Hey @pete, thank you for following up here and informing us of the work Origin have been doing at the protocol level to optimise for safety, liquidity and yield. As you know, all things we weight heavily when considering new or large collateral allocations.
The last few years have given us time to deepen our relationship, see how your products perform with Reserve DTFs and watch the Origin protocol mature, as these updates clearly show. Given this I’m majority FOR your inclusion in the basket, especially given it may help address two key issues the ETHplus collateral basket is currently facing, with redemption liquidity bottlenecking very close to our mandated constraint (20% of TVL) and a holder yield profile which currently underperforms it’s benchmark, stETH. However, I do still have some concerns which I’d appreciate further clarity on.
1. Concentration / OETH dependency.
I’m trying to simulate your results here but coming up with a different number. The OETH landing page has the OETH supply at 28k ETH, so a 3,000 ETH allocation in the ETHplus basket would mean we hold almost 11% of OETH TVL. While I understand these figures are constantly in flux and ETHplus supply may shrink and OETH may grow coming straight in at a 3000 ETH allocation would not align with ETHplus methodology. I would be more comfortable exploring a smaller initial allocation that remains within methodology constraints.
2. / 3. Exit Liquidity and AMO complexity
I empathise that this has caused reoccurring friction despite it significantly contributing towards a deeply liquid asset and other collateral assets deploying similar / riskier AMOs as part of their peg stability frameworks. However, I do echo @river0x concerns( 1,2) that I don’t think were ever sufficiently answered.
To summarise it here briefly;
- A large portion, if not all, of the OETH/ETH Curve pool is provided by the OETH AMO.
- If true the protocol is able to remove this at any. This has already happened once during market stress when liquidity was removed during the Curve Vyper Bug in 2023.
- The risk of liquidity being concentrated in POL is compounded by the low fee generation on the pool meaning LPs are likely to rush in with liquidity to replace the withdrawn Origin LP as there is low financial incentive to do so.
I’d appreciate if you could confirm the validity of this summary @pete. While I trust Origin to operate faithfully in both normal and stressed market conditions this does raise some concerns given we not be able to rebalance out of any future position. These concerns are somewhat mitigated by the small allocation we’d likely attribute to OETH but given the size of ETHplus and it’s thin layer of over-collateralisation, it’s likely to still be a big problem. These concerns also lend to the argument in point 1 as we consider how much of a share of OETH we are willing to take.
Finally, I’m aware that there were plans to open up the Origin AMO to external LPs in Oct 2024 as per your comments here. Has this happened? Can you give us any other assurances? Unfortunately, due to protocol / plugin design we wouldn’t be able to easily use the other exit lanes you mentioned, async 1:1 redemptions back to ETH or partial withdrawals via compounding validators.
4. Governance and Upgradability
I’m less concerned here as Origin governance appears reasonably robust and has a governance cycle roughly equal to our own.
Summary
While I’ve consistently been impressed by Origin’s willingness to engage openly with the community and the clear progress made in improving protocol robustness and maturity, I still have a number of outstanding questions that prevent me from fully supporting OETH inclusion at this stage.
That said, I do recognise that OETH has the potential to address some of the key challenges currently facing the ETHplus basket, particularly around redemption liquidity and yield competitiveness versus our benchmark.
@pete, I’d appreciate further clarity on the points above, both to help close out these concerns and to better understand how OETH can be integrated in a way that aligns with ETHplus methodology and risk constraints.