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# System prepended metadata

title: ezETH rec for compound (2024-06-12)

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### Simple Summary

Gauntlet aligns with listing ezETH as collateral on the WETH v3 Comet post enabling withdrawals and any additional audits. The below risk recommendations are a refresh of the analysis done previously. 


| Parameter | Value | 
| --------- | ----- |
| Collateral Factor |80% |
| Liquidation Factor |85%|
| Liquidation Penalty | 10%|
| Supply Cap |2,900|

### Analysis
### ezETH Liquidity sources

| Dex Category      | TVL(mil) | URL                                                                                   |
|:------------------|---------:|:--------------------------------------------------------------------------------------|
| balancer_ethereum |    105.49 | [Link](https://app.balancer.fi/#/ethereum/pool/0x596192bb6e41802428ac943d2f1476c1af25cc0e000000000000000000000659) |
| uniswap_v3        |     20.4 | [Link](https://app.uniswap.org/explore/tokens/ethereum/0xbf5495efe5db9ce00f80364c8b423567e58d2110) |
| curve             |     18.1 | [Link](https://curve.fi/#/ethereum/pools/factory-stable-ng-79/deposit) |

**Total TVL: $144mil**


The balancer ezETH-WETH pool continues to be the largest source of liquidity for ezETH, where the composition of this pool is still largely ezETH, where it makes up more than **92%** of the TVL. The total WETH across all the liquidity sources at current WETH prices amount to ~$21M. 

Apart from the above ezETH, liquidity is available in tripool of ezETH/rswETH/weETH having total TVL of [$12.3M](https://app.balancer.fi/#/ethereum/pool/0x848a5564158d84b8a8fb68ab5d004fae11619a5400000000000000000000066a) as ancilliary sources of liquidity. However as mentioned in the previous post, we are more concerned with the liquidity with respect to WETH, and only limit our sources to WETH pools. 
  
### Supply Cap and Liquidation Penalty (LP)

![Screenshot 2024-06-12 at 4.39.06 PM](https://hackmd.io/_uploads/r18FBqvr0.png)

Although in the previous LRT listing recommendations we used 5% slippage to be a sufficient benchmark for supply caps against a Liquidation Penalty of 10%, given the skewed TVL for ezETH on dexes towards higher ezETH concentration, Gauntlet recommends a supply cap amounting to half of WETH liquidity available in the above pools. The recommended supply cap would then be $10.5M in WETH, which is around **2,900 ezETH**.

### Liquidation Factor and Collateral Factor


![Screenshot 2024-06-12 at 5.16.58 PM](https://hackmd.io/_uploads/SJdPC9wHR.png)

| Metric | Value |
| ------ | ----- |
| Annualized Volatility | 28.3% |
| Max Drawdown from Exchange Rate   | 4.64%     |

```Liquidation Factor = 1 - (LP+Volatility)```

Considering the provided metrics alongside the proposed Liquidation Penalty, application of the below formula yields an LF of 70% and CF of 65%. However, Gauntlet recommends aligning the LF and CF with those of weETH and rsETH,i.e an **LF of 85% and CF of 80%**. As seen in the above visualization, ezETH is gradually restoring its peg with withdrawals being enabled soon. Gauntlet believes that the recommended adjustments would more accurately depict ezETH's risk profile.

### Oracle Risk 

[Chainlink's](https://data.chain.link/feeds/ethereum/mainnet/ezeth-eth#operator-validation_cloud) price feed has only been live for a few weeks and is market rate based which could expose the protocol to exaggerated market movements. Gauntlet would like to highlight this potential risk to the community. As mention in the `[Franklin DAO] Request for comment on: Market pricing vs. exchange rate pricing for LSTs and potential oracle implementations` post, Gauntlet supports exchange rate oracles for ezETH within this correlated Comet if the community decides to move forward with this strategy. 

### Yield Risk

Currently LRTs such as ezETH have elevated yields due to points program. EigenLayer maturity and AVS launch will cause yield shocks and consequentially elevate slippage magnitude and liquidity on DEXs. Gauntlet would like flag this potential risk to the community.

### IR Curve Parameters
Gauntlet recommends the IR in line with previous LRT asset listing recommendations in the WETH Comet to account for higher utilization due to the prospective addition of ezETH. 

