tETH as collateral on Venus Protocol Liquid Staking ETH Pool

[juny]

Summary

We propose the addition of tETH as a supported collateral asset in the Liquid Staking ETH Pool on Venus Protocol. By integrating tETH, Venus Protocol will enhance its collateral diversity and attract new users, leveraging Treehouse’s liquid staking token (LST) framework to boost lending and borrowing activity on the platform. Moreover, we will offer a Treehouse Nuts Boost as an incentive for users who pledge tETH as collateral on Venus.

To enhance investor confidence in Treehouse Protocol, we will introduce atomic withdrawals, enabling users to instantly swap their tETH for wstETH at a 2% fee, supported by a liquidity reserve earmarked at a percentage of our TVL (currently around $5M). Our atomic withdrawals will provide our users with quick access to liquidity and also ensures that liquidators’ needs can be met.

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About Treehouse Protocol

Treehouse Protocol, the decentralized arm of Treehouse Labs, is leading the charge in revolutionizing the decentralized fixed income market. Focused on building the fixed income layer for digital assets, Treehouse introduces innovative fixed income products and primitives.

Key Offerings

• tAssets (Liquid Staking Tokens 2.0):
  These tokens aim to unify fragmented on-chain interest rate markets for Proof of Stake (PoS) chains. tAssets provide holders with real yield beyond just the native network rewards through interest rate arbitrage on lending platforms. The first iteration, tETH, is a liquid staking token that addresses fragmentation in Ethereum’s interest rate market. tETH allows users to participate in the convergence of Ethereum interest rates while maintaining flexibility for DeFi activities. By borrowing ETH against wstETH (wrapped Lido Staked ETH), tETH amplifies potential yields by increasing the overall staked position. Since launching in September 2024, Treehouse has reached a Total Value Locked (TVL) of 340M USD and is actively expanding to other Layer 2s and chains.

• Decentralized Offered Rates (DOR):
  DOR is a consensus-based benchmark system for setting reference rates in the fixed income space. It mirrors the role of benchmarks like LIBOR (London InterBank Offered Rate) and SOFR (Secured Overnight Financing Rate) in traditional finance, but with a key difference: DOR is fully transparent and objective. Traditional rates were prone to manipulation, as they relied on subjective inputs from a small panel of banks. DOR, however, leverages decentralized mechanisms to ensure accuracy and transparency in rate-setting.

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Motivation

Listing tETH as collateral assets on Venus expands Venus’s collateral options to include tAssets like tETH will increase Venus Protocol utilization and contribute to long-term activity on the platform. By integrating tETH into the Liquid Staking ETH Pool, Venus Protocol will unlock new utility for tETH holders, allowing them to collateralize their assets while continuing to earn leveraged staking rewards.

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Benefits

1. Enhanced Activity in the LST Pool
   The integration into Venus will attract stakers to leverage their tETH, increasing both lending and borrowing activity in the Liquid Staking ETH Pool.
2. TVL Boost
   The partnership will bring tETH’s growing community and TVL to Venus while enhancing the utility of tETH. Venus users are able to leverage the benefits of tETH’s staking mechanisms.
3. Capital Efficiency
   tETH users can earn an additional yield on their collateralized assets, driving further adoption and utility for the ETH Pool.

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Specifications

• tETH Contract Address: 0xD11c452fc99cF405034ee446803b6F6c1F6d5ED8

Token Metrics

• APY: ~3.13% (based on Ethereum staking yields and interest rate arbitrage).
• Liquidity: Supported on Curve and Balancer, with over 15M in total liquidity deployed.

[mopgawka]

It seems that liquid staking tokens can help maximize the user experience in defi.

[msantillan]

Wellcome to our community Juny.
It might be a Good oportunity to both colaborate with Liquid Staking ETH Pool and tETH exposure.

[Debbie]

Would love to see this go to VIP

[Tomm]

how about the security of tETH?
I think it a good idea to list tETH into Venus protocol.
At the same time, we also hope that treehouse protocol can create an interface to help users supply/borrow tETH from Venus.

[juny]

Hi Tomm,

Thank you for your feedback. You may find our audits for tETH here (GitHub - treehouse-gaia/audit-report). The creation of a frontend interface for Venus borrow/lending is a potential future consideration.

[Tomm]

It’s a GOOD news! I think treehouse is a good partner for Venus.

[Omar.bnb]

if you’re not willing to provide incentives or minimum six figure of bootstrap then this will be another pointless LST listed on LST pool with almost 0 new users deposit.

please don’t waste our devs time if you’re not willing to make a real proposal with immediate advantage to our protocol.

[chaoslabs]

Overview

Chaos Labs supports listing tETH on Venus Protocol’s Liquid Staked ETH pool on Ethereum. Below is our analysis and recommendation for initial risk parameters.

tETH

Treehouse is a DeFi protocol that provides LSTs (called “tAssets”) and Decentralized Offered Rates (DOR), a primitive designed to create fixed-income products. The DOR is a reference rate-setting consensus mechanism, which Operators (of which Treehouse is the first) initiate and maintain. Panelists (currently subject to a whitelist) use Treehouse’s DOR software to provide interest rate data and forecasts; Delegators delegate tAssets to panelists. DOR feeds can be integrated by Referencers.

tETH is intended to generate yield in excess of native staking rewards by using interest rate arbitrage. In Version 1.0, tETH generates yield using leveraged staking, essentially arbitraging the difference between the staking rate and WETH borrow rate on borrow/lend protocols. The strategy utilizes the usual strategy: 1) stake LST; 2) borrow WETH; 3) stake borrowed WETH; 4) repeat n times, where n is dictated by LTV set by the external protocol or a lower value selected by Treehouse to maintain a buffer. In the *n-*th repetition, the LST is retained to maintain liquidity. As described in the whitepaper, a primary risk of this strategy is over-utilization of WETH, which can lead to borrow rates exceeding staking rates. However, as noted, historically, these are transitory events on Ethereum, the longest of which they studied was 2 days. During this event, tETH’s safety mechanism would have been activated, causing the strategy vault to repay part of its debt.

The documentation describes a preliminary LST depeg contingency plan, in which a depeg of a certain amount over a certain time period (presented as 2% and one day, respectively, but to be determined by governance) causes the protocol to unwind its positions and swap LSTs to WETH through liquidity pools; the WETH would then be used to repay loans so the LSTs can be withdrawn. Users would be able to withdraw their deposits in the form of LSTs rather than WETH. Depending on its implementation, this contingency plan could cause the protocol to unnecessarily lock in losses from a temporary depeg, which, given Aave’s use of fundamental oracles, are unlikely to cause liquidations.

The lending/borrowing element of the tETH strategy is currently entirely allocated to Aave; it also holds 50K unallocated wstETH.

The tETH Vault holds an additional 4.1K wstETH.

Users deposit ETH, which is then staked as an LST; the protocol is working to enable restaking of these assets. tETH is denominated in wstETH, and tETH yield is distributed once per day, updating a tETH/wstETH exchange rate rather than rebasing (like stETH).

The protocol batches its transactions and processes them between UTC 1:00 and 2:00 to reduce gas fees.

Redemptions

“Redemptions” of tETH are primarily facilitated through its tETH/wstETH Curve pool. Requests that are within the “Redemption Band” of 0 to 200 wstETH (this can be changed by governance) are routed through this pool, while larger requesters can opt to redeem directly from Treehouse, which are processed after a withdrawal period of “approximately 7 days”. Users receive ETH according to the minimum exchange rate at the time of request and finalization (i.e., if the exchange rate has dropped when the redemption is finalized, the user will receive this rate); there is also a 5 bps protocol fee.

This creates a dynamic in which tETH is somewhat more reliant on its on-chain DEX liquidity than other LSTs. To address this, Treehouse uses a novel Protocol-Owned Peg Protection (PPP) mechanism, in which the protocol begins purchasing tETH in this pool using ETH from the Insurance fund. The profits from arbitrage are split between the Insurance Fund, the Curve liquidity pool, tETH holders, and the Treehouse Treasury. The Insurance Fund is also used to cover (up to the prevailing ETH staking rate) instances when tETH yield becomes unprofitable.

Market Cap, Liquidity, and Volatility

tETH’s TVL in ETH has been growing steadily since November, reaching a TVL of 65,000 ETH.

To encourage deposits in liquidity pools, Treehouse offers staking of LP tokens to receive Treehouse Nuts, their incentive program.

app.treehouse.finance/lp-staking

The largest of the three liquidity pools currently holds 1.6K tETH and 1.1K wstETH. Despite the significant liquidity, on December 10, tETH depegged more than 1% from its exchange rate with wstETH.

curve.fi

Pricing/Oracle

Given that the asset is priced in relation to wstETH, we recommend using an ETH/USD Chainlink oracle, augmented with the wstETH exchange rate and further augmented using the convertToAssets function included in the tETH contract.

Collateral Factor, Liquidation Threshold, and Liquidation Bonus

Taking into account the previously mentioned factors, as well as the Liquid Staked ETH pool’s 2% Liquidation Incentive, we recommend setting the Collateral Factor to 85% and the Liquidation Threshold to 88%.

Interest Rate Curve

As we do not anticipate strong borrowing demand for the asset, we recommend a Kink at 45% and Multiplier and JumpMultiplier of 0.09 and 3.0, respectively.

Supply and Borrow Cap

We recommend setting the supply cap according to our usual methodology, at 2x the liquidity available below a price impact equivalent to the Liquidation Incentive. Following this, we recommend a supply cap of 3,000 tETH. We recommend setting the borrow cap at 10% of the supply cap given the expected lack of borrowing demand.

Specification

Parameter	Value
Asset	tETH
Chain	Ethereum
Pool	Liquid Staked ETH
Collateral Factor	85%
Liquidation Threshold	88%
Liquidation Incentive	2%
Supply Cap	3,000
Borrow Cap	300
Kink	45%
Base	0.0
Multiplier	0.09
Jump Multiplier	3.0
Reserve Factor	20%

Disclaimer

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

Copyright

Copyright and related rights waived via CC0