RFC - Adding a rETH cauldron to Abracadabra Lending Markets

[RFC] - Adding a rETH cauldron to Abracadabra Lending Markets

Summary/Scope

The core proposal is to add rETH as a cauldron for minting $MIM. rETH is Rocket Pool Ether, which represents staked ETH as an interest-bearing ERC20 token.

Link to previous DAO Discussion

Proposal: Onboard rETH (RocketPool staked ETH) as Collateral

References

Main Objective

Context

The Rocket Pool (RP) protocol is a decentralized Ethereum 2.0 Proof of Stake infrastructure service. Without a stake pool service, only wealthy network participants who meet the 32ETH threshold are rewarded for validating transactions. Rocket Pool democratizes participation in network validation by providing a service that lowers the wealth threshold. Abstracting staked ETH as rETH, participants can retain commodity properties of their stake (transfer of ownership).

There are 2 primary users in RocketPool:

  1. rETH stakers
    Stakers can show up with as little as 0.01 ETH to be deposited in exchange for rETH. rETH is a redemption token representing staked ETH. rETH can be burnt at the Rocket Pool contract or website in exchange for ETH and accumulated staking reward. They do not need to run a machine. The returns are subject to a commission to node operators, which is a % of the staking rewards earned.
  2. Node Operators
    Node Operators can show up with 16 ETH, along with 1.6 ETH worth of RPL tokens as collateral to stake on behalf of the pool. This is permissionless, so anyone can do this as long as they have the infrastructure and collateral. They will receive RPL inflation rewards, as well as ETH commission from the pool, along with staking rewards on their own 16 ETH.

Unlike beacon chain ETH, rETH can be freely transferred and traded as it implements the ERC-20 interface. Onboarding rETH to Abracadabra would allow users to borrow against rETH.

For more information about rETH and how it works, please feel free to see this page written by one of the devs.

Motivation

Abracadabra is a fast-growing multichain protocol that would make a strong partner with RP and its community. Right now, RP is bridging its rETH token across chains to make liquid staking more accessible for the masses - it is currently available in Optimism, Arbitrum, and zkSync. Abracadabra currently offers other ETH staking vaults, such as Yearn stETH. rETH is important to hedge against the risks of other ETH staking services (particularly because of its decentralized nature) and will be an important addition to the DeFi space in general.

As a protocol that aspires to keep in line with Ethereum’s ethos, the protocol aims to be fair and is actively engaged in research to share all MEV and proposal rewards with rETH stakers, increasing the chance that the protocol will outperform other staking services, or at the very least, provide the fairest reward possible.

Proposal

Allow rETH as collateral with the same pool specifications as yvcrvSTETH (Maximum collateral ratio 75%, liquidation fee 12.5%, borrow fee .5%, interest .5%) on Ethereum Mainnet.

Implementation Considerations

Integration should not require much overhead as rETH itself is an interest-bearing ERC20 token, that does not rely on rebasing mechanisms.

Benefits

  1. Diversified risks and potentially higher return on ETH staking for Abracadabra depositors.
  2. Creates a non-LP liquid staking position that does not depend on the continuation of any liquidity mining incentives.
  3. Potential for more protocol fees - rETH is likely to be very popular as a staking asset, and demand for borrowing against it will be high.

Considerations/Risks

Rocketpool is relatively new on mainnet - since November 9, 2021. However, the risk can be considered to be mitigated to a great extent because:

  • Staged rollout has been successful
  • TVL is over USD 300 million as of 26 Dec 2021
  • The protocol has undergone 3 betas
  • The protocol has undergone audits by 3 separate auditors
  • The protocol has an active bug bounty program with immune.fi
  • The code is open-source

rETH stakers are exposed to smart contract risks, primarily. They should not lose any ETH even if node operators do not perform well. This is because

  1. Node operators (NO) have to provide a collateral of 16 ETH for each validator
  2. Beacon chain will boot a validator if its balance drops to 16 ETH
  3. The ‘lost’ ETH will be taken entirely out of the NO’s balance
  4. To protect against unforseen circumstances where they may lose more than 16 ETH, the NO also has to post a RPL collateral that may be auctioned off

As of now, rETH price can only be derived from uniswap/balancer’s liquidity pool. The dev team is looking to add a chainlink oracle soon.

As with anything to do with ETH staking, the usual risks apply - protocol risk and implementation risk of ETH staking, withdrawal methods, and RP’s implementation of withdrawals.

Other Questions

  1. What is your relation with the team of the proposed collateral? Are you a team member or a user?
    • Answer: I am a user of the proposed collateral

Contracts/Technical Requirements

The scope of this proposal covers the deployment of the Cauldron on mainnet.

rETH is expected to appreciate against ETH at the rate of staking rewards. To get an accurate price, the team and liquidity have been looking into liquidity pools that have minimal slippage, as of writing, the available ones are:

  1. RocketPool Deposit Contract
    • This allows users to burn rETH for ETH at the correct rETH price without DEX slippage.
    • This will always give the most accurate price. Liquidity is capped at 2,000 ETH at the moment but this cap is expected to be increased as the protocol grows.
  2. Uniswap V3 pool
    • Make use of concentrated liquidity for rETH vs ETH.
  3. Balancer pool
    • Use weighted pools to provide a tighter price vs uniswap-v2-style pools

Mainnet

Description Address/Link
rETH 0xae78736Cd615f374D3085123A210448E74Fc6393
Rocket Pool Storage 0x1d8f8f00cfa6758d7bE78336684788Fb0ee0Fa46
rETH/WETH Balancer Pool Balancer
rETH/WETH Uniswap V3 Pool 0xf0e02cf61b31260fd5ae527d58be16312bda59b1

Next Steps:

TBC

8 Likes

Great proposal, I’m in favor of it as stated in the previous discussion.

300m + TVL and the growth of the stETH pool on Curve shows there’s a big interest for liquid staking as it’s probably the safest way to get yield from ETH in the future.

I’d like to see the Chainlink oracle implemented before this cauldron is opened so no migration is required on the user side ( like what happened for UST ).

100% yes :+1: :mage:

5 Likes

I would use this to borrow/mint MIM

I support/like the decentralized nature of rETH

Looking forward to updates on this in the future.

3 Likes

I’m a strong supporter of this implementation. MIM is the decentralized currency for DeFi and rETH has the potential to be the best decentralized money lego.

1 Like

I think the adoption of rETH into Abracadabra would be beneficial to both protocols and to DeFi as a whole. Decentralized interest-bearing ETH derivatives should be fast-tracked to supercharge lending markets and will have the added benefit of increasing decentralization of the Ethereum beacon chain via incentives.

3 Likes

Langers, a team member for Rocket Pool, has been in contact with the Chainlink folks. He said, “They are very keen to provide our feeds but it is now with their feeds team who are assessing a number of characteristics” so it seems like this should be ready within the near future. This quote is taken from a conversation in the Rocket Pool discord governance channel.

3 Likes

I realised I made a typo in here - it should be ‘rETH’ instead of ‘RPL’. I don’t see any edit controls - so it’ll be great if mods can help with that :sweat_smile:

2 Likes

I am langers from the Rocket Pool core team. Please let me know how I can help. Thanks!

3 Likes

This would be huge for both Rocket Pool and Abracadabra. The first mover advantage for Abracadabra in allowing rETH as collateral cannot be understated, it’ll help grow the community immensely.

2 Likes

Hello, I wanted to provide an update on this RFC. I think it’s a good time to push this forward and I’ll like to get some devs’ comments on this. Some of the highlighted risks have been greatly reduced and I’ll also propose an alternative to the chainlink oracle (since it has been 3 months since this RFC).

1. rETH is a lot more liquid now

There is currently nearly $80 million USD worth of trading liquidity in wstETH / rETH pool:
0x447Ddd4960d9fdBF6af9a790560d0AF76795CB08

Liquidations can occur via rETH → wstETH → stETH/ETH → USD.
There is plenty of liquidity for stETH/ETH/USD so I don’t think that that’ll be a concern.

Size of staked ETH in rETH is over $244 million at this point, too.

2. TVL growth for RP has been phenomenal
The TVL has doubled since this RFC was posted (even considering that ether prices have gone down a fair bit). It is sitting over $600 million now. This is an incredible opportunity for abra.

+    156224.00 ETH: Staking Minipools
+      1322.62 ETH: Beacon Chain Rewards
+       448.00 ETH: Pending Minipools
+         0.00 ETH: Unmatched Minipools
+         0.00 ETH: Withdrawable Minipools
+      2000.00 ETH: Deposit Pool Balance
+         0.00 ETH: rETH Extra Collateral
-------------Total ETH Locked-------------
     159994.62 ETH (483.8 million DAI)
+   4666905.80 RPL: Staked RPL
+     24500.00 RPL: oDAO Bonded RPL
+         0.00 RPL: Slashed RPL 
------------Total Value Locked------------
     211571.93 ETH (639.8 million DAI)

3. Alternative Price Oracle
Instead of using Chainlink, I propose using Rocket Pool’s OracleDAO’s pricing of rETH/ETH. We can then use Chainlink’s ETH/USD price oracle to obtain rETH/USD.

The OracleDAO reports the validator balances and staking rewards from the beaconchain, and reports this on eth L1. This is the ratio that is used to burn/mint rETH during staking and liquid unstaking, and DEX trades arb against this price. Balancer also references this on-chain price for the metastable liquidity pool for rETH/ETH.

2 Likes

@langerstwit please feel free to chime in on 3 if there are updates on the Chainlink oracle!

1 Like

Hello! I added a comment for an alternative on-chain price oracle. Please let me know what you think.

1 Like