Support weETHs collateral on Venus on ETH Mainnet

Proposal: Support weETHs collateral on Venus on ETH Mainnet

Summary

ether.fi is seeking community support for adding its Liquid Restaking Tokens (weETHs) to Venus Protocol on ETH Mainnet. In addition, anyone who deposits weETHs on Venus will accumulate ETH staking rewards alongside ether.fi and Symbiotic points to be used for future incentives.

The Super Symbiotic LRT is intended to provide ether.fi customers an easy onboarding into the Symbiotic ecosystem. Symbiotic is a shared security protocol that serves as a thin coordination layer, empowering network builders to control and adapt their own (re)staking implementation in a permissionless manner. Unlike other LRTs, users have numerous deposit options including WETH, eETH, weETH, wstETH, cbETH, bETH, rETH, mETH, swETH, etc. These assets will be directly restaked on Symbiotic each time the deposit caps are raised.

Rationale:

weETHs is an LRT that allows users to stake their ETH, accrue staking rewards, and receive additional rewards through native restaking on Symbiotic. As of July 26th, approximately 2,026,755 ETH ($6.4B) in TVL has been deposited into the ether.fi protocol with 140,000 ETH ($450M) dedicated to the weETHs symbiotic vault. You can view additional ether.fi stats on Dune.

Users are given weETHs on a 1:1 basis with their deposit into the Symbiotic vault. As mentioned above, ether.fi is also the first LSP to natively restake on EigenLayer, Symbiotic, and Karak — 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 (weETHs) to various platforms.

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. 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.

Key benefits brought by the Symbiotic protocol:

  1. Flexibility through ModularityNetworks control all aspects of their (re)staking implementation, including collateral assets supported, node operator selection mechanics, rewards, slashing, and associated resolving mechanisms. All participants can flexibly opt in and out of shared security arrangements coordinated through Symbiotic.
  2. Risk Minimization through ImmutabilityNon-upgradeable core contracts on Ethereum remove external governance risks and single points of failure. Our simple yet flexible contract design minimizes execution layer risks.
  3. Capital Efficiency through Restaked Collateral and Reputation-Based CurationA permissionless, multi-asset, and network-agnostic design enables scalable and capital-efficient sourcing of economic security. An evolving operator-centric cross-network reputation system will further enhance capital efficiency for network builders.

The ether.fi team will bootstrap the pool with $25,000 worth of weETHs and include the weETHs Venus market as an integration partner to kickstart the market on Venus.

Motivation

This move is intended to improve asset diversity on Venus and increase liquidity in the ecosystem. By integrating weETHs into their markets, Venus Protocols allows its users to participate in providing economic security to differing assets, support diversity in the restaking landscape, and earn incentives in addition to lending APY on their holdings.

Audits

Conclusion

Adding support for weETHs allows Venus to be a first-mover in capturing the restaking market outside of the EigenLayer ecosystem, hosting a more diverse set of economic security. This also provides users with a wider range of opportunities to gain restaking exposure that match exceeding demand for LRTs.

3 Likes

I fully support and endorse the implementation of the proposal to add weETHs as collateral on Venus on the Ethereum mainnet. This initiative will not only diversify the assets on Venus but also increase liquidity within the ecosystem. Additionally, it will allow users to participate in providing economic security for various assets, thereby supporting diversity in the restaking landscape. The additional incentives and staking rewards offered to weETHs depositors are significant benefits that will enhance the user experience and strengthen Venus’s position in the market.

I’m excited that there are more and more proposals coming in to increase the scope of liquid staking tokens. Such proposals not only attract more users, but also contribute to the development of the entire Defi industry. I am proud to be part of Venus, let’s keep working for the benefit of the whole industry.

Overview

Chaos Labs supports listing weETHs on Venus Protocol’s Ethereum mainnet deployment as part of the Liquid Staked ETH pool. 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 weETHs, adopting more conservative supply and borrow caps should be considered.

Liquidity and Market Cap

weETHs is a token representing deposits in a vault — facilitated by Ether.Fi — that restakes on Symbiotic, a restaking protocol competing with Eigenlayer. weETHs has grown rapidly since June, reaching a peak of 140K ETH TVL.

The structure of the vault was created by Veda, and users receive Veda points as well as Symbiotic points for their deposits in the vault. Currently, users earn a composite staking yield of all the yield bearing assets in the vault; users may deposit a variety of tokens, including WETH, weeETH, wstETH, and swETH.

On-chain DEX liquidity is relatively limited, with the vast majority of its liquidity concentrated on two Curve pools.

One user currently represents over 99.5% of the total liquidity deposited in the larger of the two pools.

weETHs / ETH Volatility

weETHs has demonstrated some peg instability on its primary Curve pool, with a wick down to 0.9 WETH. Currently, it is trading at a 0.45% discount to its exchange rate.

Collateral Factor

We recommend setting the CF equal to rsETH and ezETH in the Liquid Staked ETH pool: 80%, with LT at 85%.

Supply and Borrow Cap

Given that withdrawals for this vault are open, we recommend setting the supply cap at 2x the liquidity available under the Liquidation Incentive. Using this methodology, we recommend an initial supply cap of 180 weETHs.

Given the limited liquidity of the asset, as well as limited use cases for borrowing, we do not recommend allowing borrowing of weETHs.

Pricing weETHs

Given that on-chain DEX liquidity for weETHs is limited, we recommend pricing the asset according to its exchange rate. The important consideration here is that withdrawals are open, meaning that weETHs can be redeemed for the underlying asset at the corresponding exchange rate, reducing this market’s need for a market price. Additionally, the use case for this market is anticipated to be looping, increasing the chance of liquidation cascades should weETHs’ discount relative to WETH widen.

Recommendations

Following the above analysis, we recommend listing weETHs on Ethereum within the Liquid Staked ETH isolated pool. We recommend the following parameter settings:

Parameter Value
Asset weETHs
Chain Ethereum
Pool Liquid Staked ETH
Collateral Factor 80.00%
Liquidation Threshold 85.00%
Supply Cap 180
Borrow Cap 0
Kink 45%
Base 0%
Multiplier 9%
Jump Multiplier 75%
Reserve Factor 25%