Migrate assets from isolated pool to core pool

[Omar.bnb]

Summary

This proposal aims to move multiple assets from isolated pools to the core pool. Since the introduction of isolated pools, the protocol has faced a significant competitive disadvantage, limiting our growth opportunities. If you’re a yield farmer like me, you’ll understand that the way isolation works on Venus is highly inefficient, and this needs to be changed. Assets like wstETH, SlisBNB, Floki, weETH, and others should be moved to the core pool to have access to adequate liquidity.

Core Problem and Examples

One of the issues with isolated pools is that when Venus deploys a new isolated pool (such as the LST pool on the BNB Chain), we provide very little liquidity for new borrowers, making it difficult for them to loop their assets. To understand the mindset of loopers: if someone deposits 300k in wstETH and tries to borrow ETH to maximize their yield, they will end up losing money because:

1. There is only 5k in ETH available to borrow.
2. If they borrow all the ETH, the APY will hit the kink and jump to a very unprofitable level.

However, if we move wstETH from an isolated pool to the core pool, borrowers will have access to a large amount of ETH liquidity, enabling them to loop their assets profitably.

Unfortunately, competitors like AAVE have taken advantage of this mistake and deployed wstETH on their core market. Now, wstETH suppliers are moving to AAVE instead of Venus, which is unacceptable because Venus should be the dominant platform on BSC.

Another issue is that assets like Floki, which have much higher liquidity and value than assets like LTC, are sitting in isolated pools, limiting their growth potential. From a security perspective, LTC, with 250k in on-chain liquidity, should be in an isolated pool, while Floki, with 10M in on-chain liquidity, should be in the core pool. As the largest BSC meme coin, Floki users should have access to our core liquidity to borrow and leverage their assets freely.

Arguments

One argument against moving assets like wstETH to the core pool is the risk of oracle failure or a hack of Lido, which could lead to a Black Swan event for the entire DeFi ecosystem. However, Lido and wstETH have been battle-tested countless times, and their price has rarely deviated significantly. Even in those instances, the impact was minimal. Additionally, the LST pool on Ethereum’s mainnet is already larger than the core pool, so the protocol would still see significant effects whether or not assets are isolated.

Another argument is that the on-chain liquidity for assets like SlisBNB is relatively low. However, we must consider that, in the worst-case scenario, the protocol could still redeem the asset on ListDAO for a 1:1 ratio, minimizing any potential negative impact.

List of Assets

I recommend the following assets be moved from isolated pools to the core pool:

• wstETH (Arb mainnet and BSC)
• weETH (Arb mainnet and BSC)
• Floki (BSC)
• SlisBNB (BSC)
• ezETH (Mainnet)
• rsETH (Mainnet)
• pufETH (Mainnet)
• lisUSD (BSC)
• Babydoge (BSC)
• sUSDe (Mainnet)
• USDe (Mainnet)
• Pendle assets (Mainnet)

Conclusion

this proposal emphasizes the need to move several assets from isolated pools to the core pool within the Venus protocol. The current isolation strategy has put the protocol at a competitive disadvantage by limiting liquidity and growth opportunities. By transferring assets like wstETH, SlisBNB, Floki, and weETH to the core pool, Venus can provide higher liquidity, improve borrowing conditions, and enhance profitability for yield farmers and borrowers. Addressing these inefficiencies will help Venus reclaim its position as the leading Money market on every chain, while mitigating the risks associated with isolated pools.

[devitavenus]

I do agree, assets like wstETH became much bigger than most of the assets we have on core pool. we should review the isolated assets and add the ones that qualify to the core market

[C0sty]

Totally agree, all aaets, except babydodge, and i wonder why this wasn’t proposed by CL?

[JucoPablo]

I fully agree with the proposal to move proven assets, such as Floki and others, from Isolated Pools to Core Pools. It’s evident that Isolated Pools lack efficiency and are essentially a missed opportunity for Venus, wasting valuable resources and engineering. By transitioning these assets to Core Pools, we can significantly increase attention from whales and participants who can bring substantial liquidity, making Venus far more attractive.

I hope this is implemented as soon as possible. Additionally, I believe this shift could be strategically aligned with the launch of V5, creating a strong impact in terms of proposals and marketing, making us even more competitive against Aave. Our goal should be to compete directly and firmly with the market leader, aiming to share the top position. Excellent proposal, and I look forward to seeing it executed!

[Xvs_Believer]

I fully agree on this proposal

And I believe and calling this for long time now

Isolated pool has proven inefficiency and its limit. Right now keep putting new asset in Isolated Pool is a waste of time and money, and we should stop that, or would just disappoint more users.

Stop this isolated pool Frenzy and Either push Omni market Lending or introduce E-Mode as Aave for safety

Stop wasting ressources and time

[Omar.bnb]

Thank you for your contribution, I’m not sure why CL doesn’t see the inefficiency of their recommendations even though it had happened repeatedly.

[Omar.bnb]

thank you for your contribution

[Omar.bnb]

Thank you for your contribution.

I totally agree with you, E-mode is ideal in this situation. changing the way we do isolation is another solution.

[Tomm]

Such adjustments are necessary, migrating low-utilization tokens from the core pool to the isolated pool, and migrating high-utilization tokens from the isolated pool to the core pool. Chaos labs is relatively conservative in this field, but the DEV team can be more aggressive, but it must Pay attention to the security of users’ assets and do not cause debts in the Venus protocol.

[Tomm]

Currently, only “TWT” token has been migrated to the core pool, but other tokens with high utilization and potential in the isolated pool should also be migrated to the core pool as soon as possible.

Chaos labs please note this proposal!!

[C0sty]

@chaoslabs please take in consideration this comunity proposal. Or reply with the arguments for not consideration it.
Thank you

[chaoslabs]

Summary

Chaos Labs provides parameters for re-listing certain isolated pool assets in their respective Core pools.

Motivation

In the current strategy employed by Venus, LSTs and LRTs have been mostly listed in isolated pools. While this has limited their available borrowable liquidity, it has also allowed us to list the assets with significantly more aggressive parameters than they would otherwise be listed. This is because, using the example of the Liquid Staked ETH pools, ETH-correlated assets are only able to borrow other ETH-correlated assets; liquidations are thus far less likely, allowing for a lower Liquidation Incentive and higher Collateral Factor.

For example, on Ethereum weETH is listed in the Liquid Staked ETH pool with a CF of 93%, allowing for 14.29x leverage. In the Core pool — because of a higher Liquidation Incentive and uncorrelated borrowable assets — its CF will be set to 77.50%, allowing for 4.44x leverage.

Additionally, because liquidations are minimized, listings in correlated isolated pools allow us to recommend supply caps higher than what would otherwise be possible based on on-chain liquidity.

Thus, while many of these assets can be moved to the Core pool, it remains to be seen how much demand they will generate, given that their CFs will necessarily be lower than their Aave E-Mode counterparts. Should they grow rapidly, we may be limited in supply cap increases. However, from a risk perspective, we are amenable to this change and provide analysis and specifications below.

Regarding non-LST/LRT assets, while FLOKI has superior on-chain liquidity to LTC its volatility is significantly higher at 110% daily annualized over the last 180 days compared to LTC’s 77.5%. Additionally, while LTC’s on-chain liquidity is scarce, its price gets efficiently arbitraged to Centralized Exchanges, effectively providing additional liquidity depth. As these are important considerations, isolated pools allow the protocol more granular control over the assets that can be borrowed against a volatile token, as well as how much of each asset can be borrowed, functioning as a debt ceiling. Interest rates of borrowable assets, especially stablecoins, can be adjusted to provide greater incentives for suppliers.

These controls have proved critical, as FLOKI is consistently one of the most liquidated assets on Venus, with over $1.17M in collateral liquidated in the past 90 days relative to a current total supply of just $5M.

When moving these assets to the Core pool, we will recommend more conservative collateral parameters to account for the lack of these additional tools.

Finally, it should be noted that Venus does not have a “migrate” function, and instead these assets must be listed a second time.

Given these factors, we do not recommend re-listing these assets (with the exception of wstETH). However, we have provided parameters for their re-listing should the community opt to do so. We recommend listing wstETH in the Core pool not because of the greater WETH borrowable liquidity available, but instead because we have observed demand to borrow uncorrelated assets against wstETH on other protocols.

wstETH and weETH

These assets are highly liquid, though somewhat less liquid on BNB Chain. We support listing them in their respective Core pools with reduced CFs.

FLOKI

As described above, FLOKI has relatively strong on-chain liquidity but remains highly volatile.

Its current listing in the GameFi pool allows Venus to use the USDT borrow cap as an effective debt ceiling and mitigating VaR. Given that this guardrail will be removed when it is in the Core pool, we recommend setting its CF to 35%.

slisBNB

slisBNB’s on-chain liquidity has waned in recent weeks, though it is sufficient to list in the Core pool with a reduced CF, set to 72%.

ezETH, rsETH, pufETH

All three assets have sufficient liquidity to list on the Ethereum Core pool.

lisUSD

lisUSD’s on-chain liquidity has been relatively stable since the beginning of November, allowing us to recommend listing the asset in the Core pool, albeit with a reduced CF given its low market cap relative to other stablecoins listed with a 75% CF.

Baby Doge

Baby Doge is highly volatile, calling for conservative parameters when it is listed in the Core market.

Its liquidity has been stable, which allows us to recommend listing it in the Core pool with a 25% CF.

sUSDe and PT Tokens

sUSDe is a highly liquid asset that has achieved significant adoption on other protocols. We could recommend listing it in the Core pool with reduced collateral parameters relative to its isolated pool. However, we do not recommend re-listing the associated PT tokens in the Core pool due to their unique characteristics and elevated risk.

Supply and Borrow Caps

Supply caps are set according to our usual methodology, at 2x the liquidity available at a price slippage equivalent to the Liquidation Incentive. Borrow caps for LST/LRTs are set at 10% of supply caps, while they are set slightly above the Kink for other assets. For Ethena assets, we recommend aligning their cap values with the existing values in the isolated pool.

Other Parameters

We recommend aligning other parameters, including the IR curves and Reserve Factor, with the existing listing of each asset.

Next Steps

We may issue recommendations to deprecate existing markets by decreasing caps and adjusting Reserve and Collateral Factors.

Specification

We have included a row indicating whether Chaos Labs recommends re-listing each asset.

Parameter
Asset	wstETH	wstETH	weETH	weETH	FLOKI	slisBNB	ezETH	rsETH	pufETH	lisUSD	BabyDoge	sUSDe
Network	BNB	Arbitrum	BNB	Arbitrum	BNB	BNB	Ethereum	Ethereum	Ethereum	BNB	BNB	Ethereum
Market	Core	Core	Core	Core	Core	Core	Core	Core	Core	Core	Core	Core
Collateral Factor	78.5%	78.5%	77.5%	77.5%	35%	72%	72%	72%	72%	72%	25%	72%
Liquidation Threshold	-	81%	-	80%	-	-	75%	75%	75%	-	-	75%
Supply Cap	650	20,000	200	2,500	14,000,000,000	11,000	7,000	9,000	2,500	1,400,000	160,000,000,000,000	50,000,000
Borrow Cap	65	2,000	20	250	7,000,000,000	1,100	700	900	250	1,250,000	80,000,000,000,000	-
Recommended	Yes	Yes	No	No	No	No	No	No	No	No	No	No

Disclaimer

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

[Masala]

I am glad that Chaos Labs can listen to user suggestions. Although putting assets of isolated pool to core pool will reduce their CF, we can adjust slowly and gradually increase the CF after the assets are confirmed to be stable and safe.

[Tomm]

I agree with chaos labs’ viewpoint, but low liquidity & liquidity segmentation on isolated pool have a greater impact on the development of Venus protocol, so the Venus protocol needs to make some new attempts.

Please remember “innovate or die”, which is more important in DeFi field.