethereum](https://vote.onaave.com/proposal/?proposalId=74&ipfsHash=0x227ef8b0f49775f64100ec697bc4e67b0739bd1ff08788b1f6b48a66e1d57bf7), [Arbitrum](https://vote.onaave.com/proposal/?proposalId=76&ipfsHash=0x78778591515790b337fcdcc2a02d49dc58e98cad614c33d61e1173bc6194729d), and [Base](https://governance.aave.com/t/arfc-onboarding-of-weeth-to-aave-v3-on-base/17691), alongside recent Supply and Borrow Cap increases for weETH due to significant demand, this proposal will further increase the ability for Aave to service weETH demand from users. This proposal will go direct-to-AIP following the asset onboarding framework. ## **Motivation:** weETH is an LRT that allows users to stake their ETH, accrue staking rewards, and receive additional rewards through native restaking on EigenLayer. [Ether.fi](http://ether.fi/) has also launched weETH on Arbitrum and Base allowing L2 users to get exposure to LRT yield and points. As weETH has already been approved for onboarding to Aave V3 on Ethereum, Arbitrum, and Base by the DAO, this proposal extends the onboarding of weETH to Aave v3 on Scroll. ## **Proof of Liquidity and Deposit Commitments:** weETH deposits into Aave on Scroll will accumulate [ether.fi](http://ether.fi/) and EigenLayer points and Scroll Marks. ## **Specification:** weETH on Scroll: [0x01f0a31698c4d065659b9bdc21b3610292a1c506](https://scrollscan.com/address/0x01f0a31698c4d065659b9bdc21b3610292a1c506) weETH/ETH Chainlink Feed: [0x57bd9E614f542fB3d6FeF2B744f3B813f0cc1258](https://scrollscan.com/address/0x57bd9E614f542fB3d6FeF2B744f3B813f0cc1258) Risk Parameters will be provided by Risk Service Providers and the ARFC will be updated following their feedback. | Parameter | Value | | --- | --- | | Isolation Mode | No | | Borrowable | Yes | | Collateral Enabled | Yes | | Supply Cap (weETH) | 2,000 | | Borrow Cap (weETH) | 400 | | 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 | ## **Useful Links** [Ether.fi](https://www.ether.fi/) [weETH Base onboarding](https://governance.aave.com/t/arfc-onboarding-of-weeth-to-aave-v3-on-base/17691) [weETH Arbitrum onboarding](https://vote.onaave.com/proposal/?proposalId=76&ipfsHash=0x78778591515790b337fcdcc2a02d49dc58e98cad614c33d61e1173bc6194729d) [weETH Onboarding](https://vote.onaave.com/proposal/?proposalId=74&ipfsHash=0x227ef8b0f49775f64100ec697bc4e67b0739bd1ff08788b1f6b48a66e1d57bf7) ## **Disclaimer** This proposal is powered by Skywards. ACI is not directly affiliated with [Ether.fi](http://ether.fi/) and did not receive compensation for creating this proposal. The ACI and several ACI team members are both weETH and ETHFI holders. ## **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](https://creativecommons.org/publicdomain/zero/1.0/). ---
**Author:** ![emmanuelmacron](https://avatars.discourse-cdn.com/v4/letter/e/5fc32e/32.png) [@emmanuelmacron](https://governance.aave.com/u/emmanuelmacron)\ **Post date:** [July 19, 2024, 10:43am UTC](https://governance.aave.com/t/arfc-onboarding-weeth-to-aave-v3-on-scroll/18301/2 "2024-07-19T10:43:08Z")
Great idea. Thank you for the proposal. ---
**Author:** ![ChaosLabs](https://dub1.discourse-cdn.com/flex013/user_avatar/governance.aave.com/chaoslabs/32/6850_2.png) [@ChaosLabs](https://governance.aave.com/u/ChaosLabs)\ **Post date:** [July 22, 2024, 8:10pm UTC](https://governance.aave.com/t/arfc-onboarding-weeth-to-aave-v3-on-scroll/18301/3 "2024-07-22T20:10:12Z")
## **Overview** Chaos Labs supports listing weETH on Aave V3’s Scroll deployment as part of the community strategy to increase the offering of the Aave protocol with more LST/LRT assets. Our analysis and risk parameter recommendations for the initial listing follow. _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** Since June, weETH’s market cap has fluctuated between $5.5B and $4B as deposits have slowed. ![Untitled (3)](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/e/e08c71aa40c70bea88d564e5feeafd25e580b0df.jpeg) Over the last 180 days, its average market cap was $2.6B, and its average daily volume was $42.7M. ### **weETH / ETH Volatility** ![Untitled (4)](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/d/d8ef3244747cd79cbe674febd87ef8beec0e0cd9.png) ### **Liquidation Threshold** Considering weETH’s volatility and correlation to ETH, we recommend setting the LT to 75%. This mirrors other LSTs on non-Mainnet Aave V3 deployments. ### **Supply Cap, Borrow Cap, and Liquidation Bonus** Chaos Labs’ approach to initial supply caps is proposed by setting the Supply Cap at 2x the liquidity available under the Liquidation Penalty price impact. Given the current DEX liquidity and on-chain supply of weETH, we recommend a 7.5% Liquidation Bonus and a supply cap of 2,000 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 400 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 Scroll ETH-correlated E-mode category with the same parameters as existing assets. ### 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) | 2,000 | | Borrow Cap (weETH) | 400 | | 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 | ---
**Author:** ![xoxoxo](https://avatars.discourse-cdn.com/v4/letter/x/8e8cbc/32.png) [@xoxoxo](https://governance.aave.com/u/xoxoxo)\ **Post date:** [July 23, 2024, 1:20am UTC](https://governance.aave.com/t/arfc-onboarding-weeth-to-aave-v3-on-scroll/18301/5 "2024-07-23T01:20:54Z")
please increase the supply and borrow cap of wsteth. and consider support USDT on scroll. ---
**Author:** ![LlamaRisk](https://dub1.discourse-cdn.com/flex013/user_avatar/governance.aave.com/llamarisk/32/12865_2.png) [@LlamaRisk](https://governance.aave.com/u/LlamaRisk)\ **Post date:** [July 23, 2024, 4:58pm UTC](https://governance.aave.com/t/arfc-onboarding-weeth-to-aave-v3-on-scroll/18301/6 "2024-07-23T16:58:45Z")
# Summary LlamaRisk supports listing weETH on Aave V3 Scroll and parameters recommended by @ChaosLabs. [Our initial assessment](https://www.llamarisk.com/research/collateral-risk-weeth) for collateral onboarding highlighted a few concerns with weETH, including absence of a DAO and centralization governance risk due to a low threshold multisig without a timelock, reliance on EigenLayer airdrop speculation for growth, potential validator risks (especially with non-KYC’d operators), and counterparty risk for node operators relying on legal agreements. Since then, EtherFi has shown remarkable growth, reaching an ATH TVL of ~$6.8 billion while addressing some of our initial concerns. For L2 onboarding, EtherFi uses LayerZero’s OFT native minting technology, which we’ll examine. In this brief, we provide an update on weETH, which supports our recommendation to onboard on Scroll. ## Cross-chain bridging using LayerZero OFT EtherFi employs LayerZero’s OFT (Omnichain Fungible Token) to bridge weETH to Layer 2 networks like Scroll. This system uses native minting, where new weETH tokens are minted directly on Scroll when bridged. To maintain a consistent total supply, tokens are burned on Ethereum and minted on Scroll during transfers. The process relies on LayerZero’s cross-chain messaging protocol for infrastructure. Users can bridge weETH directly without interacting with intermediate wrapped tokens. ![image](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/7/709e04bafd4d7d3f7e2150f4f63635a1d77dba83.png) Source: [LayerZero](https://medium.com/layerzero-ecosystem/introducing-native-l2-restaking-079edaa1804a) As of July 23, 2024, LayerZero v2 OFTs have a total value locked of over $700 million. [L2BEAT](https://l2beat.com/bridges/projects/layerzerov2oft) provides a good summary of trust assumptions and risk factors, as the security parameters of each Omnichain Fungible Token (OFT) can be changed by their developers. In weETH case, the [escrow contract](https://etherscan.io/address/0xFE7fe01F8B9A76803aF3750144C2715D9bcf7D0D) is owned by a [2/5 multisig](https://etherscan.io/address/0x2aCA71020De61bb532008049e1Bd41E451aE8AdC) and the [weETH OFT implementation on Scroll](https://scrollscan.com/address/0x01f0a31698c4d065659b9bdc21b3610292a1c506) is owned by a [3/6 multisig](https://app.safe.global/settings/setup?safe=scr:0x3cD08f51D0EA86ac93368DE31822117cd70CECA3). Other risk factors include potential theft through malicious OFT (Adapter) contract upgrades by the OApp owner, fraudulent transfers due to Executor-Verifier collusion, the critical risk from malicious security stack changes, and fund compromise if the LayerZero Multisig alters the default stack when no custom stack is set. ## Token distribution and Liquidity ![image](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/7/7a4f5b63a15edd7e1bb3f45d6f552142c567e125.jpeg) Source: [Etherscan](https://scrollscan.com/token/tokenholderchart/0x01f0a31698c4d065659b9bdc21b3610292a1c506), July 23rd, 2024 A large portion of weETH is held by [Mitosis](https://app.mitosis.org/) via [miweETH](https://scrollscan.com/address/0xb9ca61a6d5fa0c443f3c48ab1fbf0118964308d6), a protocol that aims to improve efficiency for asset management across multiple chains and DeFi protocols. Our review indicates that the cross-chain LP functionality still needs to be activated, with the Mitosis vault attracting deposits through its incentive (points) program. Other notable holders include an unknown EOA, Pencils Wrapped eETH (pweETH) from the [Pencils Protocol](https://pencilsprotocol.io/) (an auction platform and yield aggregator), and Rho weETH (rweETH) from the [Rho Protocol](https://www.rho.trading/) (a DeFi derivatives market). [LayerBank](https://scroll.layerbank.finance/bank), an unsanctioned Aave V3 fork, also has a small ($600k) amount of weETH deposited. On the DEX side, a majority of the Liquidity is held within Ambient’s [weETH/ETH pool](https://scrollscan.com/tokenholdings?a=0xaaaaAAAACB71BF2C8CaE522EA5fa455571A74106) and Nuri’s weETH/ETH pool. ![image](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/2/2f1bf2ebdcc57bc109ae9c953799b64a399e1ca7.png) Source: [Ambient](https://ambient.finance/) weETH/ETH pool, July 23rd, 2024 ![image](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/2/2024c2ce1bc5a1ae89f78785213afab25c2b509b.png) Source: [Nuri](https://www.nuri.exchange/) weETH/ETH pool, July 23rd, 2024 The current Liquidity on Nuri supports swaps of up to approximately 1,000 weETH to ETH, resulting in 8.1% slippage. ![image](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/1/1f27b50a24b0e1a4483423ecf31968fcd6269a42.png) Source: [Nuri](https://www.nuri.exchange/swap?from=0x01f0a31698C4d065659b9bdC21B3610292a1c506&to=ETH), July 23rd, 2024 ## Update on Market Risks The total TVL (weETH + eETH) saw a small reduction from $6.5b to $5.6b following the second ETHFI airdrop. However, it grew to nearly $7 billion as of July 23, 2024. ![image](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/2/2b201e00c6ccb0befa23c7a1db57aad0c54f983e.png) Source: [DefiLlama](https://defillama.com/protocol/ether.fi?unlocks=true), July 23rd, 2024 EtherFi remains the leading LRT protocol in TVL and has managed to sustain its growth despite the first EIGEN token airdrop and the first and second waves of the ETHFI airdrop to EtherFi point holders. This helps to alleviate our fear that EtherFi’s growth was inorganic and made of mostly temporary airdrop farmers, which could have increased the volatility of its Liquidity. ## Update on Access Control Our audit of EtherFi’s smart contracts confirm the implementation of a [three-day timelock](https://etherscan.io/address/0x9f26d4c958fd811a1f59b01b86be7dffc9d20761) contract. EtherFi uses multiple multisigs: - [Multisig A](https://etherscan.io/address/0xcdd57D11476c22d265722F68390b036f3DA48c21) (4/7): Manages most contracts, including the timelock’s executor, canceller, and proposer roles - [Multisig B](https://etherscan.io/address/0xF155a2632Ef263a6A382028B3B33feb29175b8A5) (2/6): legacy multisig wallet - [Multisig C](https://etherscan.io/address/0x2aCA71020De61bb532008049e1Bd41E451aE8AdC) (2/5): LoyaltyPointsMarketSafe only - [Multisig D](https://etherscan.io/address/0xCEA8039076E35a825854c5C2f85659430b06ec96) (4/6): Liquid Vault only - [Multisig E](https://etherscan.io/address/0x7A6A41F353B3002751d94118aA7f4935dA39bB53) (3/6): ETHFI distributor | Contract | Owner | | --- | --- | | [`Address Provider`](https://etherscan.io/address/0x8487c5F8550E3C3e7734Fe7DCF77DB2B72E4A848) | Multisig A, via timelock | | [`Early Adopter Pool`](https://etherscan.io/address/0x7623e9dc0da6ff821ddb9ebaba794054e078f8c4) | Multisig B | | [`Auction Manager`](https://etherscan.io/address/0x00C452aFFee3a17d9Cecc1Bcd2B8d5C7635C4CB9) | Multisig A, via timelock | | [`Staking Manager`](https://etherscan.io/address/0x25e821b7197B146F7713C3b89B6A4D83516B912d) | Multisig A, via timelock | | [`Etherfi Nodes Manager`](https://etherscan.io/address/0x8B71140AD2e5d1E7018d2a7f8a288BD3CD38916F) | Multisig A, via timelock | | [`BNFT`](https://etherscan.io/address/0x6599861e55abd28b91dd9d86A826eC0cC8D72c2c) | Multisig A, via timelock | | [`TNFT`](https://etherscan.io/address/0x7B5ae07E2AF1C861BcC4736D23f5f66A61E0cA5e) | Multisig A, via timelock | | [`eETH`](https://etherscan.io/address/0x35fA164735182de50811E8e2E824cFb9B6118ac2) | Multisig A, via timelock | | [`WeETH`](https://etherscan.io/address/0xCd5fE23C85820F7B72D0926FC9b05b43E359b7ee) | Multisig A, via timelock | | [`WithdrawRequestNFT`](https://etherscan.io/address/0x7d5706f6ef3F89B3951E23e557CDFBC3239D4E2c) | Multisig A, via timelock | | [`Liquidity Pool`](https://etherscan.io/address/0x308861A430be4cce5502d0A12724771Fc6DaF216) | Multisig A, via timelock | | [`Membership Manager`](https://etherscan.io/address/0x3d320286E014C3e1ce99Af6d6B00f0C1D63E3000) | Multisig A, via timelock | | [`Membership NFT`](https://etherscan.io/address/0xb49e4420eA6e35F98060Cd133842DbeA9c27e479) | Multisig A, via timelock | | [`Node Operator Manager`](https://etherscan.io/address/0xd5edf7730ABAd812247F6F54D7bd31a52554e35E) | Multisig A, via timelock | | [`ETHFI`](https://etherscan.io/address/0xFe0c30065B384F05761f15d0CC899D4F9F9Cc0eB) | Gov contract, not owned or upgradeable | | [`Treasury`](https://etherscan.io/address/0x6329004E903B7F420245E7aF3f355186f2432466) | Multisig A, via timelock | | [`LoyaltyPointsMarketSafe`](https://etherscan.io/address/0x3165542a27D40fBE0DAd050614180F01a4f4eE24) | Multisig C | | [`Liquifier`](https://etherscan.io/address/0x9ffdf407cde9a93c47611799da23924af3ef764f) | Multisig A, via timelock | | [`EtherFiOracle`](https://etherscan.io/address/0x57AaF0004C716388B21795431CD7D5f9D3Bb6a41) | Multisig A, via timelock | | [`EtherFiAdmin`](https://etherscan.io/address/0x0EF8fa4760Db8f5Cd4d993f3e3416f30f942D705) | Multisig A, via timelock | | [`EtherFiTimelock`](https://etherscan.io/address/0x9f26d4C958fD811A1F59B01B86Be7dFFc9d20761) | Multisig A, via timelock | | [`Liquid Vault`](https://etherscan.io/address/0xeA1A6307D9b18F8d1cbf1c3Dd6aad8416C06a221) | Multisig D | ## Update on Governance and Reward System Etherfi launched the ETHFI token in March 2024. A [3/6 multisig](https://etherscan.io/address/0x7A6A41F353B3002751d94118aA7f4935dA39bB53) received 100% of the ETHFI supply and began distributing funds to various wallets according to the [documented allocation schedule](https://etherfi.gitbook.io/gov/ethfi-allocations). The next governance development phase, “Phase 1 - Full governance deployment,” is planned for the coming months. This phase will expand voter involvement in Etherfi’s governance by deploying a governor and granting access to Etherfi’s protocol and treasury. Holders can vote on DAO proposals via [Snapshot](https://snapshot.org/#/etherfi.eth) or delegate their votes. A multisig committee implements changes, handles emergency actions, and ensures proposals align with Foundation objectives, with veto power. Anyone can propose, but a quorum of 1m ETHFI is required. Approved proposals are executed off-chain by the multisig committee. The system remains centralized until on-chain, trustless proposal deployment is introduced. ETHFI staking is available through the [Etherfi dApp](https://app.ether.fi/). It accumulates loyalty points (6.5 points daily per staked ETHFI as of July 2024). The ETHFI vault automatically re-stakes on Karak for additional rewards. Staking is not required to vote on governance proposals; staked ETHFI can still be used to vote. Additional resources on governance: - Governance documentation: [etherfi.gitbook.io/gov](https://etherfi.gitbook.io/gov) - Governance forum: [governance.ether.fi](https://governance.ether.fi/) - Governance delegatees: [vote.ether.fi/delegates](https://vote.ether.fi/delegates) - ETHFI dashboard: [dune.com/ether\_fi/ethfi-token](https://dune.com/ether_fi/ethfi-token) ## Update on Dependencies EtherFi relies on two primary external components: EigenLayer for restaking functionality and Obol Network for Distributed Validator Technology (DVT). While these integrations are crucial for EtherFi’s operations, they also represent potential risk points in the system. EigenLayer serves as a protocol dependency, providing the restaking infrastructure. In contrast, Obol DVT is an off-chain middleware for validators, provided “as is” and managed by node operators. The protocol maintains two categories of node operators: Permissioned Professional Node Operators subject to Know Your Customer (KYC) procedures and Permissioned 2 ETH Bonded Node Operators exempt from KYC requirements. This dual structure allows for a balance between professional oversight and broader participation. Notably, Professional Node Operators rely on legal agreements rather than collateral. While this approach may streamline operations, it introduces potential counterparty risk, as the protocol’s security partially depends on the enforceability of these agreements. ---
**Author:** ![ACI](https://dub1.discourse-cdn.com/flex013/user_avatar/governance.aave.com/aci/32/4780_2.png) [@ACI](https://governance.aave.com/u/ACI)\ **Post date:** [July 31, 2024, 4:15pm UTC](https://governance.aave.com/t/arfc-onboarding-weeth-to-aave-v3-on-scroll/18301/7 "2024-07-31T16:15:34Z")
After Snapshot monitoring, the current [ARFC Snapshot - Onboarding weETH to Aave V3 on Scroll](https://snapshot.org/#/aave.eth/proposal/0x252bafcf8ead0bf1869b7ba9fef430caf3977dfd1e1f84e2e4bc1842e83520b4) has just ended, reaching both Quorum and YAE as winning option with 595K votes. Therefore, the proposal has passed. Next step will be the publication of an AIP for final confirmation and enforcement of the proposal. ---
**Author:** ![system](https://europe1.discourse-cdn.com/flex013/uploads/aave/original/2X/e/e11637c36f45ffa158f2146f5c19438d46e0824d.svg) [@system](https://governance.aave.com/u/system)\ **Post date:** [August 30, 2024, 4:15pm UTC](https://governance.aave.com/t/arfc-onboarding-weeth-to-aave-v3-on-scroll/18301/8 "2024-08-30T16:15:53Z")
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