[Gauntlet] - Frontier Markets Review and Recommendations
Summary
Gauntlet recognizes the motivation behind the Frontier Markets (FMs) proposal, which is aimed at supporting emerging ecosystems on Euler. The design rests on several key assumptions that require careful examination. Gauntlet encourages the community to fully understand these underlying assumptions and the associated risks before moving forward.
Assumptions
-
Correlated assets are considered low-risk when grouped
The proposal assumes that assets within a single ecosystem are sufficiently correlated to justify grouping them in a risk-isolated market. This correlation is used to support aggressive loan-to-value ratios (up to 95%). It also implicitly treats any yield-bearing stablecoins as having risk profiles comparable to USDC, potentially underestimating their complexity and risk. -
Minimal governance is assumed to be sufficient
It is assumed that once FM vaults are deployed, they will require minimal ongoing governance or intervention. The belief is that high asset correlation and risk isolation within each FM will limit the need for active oversight. -
Hardcoded oracles are assumed to be robust
The design relies on fixed or simplified price feeds—such as hardcoded 1:1 oracles for all yield-bearing stablecoins and fundamental oracles for ecosystem assets—being accurate and resilient to manipulation or market stress. -
Sustained demand for leverage strategies is presumed
The model presumes that there is organic and ongoing user demand to engage in leveraged looping strategies across correlated asset pairs, which will drive FM adoption and utility. -
Risk isolation will prevent systemic contagion
It is assumed that the isolation of each FM is strong enough that failures within one will not spill over into other markets or the broader Euler ecosystem, thus containing risk effectively.
Specification Recommendations
Gauntlet has reviewed Objective Labs’ proposed guidelines for the structure of Frontier Markets (FMs) and agrees with the following elements:
- Limiting FMs to vaults containing only correlated assets
- LTVs are 90/91% or 94/95%
- IRMs are linear kink with 0% base rate, 90% kink, 40% max rate
- The outlined approach to oracle configurations
- Vaults have the default 10% interest fee
- PT tokens for all current and future Pendle maturities are listed
However, we propose an alternative approach to the use of supply caps to more effectively mitigate risk in the pilot phase:
- Blue-chip Vault: No supply or borrow caps will be enforced, preserving its role as a flexible liquidity anchor for the ecosystem.
- Ecosystem Asset Vaults: To manage concentration risk and reduce exposure to unproven or low-liquidity assets in emerging ecosystems—such as yield-bearing tokens and LP tokens—initial supply caps per vault will default to 50% of the asset’s total circulating supply. For PT token vaults, the supply cap will default to that of the corresponding underlying asset vault. Borrow caps will not be enforced.
To streamline the configuration of interest rate models (IRMs) across an expanding set of Frontier Markets (FMs), Gauntlet recommends anchoring the kink rate—also referred to as the “rate at target utilization” in the adaptive model—to the prevailing rate observed in either the Euler Yield or Euler Prime markets. These rates provide a dynamic and market-reflective benchmark. Vaults may optionally apply a modest premium above these reference rates to account for market-specific factors such as risk, volatility, or strategic positioning.
For yield-bearing tokens, Gauntlet suggests setting the rate at kink at 2%.
Cap Recommendations
Frontier Renzo
| Vault | Supply Cap |
|---|---|
| WETH | - |
| ezETH | 150K |
ezETH total circulation: ~300K
Frontier mEDGE
| Vault | Supply Cap |
|---|---|
| USDC | - |
| mEDGE | 16M |
mEDGE total circlation: ~32M
Frontier mMEV
| Vault | Supply Cap |
|---|---|
| USDC | - |
| mMEV | 20K |
| PT-mMEV | 20K |
mMEV total circulation: ~40K
Frontier Level
| Vault | Supply Cap |
|---|---|
| USDC | - |
| lvlUSD | 90M |
| slvlUSD | 38M |
| PT-lvlUSD | 90M |
| PT-slvlUSD | 38M |
lvlUSD total circulation: ~180M
slvlUSD total circulation: ~76M
Rate at kink Recommendations
With the kink rate in Yield markets presently configured at 7.5%, we propose setting the rate at kink for USDC vaults at 8%, reflecting a 50 basis point risk premium to account for associated risk factors.
Below are our recommended configurations for each proposed Frontier Market:
Frontier Renzo
| Vault | Rate at Kink |
|---|---|
| WETH | 2.7% |
| ezETH | 2% |
Frontier mEDGE
| Vault | Rate at Kink |
|---|---|
| USDC | 8% |
| mEDGE | 2% |
Frontier mMEV
| Vault | Rate at Kink |
|---|---|
| USDC | 8% |
| mMEV | 2% |
| PT-mMEV | — |
Frontier Level
| Vault | Rate at Kink |
|---|---|
| USDC | 8% |
| lvlUSD | 8% |
| slvlUSD | 2% |
| PT-lvlUSD | — |
| PT-slvlUSD | — |
LLTVs Recommendations
Gauntlet has reviewed Objective Labs’ LLTV recommendations and concurs with the proposed values.
Frontier Renzo
| ↓ Collateral / Debt → | WETH | ezETH |
|---|---|---|
| WETH | — | — |
| ezETH | 95% | — |
Frontier mEDGE
| ↓ Collateral / Debt → | USDC | mEDGE |
|---|---|---|
| USDC | — | — |
| mEDGE | 91% | — |
| PT-mEDGE | 91% | 95% |
Frontier mMEV
| ↓ Collateral / Debt → | USDC | mMEV |
|---|---|---|
| USDC | — | — |
| mMEV | 91% | — |
| PT-mMEV | 91% | 95% |
Frontier Level
| ↓ Collateral / Debt → | USDC | lvlUSD | slvlUSD |
|---|---|---|---|
| USDC | — | 95% | — |
| lvlUSD | 95% | — | — |
| slvlUSD | 91% | 95% | — |
| PT-lvlUSD | 91% | 95% | — |
| PT-slvlUSD | 91% | 95% | 95% |