[RFC] Collateral Basket Change Proposal: Adding Wrapped OETH (wOETH) to the ETH+ Collateral Basket

[ham]

Thanks for coming back with your comments Pete, really helpful context.

OETH Dependency

To clarify, it looks like DeFiLlama includes the OETH held within LP positions, giving a headline TVL of ~$100m, whereas the OETH landing page excludes POL and reports closer to ~$65m. There is also a discrepancy in the 30d yield, with DeFiLlama showing ~2.18% versus ~2.42% on the landing page.

I assume the unbacked OETH within the AMO is excluded from yield accrual on the Origin side, but still included in DeFiLlama’s calculation. It would be helpful if you could confirm this.

From an ETHplus perspective, I remain cautious about including POL in dependency calculations. Given this liquidity is unbacked, centrally controlled and withdrawable at discretion, I would lean toward using the POL-excluded figure.

Exit Liquidity and the AMO

I appreciate the additional detail on the AMO design. That said, I don’t think this fully addresses the core concern around liquidity concentration and control.

A large portion of OETH’s exit liquidity depends on protocol-owned capital that Origin can withdraw at any time. While Origin are strong operators, they will act in their own interest to protect the protocol.

In a stressed scenario, there are plausible cases where this liquidity is reduced or removed, for example to defend the balance sheet if assets become unbacked or manage risk across the ecosystem. If that were to happen, however unlikely, ETHplus could be left holding a large share of OETH supply with impaired exit liquidity.

This is particularly relevant given ETHplus’ execution model. Rebalances occur over days to weeks, not hours. In a fast-moving market, this creates a risk that we cannot exit in time and are instead forced to unwind via auctions and shallow DEX liquidity at unfavourable prices. Given the relatively thin overcollateralization buffer, losses may not be fully absorbed at the stRSR layer and could impact holders directly.

Relative Framing vs Frax

As Pete has mentioned, it is worth restating that similar AMO dynamics exist within Frax Finance and Frax Ether.

While frxETH has additional exposures within it’s AMO such as pzETH and ezETH, current allocations appear limited, with most capital still in ETH, stETH and WETH LP positions. ETHplus already has exposure to this model via frxETH, so this is not a new risk vector.

Framing for Governors

At this stage, this is more a question of sizing and risk tolerance.

OETH is a strong asset under normal conditions and could help address current challenges within the ETHplus basket.

However, governors should weigh this against the structural risk that a meaningful portion of liquidity is:

• Centrally controlled
• Potentially transient
• Most likely to disappear in stress scenarios

In my view, if we allocate to OETH, this supports a conservative initial position within methodology constraints, while monitoring how the AMO evolves.

[pete]

Hey @ham, appreciate your speed with responses:

On the yield

You are correct, the unbacked OETH inside the AMO doesn’t earn rebase yield. Smart contracts are opted-out of rebasing by default, and the yield that would otherwise accrue to those opted-out positions is socialized as a boost in yield to opted-in smart contracts, EOAs, and wOETH holders.

The ~2.42% on the landing page is the actual rate opted-in holders receive after that boost, and it is also confirmed by Proof of Yield on Origin analytics website, which pulls from realtime onchain data. You can confirm the AMO is opted-out by plugging the AMO contract address and Curve pool contract address into function #11 rebaseState on the OETH contract and checking the returned status: 1 = StdNonRebasing, Does not receive yield.

ETH+ specifically would hold wOETH, which captures the boosted rate automatically via the increasing wOETH/OETH exchange rate, no opt-in needed.

On POL-exclusion

Working from circulating OETH only, a 2,700 ETH starting allocation lands at ~9.6%, comfortably within the methodology constraint with headroom for OETH supply growth.

On the stress-scenario concern

One clarification on the AMO mechanics that’s worth surfacing, since it changes how to think about the worst case. The POL has two sides: real ETH on the protocol balance sheet, and pre-minted unbacked OETH paired with it in the pool. Per the AMO design, that unbacked OETH never enters circulation - it only becomes backed when a user supplies ETH (swaps ETH for OETH) to the pool. If the AMO ever pulls liquidity, the unbacked side is burned. So the unbacked nature of POL from the AMO isn’t an overhang risk for ETH+ as a wOETH holder: there’s no path where unbacked OETH ends up in circulation.

Circulating OETH is backed 1:1 by staked ETH on the Beacon Chain, and that backing is fully segregated from the AMO. Pulling POL doesn’t restore solvency, fund liabilities, or move value to another part of the protocol - it would just degrade the exit liquidity that benefits OETH holders and Origin’s biggest integration partners.

OETH is also a standalone product with its own set of contracts. There’s no shared collateral pool across Origin products that POL would be reallocated to in a stress scenario, so pulling POL from OETH to defend something else isn’t how the products are structured.

The realistic POL-reduction scenarios are:

1. Defensive: Active exploit on the pool, like the Vyper case. Pulling POL was the protective move, and ETH+ benefits from it the same as any other holder

2. Reward economics deteriorate: If CRV/CVX dry up to where the AMO isn’t paying for itself, OETH yield drops first, which gives plenty of warning. We’d be looking for new yield sources before touching POL

On the execution model timing

At 2,700 ETH, even a worst-case POL pull leaves ETH+ with a position small enough to unwind through a normal rebalance. Agreed on going conservative up front and watching how the AMO holds up as the allocation grows.

Moving forward

Sounds to me like we’re aligned on:

• OETH helps with what’s actually broken in the basket right now

• Initial sizing stays inside the 10% methodology constraint

• Keep an eye on POL and the AMO as the allocation grows

[ham]

Thanks for the further clarifications @pete

Unless others wish to contribute, i’m going to leave this thread here while I start work on the Q2 rebalance.

I welcome you to participate in that discussion once it’s live to continue presenting your case for the inclusion of OETH. Given that RFC will likely result in collateral basket change, I think we’ll see increased participation from other governors. It will be good to also hear what they think about an OETH inclusion.

[zeb]

Replied in the RFC for ETHplus rebalancing.