LlamaRisk recommends onboarding wrsETH to the Linea network with an initially capped supply and a more efficient rsETH Correlated E-Mode. Any future increases in supply will depend on growing demand or an improvement in the network’s currently limited DEX liquidity, currently standing around $500k.
Key risks include liquidity risk, bridge risk and pricing risk. These risks can be priced in with careful parameterization and utilizing CAPO to help prevent against donation attack. LlamaRisk has previously reviewed this asset, where we noted a high level of dependency risk stemming from fixed contract exchange rates and significant offchain dependencies.
One notable recent incident for rsETH was an infinite mint glitch, which has since been addressed by Kelp’s team through the addition of Proof of Reserves. It is an important step to improve protocol’s security, which is a notable dependency risk that Aave assumes.
The exact deployment parameters will be presented jointly with Chaos Labs, which will follow up on this thread shortly.
rsETH on Linea
rsETH on Linea is an OFT, meaning it is bridged with LayerZero. Some 1691 rsETH have been bridged over thus far, with 98% being held in the wrapper contract. OFTs are widely used on Aave at this time, so little incremental architectural risk is presented by the asset or its used bridging solution.
Source: rsETHWrapper holders, Lineascan 29 May, 2025
This contract was deployed on Linea on the April 15th, 2024 by Kelp DAO deployer address. As this asset must be non-rebasing for compatibility, Aave will be onboarding the wrapped counterpart, wrsETH. This asset is held largely by lending markets (ZeroLend, Mendi, Layerbank), who are using it to power leveraged staking.
Liquidity
Liquidity for the asset on this network is limited. This presents profitable liquidation risk if more aggressive supply caps were to be set.
Source: wrsETH to wETH Linea, Odos, May 30, 2025
Users may currently exchange ±150 rsETH at 7.5% price impact. The majority of this trade is facilitated on Nile V2, which is a concentrated liquidity DEX, meaning should the price of rsETH deviate substantially from WETH, liquidity may not be provided, further exacerbating this problem. While rsETH is pegged to ETH’s price, the loose nature of the peg may result in short term liquidation complexity.
Liquidity in large rsETH Nile pools is relatively concentrated, with 7 LPs providing >50% of the liquidity. This concentration compounds liquidity risk. For the time being, lenders on Linea would be best served with tight parameterization.
With this in mind, this liquidity is representative of the more nascent state of this network and could improve further as Linea continues to develop. It should also be noted that asset’s deployment on Aave could bring additional demand and, therefore, facilitate rsETH’s supply growth on Linea.
Ownership
The rsETH OFT is owned by a 3/6 Safe. This address may perform a variety of OFT-related upgrades, transfer ownership or burn ownership. This upgradeability presents risk which is compounded by multisig control.
Price Feed
On this network, rsETH currently relies on a Chainlink market price feed with a 0.5% deviation threshold and a 24 hour heartbeat. This price feed presents risk due to low available onchain liquidity and would not be used to price the asset.
Instead, as with many LSTs and LRTs on Aave, rsETH should be valued using its internal rsETH/ETH exchange rate together with an ETH/USD market feed, protected by CAPO. Since L2s do not support an onchain rsETH exchange rate function, Chainlink will need to deploy an internal exchange rate feed before rsETH would be onboarded.
Parameter Recommendations
It is recommended that rsETH would be deployed as a non-borrowable asset, together with a more efficient rsETH Correlated E-Mode. The risk parameters of this setup will be presented jointly with @ChaosLabs
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.