Proposal: Add support for rETH Token

I removed these restrictions for your account.

1 Like

@MarcZeller, @Alex_BertoG, see below for the additional information requested. This was co-written by the OP here @AmethystWizard and @langers (General Manager at Rocket Pool).

Let us know if you have any questions or need any additional info. We’d love to see rETH get listed and believe it would be a strong value-add for both Aave and the health of the Ethereum network. :pray:


Sentence Rational

The Rocket pool community would love AAVE users to support the listing of rETH as a collateral asset.

rETH is the only liquid staking token that prioritizes decentralization of staking pool operators. Onboarding rETH into AAVE would benefit both communities and Ethereum as a whole as rETH helps to democratize network validation and promotes decentralization of Ethereum staking.

References

Link to:

Specifications

  1. What is the link between the author of the AIP and the Asset?
  • Co-authored by Darren Langley, General Manager of Rocket Pool core team.
  1. Provide a brief high-level overview of the project and the token
  • Rocket Pool is the first truly decentralized Ethereum staking protocol.
  • Rocket Pool provides a liquid staking experience for Ethereum stakers; they do not need to run a validator, and they can contribute any amount of ETH
  • rETH is a redemption token representing staked ETH.
  • The rETH liquid staking token accumulates value against ETH over time.
  • Simply swapping ETH for rETH (or buying it on a secondary market) provides access to Ethereum staking rewards.
  • Without a stake pool service, only wealthy network participants who meet the 32ETH threshold are rewarded for validating transactions.
  • Rocket Pool democratizes participation in network validation by providing a service which lowers the collateral threshold.
  • Abstracting staked ETH as rETH participants are able to retain commodity properties of their stake (transfer of ownership).
  1. Explain positioning of token in the AAVE ecosystem. Why would it be a good borrow or collateral asset?
  • rETH is a productive asset it appreciates in value over time based on the rewards generated by Rocket Pool node operators… Wherever ETH is presently used as collateral, rETH would make a better collateral since it accrues the staking reward in addition to the underlying ETH value.

  • rETH is based on Ethereum staking returns and has a relatively low counterparty risk compared to other yield bearing tokens.

  • rETH is a good long term holding collateral but many people want the option to access the value now and so want to use it as collateral for loans.

  • rETH could be used in leverage and hedge trading strategies by borrowing/lending in Aave.

  • rETH is a standard ERC-20 token and does not rebase and so it should be technically easier to integrate into Aave.

  1. Provide a brief history of the project and the different components: DAO (is it live?), products (are the live?). How did it overcome some of the challenges it faced?
  • Rocket Pool has been active in the Ethereum community for over 5 years.
  • The Rocket Pool protocol went live on 9th November 2021. It was a staged rollout with full unlimited opening on 22 November 2021.
  • Since then it has staked over 189k ETH across 1,200+ individual node operators operating in 84 geographic locations
  • rETH supply has grown to 89k rETH
  • The Rocket Pool protocol has a two DAO structure. More information on the Rocket Pool DAOs can be found here: Rocket Pool — Staking Protocol Part 2 | by David Rugendyke | Rocket Pool | Medium
  1. How is the asset currently used?

rETH is used as liquidity in a number of platforms on layer 1 and layer 2:

  • Uniswap
  • Balancer
  • Curve
  • Bancor
  • Zigzag

It is also used in yearn trading strategy vaults and in Alchemix as lending collateral.

  1. Emission schedule

rETH is only minted when stakers deposit ETH into Rocket Pool for staking.

  1. Token (& Protocol) permissions (minting) and upgradability. Is there a multisig? What can it do? Who are the signers?
  • rETH is minted when stakers deposit ETH into the Rocket Pool deposit pool and rETH is burnt when stakers withdraw their ETH.
  • The Rocket Pool contracts do not have permissions that grant administrators mint/burn capabilities.
  1. Market data (Market Cap, 24h Volume, Volatility, Exchanges, Maturity)
  • Market Cap: $165m

  • Supply: 89,890

  • Holders: 3,832

Exchanges:

  • Uniswap
  • Curve
  • Balancer
  • Bancor

Further information here: Rocket Pool Explorer

  1. Social channels data (Size of communities, activity on Github)
  1. Contracts date of deployments, number of transactions, number of holders for tokens

rETH token

Date deployed: 30th Sept 2021

Contract address: Rocket Pool: rETH Token | Address 0xae78736Cd615f374D3085123A210448E74Fc6393 | Etherscan

Holders: 3,883

Transfers: 15,512

Technical Specifications

A comprehensive technical analysis has been conducted by the Maker DAO technical team here is their report:

Security Considerations

Our smart contracts have been independently audited by 3 best-in-class audit firms:

Risk Analysis

A comprehensive risk analysis has been conducted by the Maker DAO risk team here is their report:

10 Likes

A wonderful collection of information. I hope this proves to the Aave community that rETH is ready for the next step – the MakerDAO risk assessment is especially poignant!

5 Likes

Great to see so much ground covered on risk analysis. Would love to hear if the community has any other concerns. Excited to be able to use this!

3 Likes

Really looking forward to this. Have my support.

2 Likes

Thanks for gathering the information for the community :ghost:

5 Likes

Nice writeup - looking forward to seeing how this progresses.

2 Likes

I have a question/comment/request: I know the goal is to get listed in v2 markets, but v3 markets have rolled out on various L2 solutions like Polygon, Arbitrum, and Optimism.

Could we also get rETH listed as collateral on the L2s that rocketpool already has an LP on? (the L2 LPs where rETH is available is on those three networks per the rocketpool medium article) Do we need a separate inclusion request?

I like polygon for my L2 transactions right now, before I move assets to mainnet to launch a new node, which allows me to gain an advantage in fees.

5 Likes

Very keen for this proposal.

Are there any proposed risk parameters for this? Will it be the same as stETH or lower?

1 Like

There are some proposed risk parameters in the Snapshot vote: Snapshot

Gauntlet has initiated analysis and is targeting June 30th to provide initial risk parameters aligned with the risk profile of other v2 assets.

2 Likes

Thanks Marceau
Would love to see the rETH risk assessment in the context of the current liquidity crush on liquid staking tokens and of listing on the Aave V2 market where caps have yet to be implemented compared to Maker

4 Likes

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:

Screen Shot 2022-07-06 at 10.16.26 PM

Given rETH’s market cap and trading volume, our analysis indicates that more conservative parameters are needed compared to stETH.

4 Likes

Hi @Pauljlei,

Can you please share your thoughts on listing rETH as Collateral with Borrowing Disabled, similar to how stETH listed ? Reading your post, I could be wrong, but it reads like Gauntlet is considering borrowing enabled if rETH was listed.

I am a huge fans of Aave v3 and the new features which allow risk to be better managed.

3 Likes

@Governance_House Our recommendation is to take a conservative approach with regard to enabling an asset as collateral. An asset can always be enabled as collateral, but it is difficult to disable an asset as collateral.

Borrowing rETH is a valuable component of a healthy market. While it is up to the community to decide whether an asset should be borrowable on Aave, there is not much utility to only enable the supply side (i.e., sans collateral enablement) with borrowing disabled. Not enabling stETH as a borrowable asset is due to technical concerns on correctly implementing rebasing assets on Aave rather than on the market risks.

3 Likes

YEs to this! Also this may be of interest to some of your looking to use rETH to extract liquidity in these current market conditions. https://twitter.com/pwndao/status/1565634049078706178. rETH used as collateral on an ERC-20/NFT lending marketplace with no liquidations until the loan expires.

Is there one? Can’t find it on Ethereum Data Feeds | Chainlink Documentation