MIR-46┃Add weETH as PAR collateral on Ethereum

Integration Request (PIR) Approved PIRs
1

Summary:

This proposal aims to add weETH as PAR collateral on Ethereum.

Rationale:

wETH is the wrapped version of eETH, eETH is an LRT that allows users to stake their ETH, accrue staking rewards, and receive additional rewards through native restaking on EigenLayer. As of May, approximately 1,4M ETH ($5,3B) in TVL has been deposited into the ether.fi protocol.

Ether.fi stands as the pioneering decentralized and non-custodial delegated staking protocol featuring an LRT (eETH). A notable feature of ether.fi is the control it provides stakers over their keys. The team behind the protocol is guided by the following principles:

Project Presentation:

Protocol name: EtherFi
Token requested: weETH
Token contract address: 0xcd5fe23c85820f7b72d0926fc9b05b43e359b7ee
Audit(s) links: Audits | ether.fi
Chain requested: Ethereum
Relation with the project: none
Website: https://www.ether.fi/
Github: etherfi-protocol · GitHub
Doc: Getting Started | ether.fi
Twitter: x.com
Discord: ether.fi
Telegram: Telegram: Join Group Chat

Token metrics & Risk assessment:

1119×445 18.9 KB

  • Smart Contract risk: C+

wETH is the wrapped version of eETH and is minted through the EtherFi protocol, which relies on smart contracts to manage the staking and redemption process. The EtherFi protocol includes safeguards to mitigate slashing risks, similar to other liquid staking tokens (LSTs). While weETH can be redeemed for the underlying ETH, it is subject to the involvement and performance of the protocol. The relatively new nature of weETH and its reliance on smart contract functionality introduce a degree of risk, though the redemption mechanism and existing liquidity buffers provide a level of protection.

weETH has generated more than 320k transactions on Ethereum and have multiple audits.

  • Counterparty risk: B-

The weETH protocol is managed by EtherFi, which includes a significant withdrawal buffer (122K ETH) in its native liquidity pool. This ensures that there is always sufficient liquidity for redemptions. The EtherFi protocol’s native liquidity pool acts as a safety net, reducing reliance on external market conditions. Additionally, the governance structure and management by the EtherFi team contribute to the overall reliability of the system. However, as with any protocol-managed asset, the risk of centralization and governance decisions by EtherFi can influence the asset’s stability. There are currently 8630 weETH holders on Ethereum.

Contracts: The following is a non-exhaustive overview of the main smart contracts involved with weETH.

weETH is a wrapper for eETH designed to hide rebasing dynamics and improve compatibility with systems like Aave. It is a proxy contract with upgradeability controlled by a general timelock. The exchange rate is obtained from the Liquidity Pool contract.

eETH is the underlying asset of weETH and is also a proxy contract with upgradeability managed by the general timelock. The Liquidity Pool contract controls the minting and burning of eETH.

This contract is the entry point for deposits and withdrawals, utilizing an NFT ownership system or the Membership Manager contract. It is a proxy contract with upgradeability by the general timelock. Only the Membership Manager contract can call the rebase() function to inject rewards.

This smart contract handles deposits into eETH and other actions such as migration from previous versions and reward claims. It is a proxy contract with upgradeability by the general timelock. The Etherfi Admin contract calls rebase() here, which in turn calls the Liquidity Pool and eETH contracts.

This contract manages validator features and rewards accrual. It is a proxy contract with upgradeability by the general timelock. The _handleAccruedRewards() function, called by the Timelock, initiates changes to the eETH exchange rate and includes validations on maximum amounts and rate changes.

This contract receives information about validators and accrued rewards, acting as a reporting and validation layer. It is a proxy contract with upgradeability by the general timelock. Controlled by a non-multisig address, it cannot perform critical actions beyond the limitations set by the Timelock on other layers.

  • Market Risk: B

weETH has shown a steady increase in Total Value Locked (TVL) in ETH terms, though its USD value has remained around $5,3 billion.

The current supply is 1,1M weETH, representing a market cap of roughly $4,5M. Its liquidity is concentrated on Curve, Balancer V2, and Uniswap V3 and many other DEXes on L2.

Furthermore the price is pegged to ETH and the weETH is redeemable for ETH. For this reason we consider the risks of weETH mitigated by ETH.

  • Chain Risk : A

Ethereum had 0 outages over the last 6 months. (Ethereum Block Count and Rewards Chart | Etherscan)

  • Liquidity Risk of PAR on Ethereum: A+

This provides the following price impact on the following trade sizes:

1000 USDC → PAR: 0%
10000 USDC → PAR: 0%
25000 USDC → PAR: 0%
50000 USDC → PAR: 0%

  • Overall Risk : B

The Overall Risk is the average of the points mentioned above.

  • Oracle:

The weETH/USD Oracle created by Murphy Labs is a wrapped version of the Aave weETH/USD price feed to be compatible with the Parallel Protocol.

Means:

  • Human resources: Multisig DAO signers will need to sign and execute transactions to add weETH as PAR collateral on Ethereum.
  • Treasury resources: There is no cost for the treasury to add weETH on Ethereum.

Technical implementation:

Set the weETH/USD oracle (created by Murphy Labs) into the PAR PriceFeed contract by calling ‘SetAssetOracle’ function with these parameters:

Voting options:

  • Add weETH as PAR collateral on Ethereum
  • Against / Rework the Proposal
  • Abstain

Authors: @starny & @JeanBrasse from Mimo Labs

Community poll:

  • Add weETH as PAR collateral on Ethereum
  • Against / Rework the Proposal
  • Abstain
0 voters
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2

The proposal is now live on Snapshot: Snapshot

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The proposal has been approved by the DAO, result: Snapshot

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