[Gauntlet] - Initial Recommendations for Euler Unichain Market (2025-05-06)
Gauntlet has reviewed Euler Labs’ proposal to initialize an Euler DAO governed lending market on Unichain. Given Unichain’s meteoric rise in DeFi TVL over the past few weeks, we agree that setting up such a market will provide an early liquidity boost for Unichain users and allow Euler to capture a strategic growth opportunity.
Risk Parameter Recommendations
We will provide recommendations for the assets in the proposal by Euler Labs: USDC, USDT0, WETH, wstETH, weETH, rsETH, ezETH, WBTC, and UNI. Currently the top 12 DEX pools on Unichain, all Uniswap V4 pools having over $1M TVL, are composed of these assets.
Cap Recommendations
We are generally aligned with Objective Labs based on present DEX liquidity and concentration. We note that UNI has a single ETH/UNI liquidity pool where swapping 500K UNI results in ~21% price impact.
| Asset | Supply cap | Borrow cap |
|---|---|---|
| USDC | 30,000,000 | 27,000,000 |
| USDT0 | 30,000,000 | 27,000,000 |
| WETH | 6,000 | 5,400 |
| wstETH | 3,000 | 750 |
| weETH | 3,000 | 750 |
| rsETH | 2,000 | 500 |
| ezETH | 2,000 | 500 |
| WBTC | 200 | 180 |
| UNI | 500,000 | 400,000 |
LTV Recommendations
ETH LSTs/LRTs presently have up to a couple of liquidity paths for liquidators to swap, and instant redemptions may be limited due to available atomic liquidity on Unichain as well as bridge limitations and integration overhead. Most activity is expected to loop LST/LRT against WETH. We also note that the annualized log volatility of WBTC/USDC daily returns over the last 30 days is presently ~0.53, versus ~0.9 for ETH/USDC, indicating heightened recent risk for ETH and LSTs/LRTs against non-ETH exposure. For reference, the same metric for UNI/USDC is ~0.93.
Our recommended adjustments to Objective Labs’ recommendations are below.
We likewise recommend borrow LTVs as two percentage points less than the corresponding LLTVs.
| Asset | USDC | USDT0 | WETH | wstETH | weETH | rsETH | ezETH | WBTC | UNI |
|---|---|---|---|---|---|---|---|---|---|
| USDC | 0.00 | 0.96 | 0.86 | 0.84 | 0.83 | 0.82 | 0.82 | 0.86 | 0.68 |
| USDT0 | 0.96 | 0.00 | 0.86 | 0.84 | 0.83 | 0.82 | 0.82 | 0.86 | 0.68 |
| WETH | 0.86 | 0.86 | 0.00 | 0.95 | 0.94 | 0.93 | 0.93 | 0.8 | 0.63 |
| wstETH | 0.84 | 0.84 | 0.95 | 0.00 | 0.93 | 0.92 | 0.92 | 0.79 | 0.62 |
| weETH | 0.83 | 0.83 | 0.94 | 0.93 | 0.00 | 0.91 | 0.91 | 0.78 | 0.61 |
| rsETH | 0.82 | 0.82 | 0.93 | 0.92 | 0.91 | 0.00 | 0.91 | 0.77 | 0.6 |
| ezETH | 0.82 | 0.82 | 0.93 | 0.92 | 0.91 | 0.91 | 0.00 | 0.77 | 0.6 |
| WBTC | 0.86 | 0.86 | 0.8 | 0.79 | 0.78 | 0.77 | 0.77 | 0.00 | 0.63 |
| UNI | 0.68 | 0.68 | 0.63 | 0.62 | 0.61 | 0.6 | 0.6 | 0.63 | 0.00 |
Interest Rate Curve Recommendations
We are generally aligned with Objective Labs on recommendations mirroring IRMs in Euler Prime for initialization. For UNI, we recommend a decrease in the kink borrow APY, given mainnet borrowing demand: 10% utilization with 1.6% borrow APY on Aave V3 Core, and 8% utilization with 4.7% borrow APY on Compound V2. The large disparity in these rates may indicate low demand elasticity on mainnet. Demand may be asymmetric on Unichain given its governance and staking utility there.
| Asset | Base rate | Kink | Rate at kink | Rate at 100% (max) |
|---|---|---|---|---|
| USDC, USDT0 | 0% | 90% | 5% | 80% |
| WETH | 0% | 90% | 2.4% | 80% |
| wstETH, weETH, rsETH, ezETH | 0% | 25% | 0.5% | 80% |
| WBTC | 0% | 90% | 1% | 80% |
| UNI | 0% | 80% | 5% | 80% |
Oracles
The RedStone oracle setup proposed by Objective Labs has an appropriate risk profile for this market. However the current set of available RedStone oracles does not include a fundamental wstETH/ETH oracle, which we would recommend (in lieu of a market oracle).
Next Steps
- We welcome community feedback.