Support weETH collateral on Venus on BNB Chain

[RupertPumpkin]

Summary

Ether.fi is seeking community support for adding its Liquid Restaking Tokens (weETH) to Venus Protocol on BNB Chain. In addition, anyone who deposits weETH on Venus will accumulate ether.fi and EigenLayer points to be used for future incentives.

Rationale:

eETH is an LRT that allows users to stake their ETH, accrue staking rewards, and receive additional rewards through native restaking on EigenLayer. As of April 25th, approximately 1,211,300 ETH ($3.8B) in TVL has been deposited into the ether.fi protocol. You can view additional ether.fi stats on here.

Users are given eETH on a 1:1 basis with a minimum deposit of 0.001 ETH. As mentioned above, ether.fi is also the first LSP to natively restake on EigenLayer — a move that helps improve network efficiency and provides stakers with additional rewards for their network contributions. ether.fi has also launched a series of partnerships with DeFi protocols to incentivize users and drive liquidity to various platforms on BNB Chain.

ether.fi is the first decentralized, non-custodial delegated staking protocol with an LRT (eETH). One of the distinguishing characteristics of ether.fi is that stakers control their keys, and the protocol has redemptions back to ETH enabled. Those who work on the protocol strive for the following:

1. Decentralization is the primary objective. ether.fi will never compromise on the non-custodial and decentralized nature of the protocol. Stakers must maintain control of their ETH.
2. The ether.fi protocol is a real business with a sustainable revenue model. The team is in this for the long haul. No ponzinomics f*ckery.
3. ether.fi will do the right thing for the Ethereum community, always. If and when the team messes up, ether.fi will own it and course correct quickly.

weETH is a non-rebasing wrapped version of eETH designed to interact with DeFi protocols.

Liquidity mining incentive for weETH suppliers

The ether.fi team will bootstrap the pool with $100,000 worth of weETH liquidity and incentivize this pool with $5,000 of weETH for an initial period of 30 days to kickstart the market on Venus.

Motivation

This move is intended to improve asset diversity on Venus, by providing users the opportunity to invest in the leading LRT, eETH. By integrating weETH into their markets, Venus Protocols allows its users to earn ether.fi and EigenLayer points which will be used for future incentives, in addition to lending APY on their holdings.

Conclusion

Adding support for weETH allows Venus to continue to be a first-mover in capturing the restaking market. This provides users with a wider range of investment opportunities that match exceeding demand for LRTs.

[Frayst]

Definitely a good move to support Liquid Restaking Tokens (weETH) to Venus Protocol on BNB Chain!

[Tomm]

Good idea! The gas fee on BNB Chain is cheaper the ETH, which can attract more users to borrow weETH.

[mopgawka]

I agree that this is an excellent proposal. quite a popular asset that can increase TVL.

[DomVSPM]

It would be nice to see weETH also on BNB Chain on Venus. Let’s go for it.

[chaoslabs]

Overview

Chaos Labs supports listing weETH on a new Venus BNB Chain isolated pool alongside WETH. Following is our analysis and risk parameter recommendations for the initial listing.

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 weETH, adopting more conservative supply and borrow caps should be considered.

Liquidity and Market Cap

The launch of eETH withdrawals, or the native “liquidity pool,” occurred at the end of December 2023. Since then, alongside a speculative point-based incentive structure, EtherFi’s TVL has grown rapidly, reaching $4B, while weETH has averaged $24.5 million in daily volume. The limited historical data, alongside the asset’s rapid growth, highlight the need for a more conservative listing approach, as rapid growth driven by speculative incentives could lead to significant and sudden reductions in liquidity down the line.

However, the asset is still relatively small on BNB Chain, with an on-chain supply of 256 weETH at the time of writing.

weETH Volatility

Since launch, relative to USD, weETH’s 30-day annualized volatility is 62.99%, with a maximum single-day price drop of 10.28%.

Relative to ETH, weETH’s 30-day annualized volatility is 2.07%, and its largest single-day price drop is 1.52%.

Collateral Factor

To optimize the CF and LT setting for LST/Underlying Asset borrowing and allow more leverage for looping, we recommend implementing a calculated price oracle. This oracle would utilize the primary exchange rate to determine the oracle price for weETH in correlation with the price of WETH.

Considering this, we recommend setting the CF similarly to the recommended parameters of wstETH and WETH in the Ethereum LST Isolated Pool, at 90%, with LT at 93%

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 would call for a 500 weETH initial supply cap. However, we do not recommend exceeding 75% of a chain’s circulating supply for LSTs. The current on-chain supply is 355 weETH; we propose starting at 50%, for an initial supply cap of 150 weETH. We will monitor this closely and may recommend increasing caps should on-chain liquidity and supply grow.

The utilization rate for LSTs has been historically low on borrow/lend protocols due to additional borrowing costs. However, as we’ve observed increased demand for borrowing weETH on the Ethereum deployment, we recommend an initial borrow cap of 50% of the supply cap.

IR Curve Parameters

We recommend aligning the interest rate parameters with those of similar assets to ensure consistency across similar assets on Venus.

Additional Parameters

• Close Factor - 50%
• Liquidation Incentive - 2%
• minLiquidatableCollateral 100 USD

Recommendations

Following the above analysis, we recommend listing weETH in a new isolated pool with WETH with the following parameter settings:

Asset	WETH
Collateral Factor	90%
Liquidation Threshold	93%
Supply Cap	125
Borrow Cap	110
Kink	80%
Base	0%
Multiplier	3.5%
Jump Multiplier	80%
Reserve Factor	15%

Asset	weETH
Collateral Factor	90%
Liquidation Threshold	93%
Supply Cap	125
Borrow Cap	65
Kink	45%
Base	0%
Multiplier	9%
Jump Multiplier	75%
Reserve Factor	20%