Author

Chaos Labs

Summary

Chaos Labs provides a recommendation to implement a fundamental oracle for rswETH and pufETH. In parallel, we recommend an increase in the LT of rswETH and pufETH from 90% to 93% within WETH Credit Managers.

The recent enablement of withdrawals, allowing holders to unstake rswETH and pufETH into native ETH allows for the safe rollout of fundamental oracles and associated increases in the LTV to allow for safe, higher leverage.

Context

Following the successful passing of GIP 141, and GIP 154 to implement fundamental oracles for LRT and LST tokens with withdrawals enabled, we recommend doing the same for rswETH and pufETH. rswETH and pufETH have both recently enabled withdrawals. As long as their underlying ETH backing remains solvent and the ability to withdraw remains, any negative price depeg should revert due to the ability to arbitrage the price over time.

Implementing fundamental oracles unlocks the ability for users to safely loop with higher leverage, only taking on the liquidation risk due to WETH interest rates exceeding the yield on their collateral token. This should increase utilization of these tokens on Gearbox, by increasing the achievable yields with rswETH and pufETH.

rswETH and pufETH LTV Increase

Alongside the switch to fundamental oracles, we recommend an LTV increase from 90% to 93% for rswETH and pufETH. These adjustments will increase capital efficiency while minimizing the implied liquidation risk from temporary market price fluctuations. Because the underlying debt asset, WETH, is correlated to these restaking tokens, market price reversion and positive rebases contributing to the collateral value must not occur before the staking-yield-adjusted WETH interest accrual grows over a long enough timeframe to induce instances of bad debt and unprofitable liquidations. This allows significant time before being forced to internalize losses.

For consistency, we recommend including an LTV increase to 93% for weETH, ezETH and rsETH, increasing the yield achievable through looping these assets. weETH, ezETH and rsETH are all priced using fundamental oracles with withdrawals enabled.

Specification

Oracles

rswETH main oracle: Redstone rswETH_FUNDAMENTAL pufETH main oracle: Redstone pufETH_FUNDAMENTAL pufETH reserve oracle: Redstone pufETH market

Restaking WETH CM

Asset	Recommended WETH Credit Manager Liquidation Threshold (LTV)
rswETH	93%
pufETH	93%
ezETH	93%
rsETH	93%
weETH	93%

Transaction log

Txn log can be found here Md5 checksum is e9b1bd6b4a17b0914bd65d9af20d1fec