[Direct-to-AIP] Add tETH to Core Instance Ethereum

[TokenLogic]

---

title: [Direct-to-AIP] Add tETH to Core Instance Ethereum
author: @TokenLogic
created: 2024-07-29

---

Summary

This publication proposes onboarding tETH on the Core instance of Aave v3 on Ethereum.

Motivation

After successfully onboard tETH to the Prime instance this publication proposes enabling tETH collateral holders to borrow stablecoins via v3.2 Liquid eModes. tETH was listed on the Prime instance on the 28th June 2025 and since then has provided over 129M of User deposit, mostly from four unique addresses, and has been a significant wstETH liquidity consumer.

Source: https://community.chaoslabs.xyz/aave/risk/wallets

Discussions with the TreeHouse team indicate there is strong demand for stablecoins. With insufficient stablecoin liquidity on Prime to support growing tETH, this publication proposes onboarding tETH to Core allow users access to stablecoin liquidity.

Subject to Risk Service providers approval, this publication propose enabling tETH users to access stablecoin liquidity on Core instance.

Specification

The following outlines the initial tETH onboarding parameters.

tETH Ethereum Address: 0xbf5495efe5db9ce00f80364c8b423567e58d2110

General Parameters

Parameter	Value
Chain (instance)	Ethereum (Core)
Isolation Mode	No
Borrowable	No
Collateral Enabled	Yes
Supply Cap (ezETH)	50,000
Borrow Cap (ezETH)	0
Debt Ceiling	USD 0
LTV	0.05%
LT	0.10%
Liquidation Bonus	7.5%
Liquidation Protocol Fee	10%
Reserve Factor	15%
Base Variable Borrow Rate	-
Variable Slope 1	-
Variable Slope 2	-
Uoptimal	-
Stable Borrowing	DISABLED
Stable Slope1	0%
Stable Slope2	0%
Base Stable Rate Offset	0%
Stable Rate Excess Offset	0%
Optimal Stable To Total Debt Ratio	0%
Flashloanable	ENABLED
Siloed Borrowing	DISABLED
Borrowable in Isolation	DISABLED
eMode Category	tETH/stablecoins

Create new v3.2 liquid eMode

Parameter	Value	Value	Value
Asset	tETH	USDT	USDC
Collateral	Yes	No	No
Borrowable	No	Yes	Yes
Max LTV	72.00%	-	-
Liquidation Threshold	75.00%	-	-
Liquidation Penalty	7.50%	-	-

Disclosure

TokenLogic does not receive any payment for this proposal.

Next Steps

1. Gather feedback from the community.
2. Using the Direct-to-AIP process, submit AIP for vote.

Copyright

Copyright and related rights waived via CC0.

[LlamaRisk]

Summary

LlamaRisk supports onboarding tETH on the Core Instance. Given the uncorrelated nature of tETH relative to stablecoins, conservatively setting Loan-to-Value (LTV) and Liquidation Threshold (LT) parameters aligns with normal borrow conditions and is similar to existing LRT/Stablecoin eMode parameters.

tETH liquidity conditions have improved, and historical volatility has remained relatively unchanged since our initial analysis on April 25, 2025. Therefore, no greater considerations are placed on LTV/LT constraints for the proposed eMode.

1. Liquidity

Since the initial analysis, DEX liquidity for tETH has increased from approximately $9.2M to over $129M in user deposits since being listed on the Prime instance on June 28, 2025.

Source: DeFiLlama Liquidity, July 17th, 2025

Source: Vaults, Treehouse Finance, July 17th, 2025

The vault capacity has also increased. As of April 8th, 2025, the vault was 87.21% full with a capacity of 100,000 ETH.

2. Volatility

Source: tETH/wstETH, Dexscreener, July 17th, 2025

tETH has traded closely to its underlying asset, wstETH, with deviations from its modeled ratio staying within ±1%. The exchange rate for normal redemptions is based on the value of the underlying assets, while instant redemptions incur a 2% fee. While tETH is a Liquid Staking Token (LST) and not a Liquid Restaking Token (LRT) like ezETH, it shares similarities to onboarded LRTs on the Prime instance because its underlying wstETH is deposited into another protocol (Aave) to leverage additional yield. Applying similar conservative eMode parameters is therefore a reasonable approach.

Disclaimer

This review was independently prepared by LlamaRisk, a community-led decentralized organization funded in part by the Aave DAO. LlamaRisk is not directly affiliated with the protocol(s) reviewed in this assessment and did not receive any compensation from the protocol(s) or their affiliated entities for this work.

The information provided should not be construed as legal, financial, tax, or professional advice.

[ChaosLabs]

Overview

Chaos Labs supports the proposal to list tETH on Aave’s Ethereum Core instance. Below, we present our analysis along with initial risk parameter recommendations.

Motivation

tETH is an LST that aims to capture the spread between ETH borrow rates and POS rewards. This is achieved by borrowing ETH on lending markets like Aave using wstETH deposited by users, then staking the borrowed ETH. The protocol continues this recursive looping strategy until it reaches the desired LTV and risk parameters.

At the moment, Treehouse has over $172M wstETH as collateral and $103M WETH as debt.

Following recent WETH withdrawals, borrow utilization has reached 94.5%. As a result, the interest rate is now 2.99% while Lido’s yield stands at 2.60%. This creates a negative yield of -0.40% on Treehouse’s ETH strategy, reducing tETH’s returns and in some cases causing losses. In order to mitigate this risk Treehouse monitors the utilization and, according to the docs, will deleverage if net yield stays negative for 2+ days, reducing the risk of losses.

Given tETH’s sustained demand on the Prime instance and its active management of the leveraged positions, we find the asset sufficiently reliable to support its listing on the Core instance. This listing will allow tETH suppliers to access deep stablecoin liquidity to take non-correlated asset debt.

Market Cap & Liquidity

tETH’s total supply has experienced some fluctuations over the past three months, with a notable decline in June 2025 followed by a rebound in July, reaching a peak of 100K. As of this writing, tETH’s total supply stands at 88.5K, corresponding to a TVL of $390.9M.

tETH’s liquidity is currently concentrated in the wstETH/tETH Balancer V2 Stable Liquidity Pool with a TVL of $5.85M, the wstETH/tETH Balancer V3 Liquidity Pool with a TVL of $2.64M, the tETH/weETH Curve Liquidity Pool with a TVL of $2.1M, and the tETH/wstETH Curve Liquidity Pool with a TVL of $1.39M. As shown in the chart, tETH’s liquidity has generally remained stable above the 10M range. As of this writing, its total on-chain liquidity is around 12M.

Volatility

Over the past month, the conversion rate between tETH and its underlying asset, wstETH, in the secondary market has maintained a relatively stable peg with the internal conversion rate. Most of the time, fluctuations have remained within 50 bps, with the largest observed depeg being around 90 bps during the recent WETH liquidity crunch stemming from large withdrawals on Aave.

Recommendation

Chaos Labs agrees with the proposed parameters. The purpose of E‑mode is to limit its use to highly liquid stablecoin assets and prevent its use as collateral for volatile assets within the Core instance. Since tETH and stablecoins are not correlated, setting the LTV at 72%, LT at 75%, and LB at 7.5% provides a prudent balance, controlling risk while still leaving room for potential borrowing demand. However, prolonged instances of negative yields stemming from the wstETH carry trade, akin to the observed dynamics a few weeks ago, can lead to a liquidity crunch, necessitating more prudent supply caps in current market conditions, coupled with the limited on-chain liquidity availability while collateralizing stablecoin debt.

Specification

Market Configuration:

Parameter	Value
Asset	tETH
Isolation Mode	No
Borrowable	No
Collateral Enabled	Yes
Supply Cap	10,000
Borrow Cap	-
Debt Ceiling	-
LTV	0.05%
LT	0.1%
Liquidation Penalty	7.5%
Liquidation Protocol Fee	10%
Variable Base	-
Variable Slope1	-
Variable Slope2	-
Uoptimal	-
Reserve Factor	-
Stable Borrowing	Disabled
Flashloanable	Yes
Siloed Borrowing	No
Borrowable in Isolation	No
E-Mode Category	tETH/Stablecoins

tETH/Stablecoins Liquid E-mode Configuration:

Parameter	Value	Value	Value
Asset	tETH	USDT	USDC
Collateral	Yes	No	No
Borrowable	No	Yes	Yes
Max LTV	72%	-
Liquidation Threshold	75%	-
Liquidation Bonus	7.5%	-

Disclaimer

Chaos Labs has not been compensated by any third party for publishing this recommendation.

Copyright

Copyright and related rights waived via CC0