Gauntlet Parameter Recommendation:
rETH is a staking derivative for Rocket Pool, similar to Lido’s stETH.
rETH can be minted by locking ETH in the Rocket Pool contract, making that ETH available for user-run staking nodes. Initially, 1 rETH could be minted for 1 ETH. However, as the pool gains staking yields, the cost of minting rETH gradually rises. It now costs 1.02 ETH to mint 1 new rETH.
Users can withdraw rETH directly from the contract at the same rate it costs to mint, but only when there is rETH available (i.e., when there is excess ETH that hasn’t been locked in a staking pool). There is currently no rETH available to withdraw from the contract.
On secondary markets, rETH currently trades slightly below the minting cost, at 1.01 ETH = 1 rETH. However, like stETH, nothing prevents it from trading below 1 ETH before withdrawals are enabled on Ethereum.
In general, we strongly recommend listing assets without enabling them as collateral to observe how usage evolves for supplies and borrows and to derisk any mechanism design issues that could pose an outsized risk to Aave. Once an asset has sufficient time in the market (O(weeks)), we are comfortable enabling them as collateral as part of the weekly parameter update process, provided there is sufficient liquidity and community buy-in.
We have published an asset listing framework for market risk for Compound, Compound Finance Asset Listing Framework (Market Risk), and will be adapting this for Aave.
We recommend not enabling rETH as collateral on initial listing. The liquidity environment for rETH is similar to low liquidity collateral assets on Aave. Our analysis shows that it would be prudent to first observe how much supply and borrow there is of the asset for a few weeks before enabling it as collateral.
With Aave V3, we would establish borrow and supply caps while listing this asset to limit the exposure of the protocol to this asset. Unfortunately, those don’t exist in V2.
However, if the community still wants to enable rETH as collateral, we would recommend meaningfully more conservative parameters than currently proposed for rETH (which can get tuned over time as part of our dynamic risk management service provided sufficient liquidity):
- Max LTV: 40%
- Liquidation threshold: 50%
- Liquidation bonus: 8.5%
- Reserve factor: 10%
Comparing rETH to stETH and xSUSHI:
On Ethereum mainnet, there are rETH pools on Curve, Uniswap, Balancer, and Bancor. Here is the breakdown of TVL and trade volume as of 2022-06-30:
Given rETH’s market cap and trading volume, our analysis indicates that more conservative parameters are needed compared to stETH.