Integrate pufETH on Euler Market

Euler DAO
1

Summary:
This proposal seeks to integrate pufETH, the Liquid Restaking Token (LRT) from Puffer Finance (https://www.puffer.fi/), into Euler’s Market. By listing pufETH, Euler can expand its DeFi offering, enhance capital efficiency, and provide users access to a highly composable, decentralized, and yield-bearing restaking asset.

About Puffer Finance & pufETH:

pufETH is the liquid staking token of Puffer Finance, the only permissionless liquid restaking protocol built on Ethereum. By leveraging EigenLayer’s restaking capabilities, pufETH allows users to participate in Ethereum’s Proof-of-Stake (PoS), offering enhanced returns and decentralized validator participation.

Key highlights of pufETH and Puffer Finance include:

  • Grant: Ethereum Foundation for developing Secure-Signer
  • Innovative design
    • Leading anti-slashing design for AVSs and validators
    • First preconfirmation AVS on EigenLayer with 2.8M ETH of economic security
  • High Adoption and TVL:
    Puffer Finance holds ~80K ETH in total value locked (TVL) within its ecosystem, with an additional $127 million integrated across DeFi platforms like Curve, Pendle, and Karak.
    • Puffer has established approxmiately $11 million pools of pufETH on Curve (Curve.fi)
  • Security and Trust:
    Puffer has been audited by 10 leading firms and employs Secure-Signer technology and anti-slashing mechanisms to safeguard user funds and validators.
    Six security partners audit Puffer’s code base.
  • Permissionless Participation:
    Puffer’s anti-slashing technology allows for permissionless and decentralized validator participation, ensuring robust network security while reducing slashing risks.
  • Strong Industry Backing:
    Puffer Finance is supported by top-tier investors such as Binance Labs, F-Prime, Franklin Templeton, and Coinbase Ventures.
  • Puffer Token: Listed across multiple CEXs, including Bybit, Upbit, Bithumb, Bitget, Gate, OKX, MEXC, and more.

Benefits for Euler

Motivation & Benefits:

  • Enhances Euler’s Market Depth: Adding pufETH introduces a high-quality restaking collateral asset for borrowing and lending.
  • Increases Capital Efficiency: Users can unlock liquidity via Euler while retaining exposure to ETH staking and EigenLayer rewards.
  • Strengthens DeFi Composability: Expands support for pufETH across Euler and beyond, driving more TVL, integrations, and on-chain user activity.
  • User Incentives: Euler users can be incentivized with Puffer’s native rewards, including $CARROT (incentives) and $PUFFER tokens.

Codebase & On-chain Activity

  • Smart Contract Audits: Puffer has been audited by 10+ top-tier firms. Full audit reports are available at: Puffer Audits Repository
  • Bug Bounty: Active program to continuously monitor security.
  • Chainlink Oracle Feed: Available at Chainlink Feeds

Risk Assessment:

  • Liquidity & Adoption: pufETH has established deep liquidity through Curve, Aerodrome, and other DEXs.
  • Smart Contract Security: Audited by top-tier firms with an active bug bounty program.
  • Liquidation & Volatility Risks: Low depeg risk due to strong redemption mechanisms and integrations with EigenLayer’s validator set.
  • Llamarisk Research Report on March, 25 Collateral Risk Assessment - pufETH - Llama Risk

Social Metrics

  • Twitter : 340,000+ followers with active daily engagement.
  • Discord: 92,500+ members with >10% retention and high daily activity.

Proposed Next Steps:

We invite the Euler community and contributors to provide feedback on this proposal. If there is general support, we would proceed to the next steps of listing pufETH on Euler, in collaboration with the Euler core team and risk partners.

References:

1 Like
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Thank you for this proposal. Which market do you recommend onboarding into specifically? What lending APR would you target?

1 Like
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[Gauntlet] - Parameter Recommendations for pufETH on Euler Prime (2025-04-10)

Gauntlet recommends that pufETH be listed on Euler Prime to augment liquidity for blue-chip LRTs and looping. We recommend the following risk parameters to the protocol:

Cap Recommendations

  • Set pufETH supply cap to 7,000
  • Set pufETH borrow cap to 1,750

Present circulating supply of pufETH is on mainnet is ~68,000. The supply cap recommendation covers slightly over 10% of the total supply. We aim to maximize usefulness to users with this approach while not taking on oversized exposure to pufETH supply in the worst case. We note that Puffer currently offers instant redemptions of pufETH at a 1% fee (vault capacity permitting), which provides an additional avenue of liquidity for liquidators outside of DEXes.

Low borrow demand is expected for this vault, in line with existing market offerings for LRTs. We recommend a borrow cap that is 25% of the supply cap. Presently swapping this full borrow cap of pufETH to WETH begins to incur price impact of ~3.7%.

The cap recommendations are pursuant to the implementation of a composed pufETH / WETH exchange rate, WETH / USD market rate oracle for the new vault, or an oracle with similar risk profile. This is to minimize sporadic undercollateralization risk in the pufETH collateral markets.

We remain cognizant of slashing risk and will set LLTVs accordingly below. We also recognize market risk wherein a depeg in pufETH / WETH market price could lead to increasing deposits of pufETH to borrow assets at discounted prices. Historically the risk of any such lasting effect is low, and we also see recent pufETH / WETH price volatility is low and decreasing.

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Interest Rate Curve Recommendations

Borrow demand for pufETH is expected to be minimal. As such we will recommend the same parameters as are currently set for the rsETH Prime vault’s interest rate curve:

  • kink utilization of 25%
  • kink borrow APY of 4.6%

LLTV Recommendations

Here we aim to maximize risk-adjusted capital efficiency for users. We note the primary opportunity is likely pufETH / WETH and pufETH / wstETH looping.

Collateral Debt LLTV Borrow LTV
pufETH cbBTC 72% 70%
pufETH cbETH 90% 88%
pufETH eBTC 72% 70%
pufETH ETHx 90% 88%
pufETH ezETH 90% 88%
pufETH LBTC 72% 70%
pufETH mETH 90% 88%
pufETH rETH 90% 88%
pufETH rsETH 90% 88%
pufETH tETH 90% 88%
pufETH SolvBTC 72% 70%
pufETH tBTC 67% 65%
pufETH USDC 77% 75%
pufETH USDS 77% 75%
pufETH USDT 77% 75%
pufETH WBTC 67% 65%
pufETH weETH 90% 88%
pufETH WETH 93% 91%
pufETH wM 77% 75%
pufETH wstETH 93% 91%
cbBTC pufETH 70% 68%
cbETH pufETH 93% 91%
eBTC pufETH 67% 65%
ETHx pufETH 87% 85%
ezETH pufETH 90% 88%
LBTC pufETH 70% 68%
mETH pufETH 90% 88%
rETH pufETH 90% 88%
rsETH pufETH 90% 88%
tETH pufETH 90% 88%
tBTC pufETH 70% 68%
USDC pufETH 80% 78%
USDS pufETH 70% 68%
USDT pufETH 80% 78%
WBTC pufETH 65% 63%
weETH pufETH 93% 91%
WETH pufETH 93% 91%
wM pufETH 70% 68%
wstETH pufETH 93% 91%

Next Steps

We welcome community feedback.

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Thank you @Puffer for submitting this proposal. Objective Labs agrees with Gauntlet’s risk analysis of pufETH and deems it a safe asset without barriers to inclusion based on risk.

Despite that, we do not recommend the integration of pufETH on Euler Prime at this moment as we believe the strategic opportunity is too small to warrant inclusion into Euler DAO’s blue chip market.

After an exceptionally strong Q3 2024, pufETH’s TVL reached $1.84B at its peak. Since then pufETH has seen continuous decline in market share, currently sitting at ~$100M TVL (61.7k ETH). Similarly, Puffer’s governance token, PUFFER sits at $15M circulating market cap, $146M fully diluted.

By analyzing the top holders of pufETH, we see that close to 50% of the supply is locked in idle venues: 13.5% in Pendle, 13.2% in the withdrawal pool and other system-related contracts, 11% in bridges, 8.5% in restaking pools.

The second largest holder is Morpho (11.5%, ~$13.2M). At the surface level, this could be interpreted as an indicator for borrowing demand. However, a deeper look reveals that 86% of this activity is a single borrower on Morpho’s pufETH/ETH (94.5%) pair with WETH liquidity coming from Gauntlet-managed MetaMorpho vaults. The borrower is an Aera vault, owned by Nucleus Earn / UniFi ETH, a project very close to Puffer, and operated by Gauntlet’s EOA (used on most Aera vaults). Asset flows confirm the relationship between this Aera vault and the Puffer team.

Objective Labs reached out to the Puffer team to clarify the strategic plan for pufETH on Euler Prime. The Puffer team could not confirm any LPs looking to borrow on Euler. Our analysis revealed that pufETH’s borrow demand comes from private business relationships and less than $1.8M of the $13.2M in demand can be attributed to organic activity.

In discussion about CARROT incentives, the Puffer team could not commit to concrete numbers even with an offered incentive match in rEUL. The team offered to deploy a vePUFFER gauge for vote-escrowed community-driven direction of CARROT emissions. However cursory analysis reveals that vePUFFER voting is dominated by a single address.

The Puffer team recently committed to directing 10% of CARROT supply to Aave. In further discussions the team publicly stated their dedication to “making AAVE the centerpiece for lending within the pufETH ecosystem.” Given Puffer’s current dealings with Gauntlet on Morpho and future commitment to Aave, we believe that there is little gain to be made for Euler downstream of this integration.

At Objective Labs we strive to find risk-adjusted growth opportunities for Euler DAO’s markets. Our analysis very low potential for borrowing demand coming from this integration. In the absence of a clear LP and incentive plan, we will not be recommending the integration of pufETH on Euler Prime. We invite the Puffer team to clarify their plan for Euler.

2 Likes
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We are in agreement with Gauntlet’s risk analysis and support the proposal to integrate pufETH on Euler Prime.

Regarding demand, we believe it will be short sighted for Euler to considering not listing assets (which has passed risk analysis) because current demand is low. This is to believe that current demand is the demand tomorrow. Euler should not, today or in future, endeavor to become adjudicators on other protocols success or failure, and instead offer a platform with open arms for all the protocols.

This should not be a consideration for integration. The idea is to capture the maximum of whatever aggregate demand a protocol has today and tomorrow, and listing should primarily focus on risk assessment of an asset.

What is small today can be big tomorrow and Euler itself is a shining example of this.

Lastly, we agree that Puffer should provide carrot incentives to Euler and our understanding is the Puffer team is prepared to do it.

2 Likes