RFC - Add an OETH Cauldron

[RFC] Add an $OETH Cauldron

TL;DR: Add a new market using $OETH as collateral.

Cauldron parameters:

  • Initial Interest: 7%
  • Borrow Fee: 0%
  • LTV: 70%
  • Liquidation Fee: 7.5%
  • Initial top up of 3m $MIMs, with the possibility of scaling up to 10m depending on volumes and liquidity.

Summary/Scope:

With the incredible growth of the Origin Ether (OETH) token over the past two months, increasing in TVL at a rate of more than 650 ETH per day, OETH token holders are now looking to put their tokens to work. Launching an OETH Cauldron will be mutually beneficial for both Abracadabra and Origin Protocol, as it will increase the utility for OETH, while also increasing the TVL and utilization of MIM, generating interest for the Abracadabra DAO at the same time.

Reference:

OETH contract address: 0x856c4Efb76C1D1AE02e20CEB03A2A6a08b0b8dC32
Dapp/website: oeth.com
Docs: OETH docs
Audits: OETH audits
Logo: SVG logo

Introduction

Background on Origin Protocol

Origin was founded by Web3 veterans Josh Fraser and Matthew Liu in 2017 and is one of the most venerable projects in the space. Josh and Matthew are joined by the fully doxxed Origin team and community, which includes hundreds of thousands of members and open-source contributors. Origin has raised $38.1M from top investors including Pantera, Spartan Group, Foundation Capital, BlockTower Capital, Steve Chen, Garry Tan, and Alexis Ohanian, and currently maintains a multimillion dollar treasury. As a technology partner, Origin Story has helped launch some of the largest NFT projects to-date:

Origin Story was followed up with Origin Dollar, a yield-generating stablecoin that reached a TVL of $300m in 2022. Origin Ether is Origin’s 3rd and latest launch.

OETH Overview

Origin Ether was launched in May 2023 and is an ERC20 LST aggregator that generates yield while sitting in your wallet. OETH is backed 1:1 by stETH, rETH, frxETH, ETH, and WETH at all times; holders can go in and out of OETH as they please. Similar to stETH, OETH yield is paid out daily and automatically (sometimes multiple times per day) though a positive rebase in the form of additional OETH, proportional to the amount of OETH held.

OETH yield, currently ~8.5% APY, comes from a combination of:

  1. Deploying ETH/WETH on Curve, Convex, and Morpho
  2. LST validator rewards
  3. A 50bip exit fee is charged to those who choose to exit OETH via the dapp (completely avoidable if using a DEX), this fee goes back to OETH holders
  4. OETH sitting in non-upgradable contracts does not rebase, instead the interest generated from those tokens is provided to those that can rebase

These 4 yield generating functions combined enable OETH to generate higher yields than holding or farming any single LST manually. The current collateral allocation and yield strategies can be seen via the OETH analytics page. Future OETH collateral and yield strategies are governed by OGV stakers.

Obtaining OETH is seamless, users can convert from ETH or LSTs into OETH via any of the following methods:

Risk Mitigation

There are five possible risks when using OETH, and Origin is making sure to reduce each risk as much as possible:

Small market cap risk - Given OETH is a relatively new token, some may be worried that OETH is prone to new attack surfaces. While this may be true for other new tokens, OETH was built reusing 95% of the OUSD code, of which 10+ 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. Origin continues to work on OUSD, despite the lower market cap.

Counterparty risk - OETH is governed by OGV stakeholders around the world. Everything from yield generation to fee collection and distribution is managed by a set of smart contracts on the Ethereum blockchain. These contracts are upgradeable with a timelock and are controlled by hundreds of governance token holders. While the initial contracts and yield-earning strategies were developed by the Origin team, anyone can shape the future of OETH by creating or voting on proposals, submitting new strategies, or contributing code improvements. We intend for all important decisions to be made through community governance and limited powers to be delegated to trusted contributors who are more actively involved in the day-to-day management of the protocol.

Smart contract risk of the yield strategies - Origin is only using platforms for yield generation that have a proven track record, have been audited, have billions in TVL, maintain a bug bounty program, and provide over-collateralized loans. Over-collateralization in itself, combined with liquidations, provides a reasonable level of security for lenders.

Collateral risk - Origin has chosen 3 of the largest LSTs to ever exist to back OETH, and they have maintained their peg quite well since launch. They have also demonstrated significant growth in circulating supply, so the Origin team is confident that the 3 LSTs will maintain their peg and that OETH will remain stable to ETH. OETH is also using Chainlink oracles for pricing data for rETH and stETH, and plans to utilize Curve’s time-weighted price oracle for frxETH to ensure accurate pricing at all times. In situations where any OETH collateral falls below peg, OIP-4 disables minting of additional OETH tokens using the de-pegged asset.

Smart contract risk of OETH - Origin is taking every step possible to be proactive and lessen the chance of losing funds. Security reviews are prioritized over new feature development, with regular audits being done, and multiple engineers are required to review each code change with a detailed checklist. There are timelocks before protocol upgrades are launched, and deep dives into the exploits of other protocols are constantly being done to make sure the same exploits don’t exist on Origin contracts. Security is extremely important to the Origin team. OETH was built reusing 95% of the OUSD code, of which 10+ audits have been done since 2020. All audits can be seen on Audits - OUSD , and OpenZeppelin is now on retainer. On-chain insurance protocol InsurAce awarded OUSD the highest possible security rating of AAA, which only 4 projects on the InsurAce platform have received. Origin also maintains an OETH bug bounty via Immunefi, awarding up to $1m for finding critical vulnerabilities.

In addition to the OpenZeppelin audits, several external firms have completed additional analysis on OETH risks:

Llama Risk - Asset Risk Assessment: Origin Ether
Auxo - OETH Protocol Analysis

Profitability

Assuming a $3m $MIM initial top up and 7% interest, the OETH cauldron would produce roughly 210k MIM in profits per year for the protocol and $SPELL holders.

Depending on OETH liquidity, OETH trading volume, and circulating MIM, the cauldron top ups can be ramped up over time.

Technology

OETH yield is paid out daily and automatically through a positive rebase in the form of additional OETH, proportional to the amount of OETH held. In the event that it would not be possible or not make sense to launch an OETH Cauldron due to needing to opt-into OETH yield generation within smart contracts, an alternate solution would be using Wrapped OETH (wOETH). Similar to Lido’s wstETH, wOETH is a ERC-4626 vault designed to accrue yield in price rather than in quantity. When you wrap OETH, you get back a fixed number of wOETH tokens. This number will not go up - you will have the same number of wOETH tokens tomorrow as you have today. However, the number of OETH tokens that you can unwrap will go up over time, as wOETH earns yield at the same rate as standard OETH. The wOETH to OETH exchange rate can be read from the contract, or via the OETH dapp. More information on wOETH and the wrapping/unwrapping process can be found within the OETH docs.

wOETH contract address: 0xDcEe70654261AF21C44c093C300eD3Bb97b78192
Exchange rate as of 7/13/23: 1 wOETH = 1.040856 OETH

OETH oracles are currently available via DIA Data and Tellor. A Chainlink oracle is also being developed.

We would be happy to answer any questions on Origin Protocol, OETH, or the proposal itself. The Origin team can be reached at any time via the Origin Discord server.

2 Likes

Thanks for sharing this proposal. I want to hear if there is a wrapped OETH token that’s not rebasing?

1 Like

Yes, wOETH can be obtained on the OETH dapp by clicking “wrap” at the top. More information on wOETH can be found on the Wrapping page of the docs, as well as at the bottom of this proposal under the “Technology” section.

1 Like

Profitability is on par , liquidity is more than available. Would this be a reverse interest rate cauldron ?

1 Like

Profitability is on par , liquidity is more than available

Glad to see we’re aligned on this :slight_smile:

Would this be a reverse interest rate cauldron ?

The initial thought was to have this cauldron set up as a standard cauldron, with interest charged on the borrow side. OETH holders are begging for leverage opportunities, and we believe the standard model fits best for this!

I am ok with this proposal if team signs off on the risk metrics of oETH. I’d love to see more MIM exposure exposed to ETH (derivatives) . Would your users be ok with a variable interest rate? There would be a vote to move the rate from 7% , it would have significant lag time for users adjust exposure if needed.

2 Likes

The yield OETH can passively generate would completely cover the cost to borrow MIM at 7%, which would be a big benefit to OETH depositors, but some fluctuation may be acceptable.

What do you think about starting at a lower rate and ramping up as borrowed MIM increases? Maybe starting at a few points below 7 and increasing to a few points above? ie: a range of 5% - 10% depending on amount borrowed

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I believe the preference would be to establish the floor at 7% and hike if necessary. Not deviating to the downside. If hikes have occurred - future tense - could always return to a floor of 7%

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“The Harvester smart contract pays a 2% reward when harvesting CRV and 1% for everything else. The reward is paid in USDT for OUSD and WETH for OETH.” Thats really cool! Definitely an interesting protocol!! Can see $MIM selling out. :man_mage:

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If that is the team’s preference then we can start with that, not a problem. Let’s make it happen!

2 Likes

Team.

I believe their are some small improvements that likely need to be made to this proposal, but it fits necessary liquidity, profitability metrics. Oracles are with chainlink, Frax eth pricing has some complexity , modest concern with using wrapped asset and steps to liquidation but private discussions I’ve had suggest this is being worked on. we should reenter discussion here , review for security as it looks to be a more complicated contract to build for, but we should push for a yay or nay to push to AIP. Please advise

1 Like

I think the proposal is extremely well written, and despite needing some refining it can easily be moved forward to AIP.

My only concern is that given the push towards Arbitrum cauldron that we will be seeing in the next couple of months, we might want to wait until better peg conditions and reduced cost of capital for something like this. My main worry comes from the fact that OETH is currently paying 5.45% and therefore a 7% market would get not enough traction in the current state of things.

Excited to hear more about other’s people opinion on it.

1 Like

In the essence of providing opportunity, I’d say let’s deploy the infrastructure and adjust MIM availability until conditions are optimal.

I agree with this idea, with the new OETH yield strategies being rolled out currently we should see the OETH APY levels rise to where they were earlier this year relatively soon, so would be good to take the next step now with moving the proposal to AIP