Overview
Chaos Labs supports listing ezETH on Venus Protocol’s Ethereum mainnet deployment as part of the Liquid Staked ETH pool. Due to ezETH’s poor liquidity conditions of BNB Chain, we do not recommend listing ezETH on Venus’ BNB Chain deployment at this time. Below is our analysis and initial risk parameter recommendation.
Note: The following analysis is conducted solely from a market risk viewpoint, excluding centralization and third-party risk considerations. If the community aims to reduce exposure to ezETH, adopting more conservative supply and borrow caps should be considered.
Liquidity and Market Cap
The amount of ETH locked in the Renzo Protocol has grown rapidly, from 200K ETH at the start of March to 1.06M today. Similarly, ezETH’s market cap has averaged $1.55B over the past six months.
Users may deposit WETH, wbETH, or stETH to receive ezETH, a liquid restaking token (LRT). It is intended to simplify restaking by interacting with EigenLayer and securing a combination of Actively Validated Services (AVSs). Rewards are reflected in the price of the token rather than rebasing. Over the past 180 days, it has registered $66M in average daily volume.
Native ezETH withdrawals were recently enabled.
On Ethereum, its liquidity is concentrated in a Balancer V2 pool with WETH. There is also a Uniswap V3 pool that registers significant volume. This pool is currently incentivized with ezPoints; liquidity may drop if and when these incentives end.
On BNB Chain, ezETH’s liquidity is much lower. Liquidity is centered around a PancakeSwap v3 pool with just $31K in liquidity and $80K of 24-hour volume. This appears to be the only active pool supporting ezETH on BNB chain.
ezETH / ETH Volatility
Relative to ETH, ezETH’s 30-day daily annualized volatility is 4.66%, with a maximum single-day price drop of 2.79%.
Collateral Factor
We recommend setting the CF equal to rsETH in the Liquid Staked ETH pool: set at 80%, with LT at 85%
Supply and Borrow Cap
Chaos Labs’ approach to initial supply caps involves setting the Supply Cap at 2x the liquidity available under the Liquidity Penalty (set at 10%) price impact. This calls for an initial borrow cap of 14,000 ezETH on Ethereum.
Given the limited borrow demand we’ve observed for LRTs, we initialize borrow caps conservatively at 10% of supply. This means a supply cap of 1,400 on Ethereum.
We will monitor this token’s developments closely and may recommend increasing caps should on-chain liquidity, supply, and/or demand grow.
IR Curve Parameters
We recommend aligning the interest rate parameters with those of similar assets to ensure consistency across similar assets on Venus.
Pricing ezETH
While ezETH’s discount to its ETH exchange rate has narrowed since Renzo enabled withdrawals, a gap persists. For this reason, we recommend pricing ezETH according to its market rate (blue) rather than its exchange rate (red) at the outset. We’d like to see persistent peg stability for a period of months before considering a transition to exchange rate pricing.
Recommendations
Following the above analysis, we recommend listing ezETH on Ethereum within the Liquid Staked ETH isolated pool and not listing ezETH on BNB Chain until liquidity improves. We recommend the following parameter settings:
ezETH (Ethereum Mainnet)
| Parameter | Value |
|---|---|
| Pool | Liquid Staked ETH |
| Collateral Factor | 80.00% |
| Liquidation Threshold | 85.00% |
| Supply Cap | 14,000 |
| Borrow Cap | 1,400 |
| Kink | 45% |
| Base | 0% |
| Multiplier | 9% |
| Jump Multiplier | 75% |
| Reserve Factor | 20% |