[PCP] Support wsuperOETHb on Seamless

Project and Asset Integrations
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[PCP] Support wsuperOETHb on Seamless

Simple Summary

This proposal aims to introduce a Lending/Borrowing market for wsuperOETHb on Seamless.

General Information

Motivation and Benefits to Seamless

The proposal seeks to introduce a new market into Seamless on Base for wsuperOETHb. The new market would lead to increased TVL for Seamless, additional revenue to the Seamless Protocol and DAO from active loans and liquidations, and will attract a wider user base. This new market will also help diversify the yield possibilities for current Seamless users, and will increase Seamless’s visibility to external audiences from co-marketing campaigns.

Super OETH Summary

Super OETH (superOETHb) is the next iteration of OETH, a superior LST with an extremely tight peg (1:1 redemptions to ETH thru Origin’s ARM) and high yields thanks to a combination of the OETH AMO and DVT direct staking through SSV/P2p. superOETHb yields are expected to reach double digit levels after ramping up over the next few weeks, making it an exceptionally perfect token for lending and borrowing against ETH. superOETHb was built reusing 90% of the code from OETH, for which the codebase has already been audited 12+ times.

Super OETH is the first token in a new category of liquid staking: Supercharged LSTs. Supercharged LSTs will have materially higher yield while being designed for L2s, with a similar risk profile to mainnet LSTs. Ethereum liquid staking is amplified with chain-specific, auto-compounded incentives. Deep concentrated liquidity pools guarantee exits with minimal costs - users will never lose ability to convert back to ETH.

wsuperOETHb is a ERC-4626 tokenized vault designed to accrue yield in price rather than in quantity. When you wrap superOETHb, you get back a fixed number of wsuperOETHb tokens. This number will not go up - you will have the same number of wsuperOETHb tokens tomorrow as you have today. However, the number of superOETHb tokens that you can unwrap to will go up over time, as wsuperOETHb earns yield at the same rate as standard superOETHb. The wsuperOETHb to superOETHb exchange rate can be read from the contract (function number 16), or via the OETH dapp.

Current exchange rate as of 9/6/24: 1 wsuperOETHb = 1.00349356 superOETHb

Obtaining superOETHb is effortless, users can convert their ETH into Super OETH via any of the following methods:

Oracle

Through its integration with Aerodrome, Super OETH is able to ensure a 1:1 peg with ETH at any scale. The Super OETH AMO holds a portion of the protocol’s underlying collateral in a concentrated liquidity pool with an extremely tight price range within a single tick above 1.0000 WETH. This allows anyone to sell superOETHb into the pool for at least 1 WETH (minus swap fees). The Aerodrome TWAP quoter, which works the same as the Uniswap TWAP oracle, can also be used to derive the price of superOETHb on chain. superOETHb is also derived from OETH, which has mainnet oracles from Chainlink, Tellor, and Dia.

Risk Analysis

To ensure the successful integration of superOETHb into Seamless, the DAO may opt for a comprehensive risk assessment from Chaos Labs to determine:

  1. Liquidity and Market Cap: ensuring sufficient depth for lending and borrowing activities
  2. Liquidation Threshold: determining the appropriate liquidation thresholds to minimize risk while maintaining an overall balanced market.
  3. Debt Ceiling: Setting a prudent debt ceiling to control the maximum amount of superOETHb that can be borrowed, mitigating the risk of market instability.
  4. Supply Cap, Borrow Cap, and Liquidation Bonus: Establishing caps on the supply and borrowing of superOETHb, alongside defining liquidation bonuses to incentivize liquidators.
3 Likes
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This is a great proposal! Adding wsuperOETHb to Seamless could attract more users in the future.

One quick question: What oracle is being used for the price feed? Also, there was a slight peg issue recently, dropping to 0.96—can you explain why that happened and how you plan to address it? This would help reassure users about the stability.

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Hi @Smailov,

The Aerodrome TWAP quoter can be used to fetch the superOETHb on chain, and a Tellor oracle is also in the works. Chainlink has actually recommended protocols treat superOETHb to be 1:1 with ETH rather than use an oracle, as Aave has done with stETH. Both Morpho and Silo have done this with their OETH markets.

The data in the chart you are referencing looks to be incorrect - the data is not reflected on the Curve UI over the same time period:

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The peg from the analytics page you shared comes from dividing the price of OETH from the Coingecko API by the price of ETH - what likely happened, is someone probably sold OETH on a small exchange that caused the price to drop on that exchange, and Coingecko is likely not weighing that exchange properly when deriving the OETH price, so the Coingecko price was briefly incorrect making the analytics page look like OETH depegged when calculating the math. We are looking into alternate data sources to ensure the analytics pages are more accurate moving forward.

The superOETHb peg is ensured by the protocol maintaining a deep liquidity on the tightest possible tick on a concentrated Aerodrome pool pairing WETH with superOETHb. This, combined with the AMO, ensure superOETHb will not depeg from ETH.

2 Likes
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Thank you for bringing this forward @Pete!

I’m fully supportive of this proposal. Origin Protocol has consistently delivered high-quality, community-centric products with a proven track record of reliable, optimized yield performance. Introducing a wSuperOETHb market would further enhance Seamless’s product offering by incorporating a yield-optimized LSD, combined with additional yield from borrowing demand and esSEAM emissions. This proposal aligns perfectly with the community-driven ethos of both Origin and Seamless, and I believe it deserves careful consideration by the wider community.

1 Like
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Thanks Pete for detailed information!

1 Like
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Would be great to get @chaoslabs parameter recommendation on the proposal above.

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SuperOETHb TVL has grown from $7m to $71m, and the Morpho market is currently showing 100% utilization. There is much demand for borrowing against superOETHb ! I believe the snapshot vote should be going up soon.

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The snapshot vote is currently live!

I’d like to add a screenshot showcasing that superOETHb is the most pegged L2 LST by a mile. this is by design:

Screenshot 2024-09-18 at 3.34.44 PM
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Good luck, all so you try to finding best article for crypto platforms.

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I suppose that we need to follow the established practice of having @chaoslabs risk analysis and their recommendations for the risk parameters.

Afterwards, it could be submitted directly to Tally (since new asserts integrations do not require an offchain component any more)

2 Likes
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Agreed! Really looking forward to see @chaoslabs risk analysis + recommendations.

@Pete, once we’ve obtained that I think it’s safe to escalate the proposal to Tally, onchain vote and see what the community thinks.

2 Likes
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With the Super OETH TVL crossing $300m today, it would be great if @chaoslabs could add their analysis and recommendations.

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With the Super OETH TVL crossing $450m today, it would be great if @chaoslabs could add their analysis and recommendations.

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Overview

Chaos Labs supports listing wsuperOETHb on Seamless. Our analysis and risk parameter recommendations for the initial listing are below.

Technical Overview

Super OETH is a “supercharged” liquid staking token that combines Ethereum staking rewards with compounded Layer 2 incentives to offer higher APY. It derives Beacon Chain yield from bridged Wrapped OETH and additional rewards from Aerodrome through a protocol-owned concentrated liquidity position on the Base network.

The AMO (Algorithmic Market Operations) is integral to Super OETH’s operations and is responsible for peg stability, capital efficiency, and yield maximization. It manages liquidity in Aerodrome pools, deploying funds to maintain balance and earn AERO incentives. These AERO tokens are harvested, converted into WETH, and distributed to Super OETH holders, automatically increasing their balances. This process, combined with staking rewards from the Beacon Chain, ensures that Super OETH remains backed and that the yield is compelling for holders.

Most of the superOETHb supply is protocol-owned and pooled as liquidity on Aerodrome.

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superOETHb is a rebasing asset; thus, the proposal concerns its wrapped version, wsuperOETHb. However, given wsuperOETHb’s short history, lack of useful metrics, and the atomic wrapping and unwrapping mechanism, the analysis will focus on superOETHb instead of its wrapped version.

Base Liquidity

The supply of superOETHb on-chain is 163,000, with 4,400 holders and 22,500 transfers. Roughly 80% of the supply is protocol-owned. The majority of its DEX liquidity is composed of two Aerodrome pools. The biggest is against WETH, and the smaller is against the governance token OGN. The superOETHb/WETH pool boasts $402M of TVL and $73M of buy-side liquidity.

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It is important to note that only 1Inch, out of the major DEX aggregators, has implemented wsuperOETHb to superOETHb routing. While only one available routing is not ideal, it is sufficient to allow for a listing.

superOETHb Volatility

Relative to ETH, superOETHb experienced high volatility, but this has improved significantly in the past month following an increase in liquidity. Chaos Labs measured a 60-day annualized volatility of 10.99%, which reflects the period before Aerodrome liquidity was added. Since then, the asset’s volatility has decreased to 2.64%, as the 30-day daily annualized volatility shows.

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LTV, Liquidation Threshold, and Liquidation Bonus

Given the asset’s deep liquidity and recent volatility improvement, but a somewhat new minting mechanism and short history, we recommend setting the Liquidity Threshold and Liquidation Bonus in line with wstETH.

Interest Rate Curve, UOptimal, and Reserve Factor

Given a similar use case, we recommend aligning the IR curve with the other LSTs in the same market. As wsuperOETHb is a yield-bearing asset, we expect limited borrow demand. Thus, we recommend setting the UOptimal at 45%. To prevent excessive looping over wsuperOETHb to farm SEAM rewards, we recommend setting a Reserve Factor of 45%.

Supply and Borrow Cap

Given the deep liquidity available in a tight range, setting the supply cap at 2x the liquidity available under the Liquidation Bonus would result in a higher recommendation than is prudent for a relatively new asset (42K superOETHb, about $100M, greater than the amount of ETH, cbETH, and wstETH deposited on Base at this time combined). Instead, we recommend setting the initial supply cap equivalent to wstETH’s max supply over the past year: 400, with a borrow cap of 200.

To provide additional context, a supply cap of 400 would be sufficient to push ETH utilization above the 80% kink, and if fully utilized, it would drive WETH borrow rates to 22%. To avoid stressing the WETH market more than necessary, we prefer listing with a limited supply cap and gradually increasing it while more WETH supply gets onboarded.

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We expect these caps may be filled quickly, given the significant leverage opportunity offered by the high APY of wsuperOETHb. However, this will also benefit the WETH pool by driving additional deposits, and Chaos Labs will continue monitoring the market to provide additional recommendations when needed.

Pricing superOETHb

Given the absence of a Chainlink price feed for wsuperOETHb and the reliance on an AMO-managed liquidity pool, which the Origin multisig could withdraw during an emergency, the market faces potential price volatility due to illiquidity risks. Therefore, Chaos Labs recommends utilizing wsuperOETHb’s internal exchange rate in conjunction with an ETH price oracle to mitigate these risks.

E-mode

As the asset has little history to demonstrate its peg stability, we do not recommend including it in E-mode at the current time. Including wsuperOETHb in E-mode would significantly enhance the asset’s utilization, so we will continue to monitor the market and its stability. If the asset maintains consistent low volatility and steady growth, we plan to introduce it into E-mode in the future.

Recommendation

Parameter Value
Isolation Mode No
Borrowable Yes
Collateral Enabled Yes
Supply Cap 400
Borrow Cap 200
Debt Ceiling -
LTV 65.00%
LT 72.00%
Liquidation Bonus 7.50%
Liquidation Protocol Fee 10.00%
Reserve Factor 45.00%
Variable Base 0.00%
Variable Slope1 7.00%
Variable Slope2 300.00%
UOptimal 45.00%
E-Mode Category N/A
1 Like
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Thank you @chaoslabs for the parameter recommendation. 65% LTV is a bit lower than the other money markets wsuperOETHb is supported on, but maybe if the cost to borrow ETH remains close to where it is now it won’t be a deterrent to use Seamless