[RFC] Collateral Basket Change Proposal: Adding Wrapped OETH (wOETH) to the ETH+ Collateral Basket
Summary
This proposal recommends integrating Wrapped OETH (wOETH) into the ETH+ collateral basket to increase yield generation and enhance the diversification of the index LST following the mandate to add value to ETH+ holders through diversification.
Abstract
Origin Ether (OETH) was launched in May 2023 and is an ERC20 that generates yield while sitting in your wallet. Similar to stETH, OETH yield is paid out daily and automatically (sometimes multiple times per day) through a positive rebase in the form of additional OETH, proportional to the amount of OETH held.
Until a proposal earlier this year, OETH was an LST aggregator that earned yield by tapping into blue-chip protocols while being collateralized by other LSTs. Over the weeks following the proposal, the ability to deploy OETH collateral to other projects was removed and LST collateral was divested back to ETH, as OETH transitioned into a full-fledged LST with an extremely tight peg (1:1 redemptions to ETH thru Origin’s ARM) and high yields thanks to DVT direct staking through SSV/P2p.
wOETH is a ERC-4626 tokenized 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 to 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 (0xDcEe70654261AF21C44c093C300eD3Bb97b78192 , function number 16), or via the OETH dapp.
Current exchange rate as of 9/19/24: 1 wOETH = 1.10449597 OETH
Problem Statement
The ETH+ collateral basket is currently made up of only three types of diversified staking collateral, limiting the risk spread and potential yield enhancement. There is a simple and straightforward opportunity to both further diversify ETH+, while also increasing its blended yield output.
Rationale
We’ve noticed many LSTs trade below their peg due to DEX fees and slippage, and to reflect the time value of money. LSTs that consistently trade below peg effectively impose a hidden exit fee - certain LSTs often trade ~0.25% below peg, meaning it takes three weeks of staking to break even. This may be ok for long-term holders, but is terrible for users who plan to loop LTSs for additional yield, or for those looking for short term yield. This will not be the case with OETH.
Using OETH on Reserve will produce higher yield than other top LSTs and have a near perfect ETH peg. OETH ARM mechanics and gas optimizations will ensure the best possible prices for traders looking for instant exit liquidity, while DVT staking will achieve greater risk-adjusted yield. Our vision for OETH is for it to become the most trusted LST for those seeking to integrate OETH into other tokens.
The current APY for wOETH stands at 4.48%, which is higher than ETH+'s existing components. It seems to be a logical next step to integrate a product such as this into the ETH+ collateral basket.
Enhanced Diversification: Adding wOETH diversifies the sources of yield within the basket and mitigates risks associated with the concentration in fewer staking platforms. Redemptions through Origin’s ARM ensure OETH can be exited back to ETH 1:1 at all times, without needing to sit through an exit queue.
Yield Improvement: While remaining tightly pegged to ETH, wOETH is designed to be high yielding. DVT direct staking through SSV/P2p combined with the AMO enable OETH to be the highest yielding ETH LST currently available. Historical OETH yields can be found on Proof of Yield.
New ETH+ Collateral Basket
| Token | Allocation | APY = 3.26% |
|---|---|---|
| rETH | 25% | 2.36% |
| Wrapped stETH | 25% | 2.92% |
| sfrxETH | 25% | 3.28% |
| wOETH | 25% | 4.48% |
Source: Reserve./org and Originprotocol./com
Risks
Adding another asset as collateral adds additional counterparty risk and smart contract risk. However, OETH and wOETH 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. All OETH audits can be found in the audits section of the OETH docs. We have recently retained yAudit to look at our PRs as we code, and OpenZeppelin is also held on retainer to review 100% of the OETH and OUSD smart contract changes. Origin also maintains an active bug bounty with rewards ranging in size from $100 OUSD for minor issues to $1,000,000 OUSD for major critical vulnerabilities. The bug bounty program is currently administered by Immunefi, where Origin maintains a median resolution time of 6 hours.
Conclusion
We would be happy to adjust the above parameters based on feedback from the community and core Reserve team and would be happy to answer any questions on Origin Protocol, OETH, or the proposal itself. Adding OETH as a collateral for ETH+ will be mutually beneficial for both Reserve and Origin Protocol, as it will increase the utility for OETH, while also increasing the Reserve TVL and rollout of ETH+. The Origin team can be reached at any time via the Origin Discord server.
- I am in favor of adding wOETH to ETH+ collateral
- I am not in favor of adding wOETH to ETH+ collateral
