Summary
We propose listing weETH as a collateral asset on Notional V3 Mainnet and Notional V3 Arbitrum. This listing will allow weETH holders to borrow currencies listed on Notional against their weETH holdings.
Proposed listing parameters
We propose listing weETH as a collateral currency with the following parameters.
Collateralization parameters
| Parameter | Proposed value |
|---|---|
| Collateral Haircut | 0.81 |
| Debt Buffer | 1.24 |
| Liquidation Discount | 1.07 |
These parameters imply the following minimum collateral ratios for weETH:
| Pair | Implied minimum collateral ratio |
|---|---|
| weETH collateral / USDC debt | 135% |
| USDC collateral / weETH debt | 135% |
Based on these parameters, the protocol will be effectively able to withstand a decrease of 20% in the weETH price once a position becomes undercollateralized.
The 7% liquidation discount is set to cover liquidation gas costs, differences between the oracle price and the market price as well as slippage resulting from a liquidation.
Supply Caps
We also propose listing weETH with initial supply caps of $1M on Mainnet and $500K on Arbitrum with the ability to increase the supply caps up to $10M (Mainnet) and $2M (Arbitrum) over time as weETH demand increases and weETH liquidity develops.
Oracles
We propose using the Chainlink weETH/ETH oracles for both mainnet and arbitrum.
Analysis
Volatility
We analyzed the historical ETH oracle prices for weETH and looked at the historical volatility and maximum drawdowns to select appropriate collateral parameters.
| Since inception | |
|---|---|
| Min oracle price | 1.028041586 |
| Max oracle price | 1.035850769 |
| Oracle price volatility (1H) | 0.015% |
| Max drawdown (1H) | -0.17% |
| Max drawdown (24H) | 0.17% |
Given the recent launch of weETH this data might not fully reflect the asset’s behavior in stressed market conditions.
Liquidity
We analyzed the on-chain liquidity for weETH to better understand it’s liquidity profile. The amount of on-chain liquidity for weETH is important when determining weETH’s supply cap and it’s liquidation discount.
Mainnet
Arbitrum
Mainnet
| Trade size | weETH → ETH slippage | ETH → weETH slippage |
|---|---|---|
| $500K | -0.05% | -0.06% |
| $1M | -0.05% | -0.06% |
| $5M | -0.06% | -0.07% |
| $10M | -0.07% | -0.09% |
Arbitrum
| Trade size | weETH → ETH slippage | ETH → weETH slippage |
|---|---|---|
| $100K | -0.03% | -0.01% |
| $500K | -0.04% | -0.01% |
| $1M | -0.04% | -0.01% |
| $2M | -0.05% | -0.03% |
Other considerations
The weETH price could decrease relative to ETH if liquidity deteriorates or if the underlying ETH staked by EtherFi is slashed.
Adding weETH as collateral also exposes the protocol to the Etherfi smart contract risk. EtherFi has been audited by multiple security firms.