Title
[eIP 59]: Euler Prime enhancements
Author
Euler Labs
Date
2024-12-19
Summary
Euler Labs recently partnered with a risk-management advisory firm to review Euler Prime and provide feedback on its configuration. More details about this partnership will be made public in the new year. In the meantime, this proposal seeks approval to adjust risk parameters inline with the risk manager’s initial recommendations. The proposal also seeks to add new assets to Prime including: RETH, ezETH, METH, rsETH, ETHx, wUSDM, eBTC, and solvBTC. This will help to diversify collateral exposure on Prime and provide users with more trading opportunities, making the market as a whole better risk-managed and more capital-efficient.
Specification
Here we list the major recommendations of the risk manager broken down by different types of risks. Comments from Euler Labs have been added where appropriate as the risk manager gets up to speed with the new protocol.
Loan-to-value
The risk manager has broadly recommended lowering liquidation loan-to-values (LLTVs) for a range of assets in Prime. The vast majority of these recommendations have been accepted, and their changes are reflected in Table 1 below.
In addition to those differences shown, the risk manager also recommended lowering LLTVs for correlated assets, such as stablecoins USDC and USDT, to be used as collateral for one another. However, Euler Labs has argued that such LLTVs pose relatively low risk to the protocol and future development of a swapping protocol on top of Euler will provide a use-case for borrowing correlated assets against one another.
Additional recommendations
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MTBILL: Supply cap 305% of circulating supply significantly exceeds thresholds. Recommend reduction to 40% of circulating supply.
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cbBTC: High utilization 56.57% with low circulating supply ratio 0.94%. Increasing cap could boost TVL.
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USDC and USDT caps 1B are high volume and far from 100% utilization. Reduction could mitigate tail risks.
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Stablecoin interest rate models out of sync with the market. Increase kink to 90%; raise kink APR to 7% from 5.13%; reduce max borrow APR to 70% to stabilize rates above kink.
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Set to 0% for USDC/USDT to directly incentivize suppliers.
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Allocate additional rewards to grow supply and liquidity.
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Set mTBILL/11 pegged stablecoin LLTVs to 92% due to lower liquidity and higher uncertainty. Set sUSDS/11 pegged stablecoin LLTVs to 94%.
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Maintain positive LLTVs for 11 pegged stablecoins used to short ETH and BTC derivatives.
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Set higher LLTVs for stablecoin/WETH and BTC/WETH pairs compared to those involving WETH LSTs.
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Monitor WBTC liquidity and risk in light of community sentiment around recent partnerships
All of these recommendations have been accepted.
Escrow vaults
Remove Escrow vaults as collateral from Prime in instances where they are not currently being used to lower collateral exposure. This means keeping Escrow vaults for wstETH with LTVs for WETH and USDC, and Escrow vaults for sUSDS with LTV for USDC.
Accepted.
New assets
Today Euler Prime has 14 assets. In addition to the risk recommendations above, this proposal seeks approval to add new assets to the Euler Prime, including RETH, ezETH, METH, rsETH, ETHx, wUSDM, eBTC, and solvBTC. Adding these assets will help to diversify collateral exposure on Prime and provide users with more trading opportunities.
Oracle updates
Use exchange rate (fundamental) oracles to price ETH LST/LRTs (wstETH, cbETH, weETH, ezETH, RETH, mETH, rsETH, ETHx) to ETH plus Chainlink ETH/USD to USD. This makes the ETH section of Euler Prime more attractive to carry traders. Use Pyth market oracle for USDS/USD (used by sUSDS vault as well). Use Chainlink oracle for cbBTC. Use a market price oracle for LBTC.
Summary
After accounting for the recommendations listed above, and including the new assets, the following risk-parameters will be used for Prime (see Table 1, 2, and 3). The full list of risk-parameters for Prime can be found here.
Governance and community
Given Euler’s optimistic governance framework, no formal on-chain voting is required for this proposal. However, we encourage the Euler DAO and community members to provide feedback, share suggestions, and voice their opinions on this initiative. Community input will, as always, be crucial to ensuring that the Euler Prime market remains relevant and competitive.
Copyright
Copyright and related rights waived via CC0.