Deploy Super OETH markets on Fluid - Base

Governance
1

Deploy Super OETH markets on Fluid - Base

Summary

This proposal seeks community support to Super OETH markets on Fluid on the Base L2 and outlines the initial setups. The initiative aims to expand product offerings on Fluid to enhance the protocol’s competitiveness and market positioning.

Proposal

I am Peter from the Origin Protocol core team. I proposing the deployment of the following Super OETH lending vaults on Fluid on Base:

  • wsuperOETHb<>ETH
  • wsuperOETHb<>USDC

Super OETH (superOETHb) is the next iteration of OETH and is a superior LST with an extremely tight 1:1 peg and high yields thanks to a combination of the OETH AMO and DVT direct staking through SSV/P2p. superOETHb yields are able to reach double digit levels, making it an exceptionally perfect token for lending and borrowing against ETH.

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 (0x7FcD174E80f264448ebeE8c88a7C4476AAF58Ea6 , function number 16), or via the superOETHb dapp.

Current exchange rate as of 10/22/24: 1 wsuperOETHb = 1.02012416 superOETHb

The proposed parameters for the two vaults (based off of the parameters for standard Base LSTs) are as follows:

1) wsuperOETHb Collateral & USDC debt:

  • Collateral Factor: 75%
  • Liquidation Threshold: 80%
  • Max Liquidation Limit: 85%
  • Liquidation Penalty: 4%
  • Withdrawal Gap: 5%

2) wsuperOETHb Collateral & ETH debt:

  • Collateral Factor: 93%
  • Liquidation Threshold: 95%
  • Max Liquidation Limit: 98%
  • Liquidation Penalty: 0.1%
  • Withdrawal Gap: 5%

Liquidity Layer

We invite the Instadapp team, DAO, and community to suggest initial lending limits/caps for the above markets.

Motivation

Using Super OETH on Fluid will produce significantly higher yield than the other supported LSTs and have a near perfect ETH peg. Utilizing a concentrated Aerodrome liquidity pool with the tightest tick possible helps make Super OETH the most pegged L2 LST currently available, while being able to reach double digit yields.

Super OETH has a native yield of 11.39% APY - at the current ETH borrow rate on Fluid of 2.06%, one loop at 75% LTV would now earn you 18.39% APY. After 5 loops that number jumps to 32.74%. These figures are not possible with the LSTs and LRTs currently supported on Fluid Base. Super OETH is already supported as collateral on 4 money markets, but at much higher ETH borrow rates:

Morpho: 8.33% APY

Ionic: 12.25% APY

Radiant: 9.82% APY

Silo: 8.2% APY

If the borrow rate for a wsuperOETHb/ETH market on Fluid was anywhere near what it is for the LST/LRT markets currently supported, users will likely move their positions over to Fluid.

Risks

Exploit risk: superOETHb and wsuperOETHb were built reusing 90% of the OETH code, which was built reusing 95% of the OUSD code, of which many audits have been done since 2020. Not that long ago, OUSD reached a market cap of $300m without breaking, and without diminishing the APY it was capable of generating. All OETH and Super OETH audits can be found in the audits section of the OETH docs. We have recently retained yAudit to look at our PRs as we code, and OpenZeppelin is also held on retainer to review 100% of the OETH and OUSD smart contract changes. Origin maintains an active bug bounty with rewards ranging in size from $100 OUSD for minor issues to $1,000,000 OUSD for major critical vulnerabilities. The bug bounty program is currently administered by Immunefi, where Origin maintains a median resolution time of 6 hours.

Depeg risk: 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 be used to derive the price of superOETHb on chain, and a superOETHb Tellor oracle is also available. superOETHb is also derived from OETH, which has mainnet oracles from Chainlink, Tellor, and Dia.

When comparing Super OETH to the LST/LRTs currently available on Fluid, superOETHb maintains the tightest peg:

Screenshot 2024-10-22 at 5.52.11 PM
Screenshot 2024-10-22 at 5.52.11 PM1994×878 235 KB

Conclusion

Our vision for Super OETH is for it to become both the most trusted LST, and also the most lucrative for those seeking to use an LST for leveraged staking. Super OETH has reached the number one spot by TVL on Defillama for yield projects on Base and would be a perfect fit on Fluid for borrowing ETH. We invite members of the Fluid community to add their thoughts below on the addition of a superOETHb market.

1 Like
2

This proposal is really relevant. It would be a great addition for Fluid.
Although, setting wsuperoeth as collateral to borrow eth would disrupt current steth loopers. It would be more efficient to only let wsuperoeth borrow steth and not eth + it would permit everyone to loop their assets without needed more borrowable assets on Fluid since it would be forming a perfect rehypotecation ordering.
What I propose instead of a vault with ETH debt :

wsuperOETHb Collateral & steth debt:

  • Collateral Factor: 93%
  • Liquidation Threshold: 95%
  • Max Liquidation Limit: 98%
  • Liquidation Penalty: 0.1%
  • Withdrawal Gap: 5%

Also, optimal uTarget for steth rate is currently at 2% borrowing rate at 80% utilization for steth. It would be more relevant to increase this borrowing rate at optimal uTarget to 4 or 5%, to better benefit the protocol while letting loopers having juicy apr(if we consider 5% borrowing rate and 11% apy for wsuperoeth, a max leveraged position with proposed parameters would make 50% apr).

3

You don’t mention a withdrawal/redemption mechanism for ETH; how does it work for Super OETH?

4

Borrowing an LST is ususally a bad idea, since you end up paying the borrow cost twice. But if both the borrow rate and stETH rate remain low, maybe it won’t be an issue.

5

Exits back to ETH are currently only available through the Aerodrome pool, but async withdrawals back to ETH should be coming to the protocol next week.

6

For sure you’re paying clearly more, but I already precised why it is better to do it like that. If you look at Fluid on mainnet, LRTs are only able to borrow LSDs, not pure ETH, that should be the same here. Also, it’s not

but “if wsuperOETH apy remains high, it won’t be an issue”

7

Correct, but superOETHb is not an LRT. It is the first token in a new category of liquid staking, a category that Fluid does not have exposure to yet.

If the superOETHb APY was unable to maintain it’s high yield and fell below the borrow rate+stETH APY, users would pull their funds. Having a second market to borrow ETH would provide Fluid users different options, just as there are different options for markets to borrow USDC or USDT.

8

When I say that the most appropriate way to list wsuperOETHb would be to let it borrow only steth like the LRTs, it’s not because wsuperOETHb is a LRT, but because like a LRT, people are willing to borrow ETH with it while having a big borrow apr, bigger than stETH loopers. So if you let these people borrow ETH, first, it will make stETH looping not profitable anymore. So to satisfy both part while having the same TVL(and ETH ready to lend), convergence of interests leads to only put stETH asset as a borrowable asset for ETH users willing to borrow ETH with great apr with their ETH correlated assets. Hope it’s clear enough, I can reiterate the most obscure part of the thought process.

Well, if wsuperOETHb apy can’t resist through time and TVL scaling, surely, loopers won’t stay on this strategy. And maybe, at this point, wsuperOETHb will be listed as collateral to borrow ETH.

Anyway, I’m not the core team, let’s see what they decide on their side.

9

LRT holders are more willing to borrow LSTs because farming points can be profitable, and because some of the LRTs are backed by those same LSTs effectively enabling looping. superOETHb is not backing any other tokens (yet)

It will not make stETH looping unprofitable, because stETH and superOETHb are very different LSTs with different risks and different sets of users. Many, many money markets and CDPs have multiple LST/LRTs supported. The addition of one new market will not cannibalize the TVL of the protocol as a whole, it would only increase it.

Thank you for your input. We will see how the core team responds.

10

Hi @pete thank you for your proposal

In general, I am supportive of adding more assets to Fluid on L2, however, our main focus now is to launch the DEX on Ethereum. Once we launch and stabilize the DEX, we will focus on L2 growth and we will consider deploying Super OETH

1 Like