Summary
This proposal seeks community support to introduce weETH/USDC and weETH/USDT vaults within the Fluid Protocol. The initiative aims to expand the Liquid Restaking Token (LRT) markets on Fluid to enhance the protocol’s competitiveness and market positioning.
Proposal
The Instadapp team proposes to add weETH/USDC and weETH/USDT vaults to allow weETH holders to borrow stables against weETH similar to ETH and wstETH vaults instead of only leveraging the points as in the weETH/wstETH vault.
Recap of Fluid Vault Parameters
Fluid’s vault protocol features some familiar as well as some new concepts for understanding the vault’s limits and parameters. See the following below:
C.F (Collateral Factor): Limit till which user can borrow.
L.T (Liquidation Threshold): Limit at which the user starts to get liquidated.
L.M.L (Liquidation Max Limit): Limit above which the user gets 100% liquidated.
L.P (Liquidation Penalty): Penalty at liquidations. Applied between L.T to L.M.L.
W.G (Withdrawal Gap): Extra gap on Liquidity Layer limits reserved for liquidations.
Liquidation Max Limit or L.M.L which denotes a level at which a position is fully liquidated. While most positions will incur liquidations over time the Liquidation Max Limit prevents the debt from becoming undercollateralized in a sudden downfall.
weETH/USDT Vault Parameters:
The proposed vault will feature the following initial parameters:
- Collateral Factor (C.F.): 75%
- Liquidation Threshold (L.T.): 80%
- Max Liquidation Limit (L.M.L.): 90%
- Liquidation Penalty (L.P.): 4%
- Withdrawal Gap (W.G.): 5%
weETH/USDC Vault Parameters:
The proposed vault will feature the following initial parameters:
- Collateral Factor (C.F.): 75%
- Liquidation Threshold (L.T.): 80%
- Max Liquidation Limit (L.M.L.): 90%
- Liquidation Penalty (L.P.): 3%
- Withdrawal Gap (W.G.): 5%
These parameters are set up to offer high LTVs which maintain a tight liquidation threshold. These limits may change over time as the vaults operate in a live environment. Liquidity, Dex routing and other factors may affect the vault. The team will monitor the overall health and liquidation rates and may propose adjustments to the vault parameters.
Summary of Changes to Fluid:
- List weETH/USDT as a Vault
- List weETH/USDC as a Vault
Motivation
At Instadapp we assume that LRTs will be replacing LSTs over time due to the better yield opportunities and enabling more LRT markets would create a strategic advantage for Fluid long-term.
We assume that there is a borrowing demand from the users who hold weETH because depositing weETH into Fluid generates supposedly 30-40% APR through points (given that Fluid has a 3x boost from EtherFi and 1.5x boost from Zircuit) so using weETH as collateral might be a more attractive option than wstETH or ETH collateral.
Risks
Ether.fi is the leading LRT provider in the space with 5 audits and a proven track record.
However, the proposal acknowledges potential risks associated with the rapid growth of weETH and LRT markets especially the risk of depeg in case of a rapid unwinding of leveraged positions. These risks are partially mitigated by the EtherFi native withdrawals and conservative vault parameters.
We do not expect a deleveraging event until the points campaigns are running and by that time Fluid will launch the DEX module which will allow eEth to build deep liquidity protecting users from the depeg event.
Meanwhile, on-chain liquidity for weETH is sufficient to liquidate 20000 weETH at once with less than 0.5% slippage.
Result
The successful addition of the weETH/wUSDT and weETH/USDC to the Vault protocol with the aforementioned parameters an on-chain vote is required from governance to finalize and approve this proposal.
Proposal on Atlas
Status: Open 
IGP#20 - Deployment of weETH/USDC and weETH/USDT Vaults on Fluid