Summary

We propose listing a wstETH Aura leveraged vault on Notional V3 Arbitrum. The vault would allow users to borrow wstETH from Notional’s Arbitrum deployment at a fixed or variable rate and LP the proceeds in the Aura boosted Balancer ezETH/wstETH pool to earn pool rewards.

Proposal & parameters

We propose listing a wstETH leveraged vault using the Aura boosted Balancer ezETH/wstETH pool as a strategy. We propose listing that leveraged vault strategy with the following parameters:

Vault Parameters	Proposed Value
LiquidationRate	1.03 (3%)
MinCollateralRatioBPS	0.14
MaxDevelerageCollateralRatioBPS	0.27
MaxRequiredAccountCollateralRatioBPS	1.00
Maximum vault capacity	250 wstETH
Minimum borrow size	2 wstETH
feeRate5BPS	20 (100 BPS)
ReserveFeeShare	80%

Strategy Parameters	Proposed Value
maxPoolShare	30%
oraclePriceDeviationLimitPercent	1.50%

By adding this leveraged vault strategy to Notional, the protocol will effectively accept Balancer ezETH/wstETH pool tokens as collateral. We propose setting the maximum vault capacity up to 250 wstETH to cap the maximum amount of wstETH that can be borrowed from Notional to enter that specific strategy. In practice Notional governors will increase the maximum capacity of the vault in line with demand and wstETH liquidity up to the 250 wstETH maximum vault capacity threshold. We propose setting the maximum pool share at 30% such that users won’t be able to enter the vault if the protocol already holds more than 30% of balancer ezETH/wstETH pool tokens.

We propose setting the maximum leverage at 8.1X such that if a user deposits 10 wstETH, he can at a maximum borrow 71 wstETH from Notional to LP in the Balancer ezETH/wstETH pool. This maximum leverage ratio (minimum collateral ratio) aims to protect the protocol against a large decrease in the pool’s token value. Setting the strategy’s maximum leverage ratio at 8.1X ensures the protocol would be protected against a decrease of -9.7% in the pool’s token value (ezETH/wstETH BPTs) relative to the vault’s borrow currency (wstETH). It’s important to note that the vault’s maximum leverage ratio is set as a precautionary buffer to protect the protocol against a decrease in the value of pool tokens relative to users’ debts.

We propose setting the MaxDeleverageCollateralRatio at 0.27, this implies that a liquidator can lower an account’s leverage ratio to 4.7X if it ever breaches the max leverage ratio of 8.1X. This ratio is set such that an account that gets liquidated will subsequently be able to withstand another large decrease in the strategy token price before becoming eligible for liquidation again thereby lowering the risk of an account being liquidated multiple times in a short period of time.

We propose setting the minimum borrow size at 2 wstETH and the vault liquidation discount at 3%. These parameters aim to maximize the likelihood of successful liquidations under stressed market conditions (ex: high gas environment). To do so, a liquidator’s revenue from the liquidation discount must be sufficient to cover liquidation expenses (gas cost, slippage, Dex fee, price basis). By setting the minimum borrow size at 2 wstETH and the liquidation discount at 3%, liquidators will likely receive at a minimum 0.06 wstETH. Based on historical market conditions such a liquidation discount is likely cover a liquidator’s expenses under most scenarios.

We propose setting the leveraged vault fee at 1.0% such that borrowers will pay a 1.0% premium on their borrow rate when entering the vault. We propose setting the reserve fee share at 80% such that 80% of the borrow premiums will go to Notional reserves and 20% are paid to nwstETH holders.

We propose setting the oraclePriceDeviationLimitPercent to 1.50%. The oraclePriceDeviationLimitPercent prevents users from entering or exiting the vault if the implied pool prices deviate from the oracle prices by more than 1.5%. This parameter mitigates oracle attack vectors while being flexible enough to ensure user can enter and exit the vault even if oracle prices slightly deviate from on-chain prices in between updates.

Risks

Oracle

We propose using the Chainlink ezETH/ETH oracle to check that the implied balancer ezETH/wstETH pool price is in line with the overall market.

Liquidity

Renzo doesn’t currently allow ezETH holders to instantly redeem their ezETH for ETH. This could lead to a situation where the Balancer ezETH/wstETH pool composition is made mostly of ezETH. In such a situation, it would be impossible to flash liquidate an account breaching the Notional’s maximum leverage ratio. By listing this leverage vault Notional implicitly accepts ezETH as a collateral asset.

The ezETH liquidity risk can be somewhat mitigated by capping the protocol’s exposure at 30% of the pool and by setting the maximum vault capacity in line with Notional’s wstETH liquidity.

Resources

• Notional V3 docs
• V3 Risk docs
• V3 Technical docs
• V3 Dune dashboard