MIP-B10 - Onboard rETH as collateral on Base deployment

MIP-B10 - Onboard rETH as collateral on Base deployment


Warden proposes onboarding rETH as collateral on Moonwell Base deployment.


Asset Price oracle CF Supply Cap Borrow Cap
rETH (Base native bridge) Chainlink (rETH / ETH + ETH / USD) 0.76 100 50
Interest rate model Base rate Multiplier Kink Jump Multiplier Reserve factor Close Factor
LST 0.00 0.07 0.45 3.15 0.25 0.5
Key utilization rate Base (0%) Kink (45%) Max (100%)
Supply rate 0% 1.06% 132.30%
Borrow rate 0% 3.15% 176.40%

As part of our role of managing Base liquidity incentives, we will also allocate supply-side rewards once rETH market is deployed to help bootstrap initial liquidity. We will provide further details regarding rewards once market is closer to be deployed.


LST Market Overview

Rocket pool is a decentralized and trustless ETH staking solution. Specific information about the protocol is available on Rocket Pool’s documentation.

Rocket Pool is currently the most adopted and liquid decentralized LST available on the market, which makes it a good candidate to use as collateral asset on lending protocols.

Protocol rETH Rocket Pool stETH Lido Binance staked ETH frxETH Frax cbETH Coinbase
TVL 997k ($1.8b) 8.86m ($15.95b) 767k ($1.38b) 284k ($513m) 192k ($364m)
Market share 8.69% 77.3% 6.67% 2.48% 1.67%
Operators Decentralized 2204 deposit addresses Centralized 36 entities approved by Lido Centralized Ran by Binance Centralized Ran by Frax Centralized Ran by Coinbase
LSD Over-collateralization Yes Staked RPL Slashing insurance fund 6.2k stETH ($11.2M) No Slashing insurance fund No
Fee 5-20% 10% 10% 10% 25%
Correlation penalty risk profile Low High High Medium High
Quadratic leaking risk profile Low High High Medium High

Past Performance

Protocol rETH Rocket Pool stETH Lido Binance staked ETH frxETH Frax cbETH Coinbase
Launch date Nov 9 2021 (723d ago) Dec 18 2020 (1049d ago) Apr 27 2023 (189d ago) Oct 7 2022 (391d ago) May 3 2021 (913d ago)
Slashing Events 8 (1.11 / 100 days) 31 (2.99 / 100 days) 0 0 0
Consensus Rewards Earned 25k ETH 394k ETH 119k ETH 4.4k ETH 221k ETH
Total Penalties Accrued -300 ETH -1.3k ETH 502 ETH -7 ETH -858 ETH
Percent Loss from Penalties 1.20% 0.37% 0.42% 0.16% 0.39%

LST-specific Risk

About LST-specific risk

Staking incentives and penalties

Validators are rewarded for contributing to the chain’s security, and penalized for failing to contribute. More implementation details about incentives/penalties is available over there: Upgrading Ethereum | 2.8.5 Penalties

The reward, penalty and slashing design of the consensus mechanism encourages individual validators to behave correctly. However, from these design choices emerges a system that strongly incentivizes equal distribution of validators across multiple clients, and should strongly disincentivize single-client dominance.


Slashing is a more severe action that results in the forceful removal of a validator from the network and an associated loss of their staked ether. There are three ways a validator can be slashed, all of which amount to the dishonest proposal or attestation of blocks:

  • By proposing and signing two different blocks for the same slot
  • By attesting to a block that “surrounds” another one (effectively changing history)
  • By “double voting” by attesting to two candidates for the same block

Correlation penalty is incurred when a validator is slashed. The penalty amount is determined based on the amount of validators that also get slashed at the same moment. Correlation penalty aims to promote decentralization of validators.

Inactivity leak

If the consensus layer has gone more than four epochs without finalizing, an emergency protocol called the “inactivity leak” is activated.

Quadratic leak is a penalty that is imposed upon validators for being offline and missing a slot. The more longer a validator is offline, the steeper the penalty rate is.


In order to protect stakers funds, protocols may set up some form of insurance to compensate stakers in case of slashings or offline penalties.

Correlation penalty risk

Since Rocket Pool ETH relies on a diverse network of independent nodes, it is very unlikely that a significant part of the network gets slashed at the same moment.

Quadratic leaking risk profile

Again here, Rocket Pool ETH is less prone to quadratic leaking penalties since node operators are well distributed and highly diversified.

Insurance fund

When creating a minipool validator in the protocol, a minimum of 10% of the ETH’s value provided by rETH stakers must also be staked in RPL as a security promise to the protocol.

The insurance promise acts as collateral, where if the node operator is penalized heavily or slashed and finishes staking with less than the 24 (or 16) ETH provided by rETH stakers, their collateral is sold for ETH via auction to help compensate the protocol for the missing ETH.

Source: Rocket Pool docs

Volatility Risk

About volatility risk
In order to maintain solvency, the protocol must ensure that debts are always overcollateralized by assets of a higher value. If debts were not overcollateralized, borrowers would be economically incentivized to default on their debt. Defaulting would lead to the creation of bad debts in the system.

In order to mitigate asset volatility risk, the protocol enforces liquidations to ensure that debts are always overcollateralized.

Time to undercollateralization measures the time required during a worst drawdown event for a highly leveraged position to accumulate bad debt . The lower the value, the less time is available for liquidators to clear risky positions.

Our methodology specifies a minimum time to undercollateralization of 60 minutes for assets with healthy liquidity levels to ensure sufficient time is available to profitably liquidate risky positions of large size (i.e 20% of supply cap). Goal of this buffer is to reduce the risk of bad debt accumulating.

The proposed collateral factor of 0.76 for rETH provides a undercollateralization time buffer of 9,865 minutes (6d 20hrs 24min), which is in line with other LST markets on Moonwell Base.

Given very low and unstable liquidity levels for rETH on Base at the moment, the proposed collateral factor aims to leave sufficient time for liquidators to profitably liquidate risky positions of large size (i.e $100k rETH collateral position) in a scenario where DEX liquidity is drastically deteriorated.

Time to under collateralization analysis rETH cbETH wstETH

(1 - Collateral Factor)

24% 24% 25%
Liquidation incentive 10% 10% 10%
Price drawdown tolerance 14% 14% 15%
Time to undercollateralization 9,865 min 10,206 min 10,712 min

Liquidity Risk

About liquidity risk

If an account collateral ratio breaches the minimum collateral ratio enforced by the protocol, it will become eligible for liquidation. In order for liquidators to be able to liquidate assets at a reasonable price, there must be sufficient on-chain liquidity for liquidators to liquidate accounts profitably.

Slippage tolerance measures the maximum budget allowed for slippage cost when liquidating a risky position during worst downturn events.

rETH circulating supply on Base is very low, with 197 rETH ($433k) currently in circulation. DEX liquidity is also currently not incentivized and concentrated in a single pool on Balancer, so it is very hard to predict how stable the liquidity will be in the short term.

Given these uncertainties, we recommend starting with a supply cap that is substantially less than circulating supply to avoid outsized positions from joining the market right now while liquidity is sparse.

Symbol Circulating supply (Base) Slippage tolerance 4% depth Proposed supply cap Proposed borrow cap
rETH 197 ($433k) 4% of seized collateral $150k 100 ($222k) 50 ($111k)

Oracle Risk

Oracle risk is the probability of the oracle price feed not accurately tracking the actual market price.

Given the lack of historical data for rETH on Base, we’ll assume that skew between oracle and spot price should have a similar behavior than wstETH on Optimism given an equivalent oracle setup (Chainlink wstETH/ETH + ETH/USD).

During the last 90d, for a similar oracle price feed on Optimism, 99.7% of observed oracle price skew data points are within [-0.689%, 0.817%].

As a conservative measure, we’ll assume 1% skew in a worst case scenario for rETH on Base.

Interest Rate Model

The suggested interest rate model aims to

  • Facilitate borrowing rETH considering additional borrowing cost due to staking yield (~3.12%)
  • Attract more suppliers when liquidity risk is high. Higher borrow rates above the kink incentivize borrowers to repay their loans and can attract new lenders in order to maximize liquidity at all times.
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Gauntlet’s rETH Risk Recommendation

Gauntlet has conducted a market risk analysis for rETH initial asset listing

Oracle Feed: rETH/ETH * ETH/USD

Risk Parameter Recommendations

Parameters Values
CF 0.76
Supply Cap 100
Borrow Cap 45
Protocol Seize Share 0.3

IR Recommendations

IR Parameters Recommended
Base 0
Kink 0.45
Multiplier 0.07
Jump Multiplier 3.15
Reserve Factor 0.25

We recommend to utilize the LST IR curve parameters for rETH.

Supporting Data

IR Parameter Specifications

rETH IR Curves

Utilization Borrow APR Supply APR
0% 0.00% 0.00%
45% 3.15% 1.06%
100% 176.40% 132.30%

rETH’s 30-day rETH annual percentage yield (APY) has consistently averaged 3.18%. The current staking yield APY(3.4%) is at the kink rate.


Link to chart

Risk Parameter Specifications

Token Liquidity and Market Stats

Metrics rETH
TVL $2.02B
Trading Volume (DEX/CEX) $60M
On-chain Circulating Supply 197
DEX Liquidity - .18% Slippage 110
30D Volatility 0.3043
120D Volatility 0.2513

Token Local Liquidity

98% of circulating supply of rETH is concentrated into 2 addresses on the BASE chain with approximately 57% of the supply concentrated in the Balancer WETH-rETH pool.

Liquidity in the DEX is primarily centralized within Balancer, which brings the possibility of substantial fluctuations in rETH liquidity, particularly when a new liquidity pool is introduced. Therefore, we advise implementing cautious supply and borrow limits to mitigate potential risks.

TVL for WETH/rETH Composable Stable Pool

On-chain rETH Circulating and Active Holders

The on-chain circulating supply of rETH has not exhibited linear growth in proportion to the number of active users since its inception on the Base chain. This observation carries significance when determining appropriate caps for the initial listing since if liquidity continues on its recent downward trend, we need to ensure there is adequate liquidity to handle liquidations.

Supply and Borrow Caps

Borrow and supply caps are the primary parameter recommendations we can make to mitigate protocol risk when listing new assets. Gauntlet recommends setting the borrow and supply caps at the below values based on the DEX liquidity and on-chain circulation.

Asset Cap Recommendation
Supply Cap 100
Borrow Cap 45

Collateral Factor

To ensure a secure listing of rETH, Gauntlet recommends setting the collateral factor at 76%. Our recommendation is grounded in an assessment of rETH’s volatility and maximum drawdown, as well as a comparison to the collateral factor used for a similar staking assets which aligns with this suggested value.

rETH Price Hourly Price Change

7D Volatility - rETH vs other LSTs

Relative Volatility for rETH is aligned with cbETH and wstETH assets listed on Moonwell.


  • If the community opts to initiate a lending pool with collateral factors greater than 0, Gauntlet strongly advises the protocol to establish reserves within the pools as a precautionary measure against a Hundred Finance attack.

Warden has sent MIP-B10 proposal on-chain for vote.

Warden has also verified MIP-B10 on-chain manipulations and no errors were detected

MIP-B10 was successfully executed on a local Base fork at block #6644887 (Nov-15-2023 08:12:01 PM +UTC)

  • :white_check_mark: No regression detected on already existing markets (WETH, USDC, USDbC, DAI, cbETH, wstETH)
  • :white_check_mark: No accounts are liquidatable
  • :white_check_mark: Parameters are same as specified in proposal
  • :white_check_mark: rETH market is correctly initialized
    • :white_check_mark: Decimals for all parameters are correct
    • :white_check_mark: All borrow-side reward rates are greater than 0
    • :white_check_mark: Hundred Finance exploit is correctly mitigated (market total supply is greater than 0)
    • :white_check_mark: Parameters are same as specified in proposal
  • :white_check_mark: The proposal passes sanity check tests

Full report is available in Warden Finance docs.

rETH market is now activated on Moonwell Base deployment.

Reward rates for rETH have been updated to help bootstrap liquidity for the market.

rETH Reward stream Emissions per sec (before) Emissions per sec (after)
WELL Supply-side 0 0.05705557463
WELL Borrow-side 0 0
USDC Supply-side 0 0
USDC Borrow-side 0 0
Total supply (%of supply cap) 0% 25% 50% 75% 100%
rETH Supply WELL APR ∞% 18.34% 9.17% 6.11% 4.59%

Rewards were shifted from ETH market towards rETH.

  • ETH market utilization is standing at healthy levels from a risk perspective
  • Reducing rewards by 0.057 WELL/second for ETH is less detrimental relative to other markets
Supply-side 20.00% 20.00% 0.00% 20.00% 38.00% → 37.00% 2.00% 0.00% → 1.00%
Borrow-side 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
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