[RFC] Sponsorship of Audit for Reservoir Finance Price Oracle

Title: [RFC] Sponsorship of Audit for Reservoir Finance Price Oracle

Author: Alex L (Team Lead at Reservoir Finance)

Related Discussions: -

Submission Date: 16 Oct 2024

Simple Summary

Reservoir Finance is seeking $25K for an audit of its onchain AMM-based price oracle to be used with EulerV2 vaults. This expense is expected to return to Euler within 12 months through fees and said fees will continue to act as revenue streams for the lifetime of the vaults.

Abstract

Reservoir Finance is a protocol that pushes DeFi to the efficient frontier. We seek to maximize capital efficiency while building the most trustless DeFi infra and primitives. We have origins as the first DEX on the Vechain blockchain, and have expanded to other EVM chains such as AVAX.

This proposal seeks to allocate 25,000 USDC from the Euler DAO treasury to sponsor a security audit of the Reservoir Finance Oracle smart contract, in order for it to be safely used with the EulerV2 vaults, governed or zero-exposure.

Motivation

Reservoir Finance has developed an on-chain, manipulation-resistant, trustless price oracle that could serve as a price provider within EulerV2. A security audit would help ensure that the code is reliable, robust, and secure, which will ultimately contribute to the resilience of the EulerV2. This diversifies Euler’s ecosystem by further enhancing composability and decentralization by providing more price oracle options.

Sponsoring the audit of the Reservoir Finance Oracle benefits Euler in several ways:

  1. Enhanced Resilience: A broader range of decentralized oracles reduces dependence on any single provider, mitigating the risk of system-wide failures caused by oracle outages or manipulations.

  2. Manipulation resistance: The oracle is designed to effectively mitigate price manipulation attempts, by limiting the rate of change per unit time and per trade. Putting it into production would be a proof-of-concept that using on-chain oracles is safe, especially post PoS Ethereum.

  3. Trustless Infrastructure: The Reservoir Finance Oracle is fully on-chain and decentralized, aligning with the ethos of DeFi. A successful audit would validate its trustless design, making it a viable option for integration into Euler’s infrastructure. If successful, this would be the first on-chain oracle made available to EulerV2. besides the wstETH-stETH oracle.

  4. Additional Revenue Streams: An additional 10% of the platform fee earned by vaults (on top of the 50% platform fee) created by Reservoir AND using its oracles will be channeled to the Euler DAO as returns for sponsoring this audit.

  5. Joint marketing opportunities: Euler will gain exposure to Reservoir’s existing user base, attracting more usage for EulerV2.

By sponsoring this oracle audit, the EulerDAO takes a crucial step in the shift from off-chain price dependency back to using trustless on-chain price, returning to the truer ethos of DeFi.

Specification

Transfer 25,000 USDC from the Euler DAO treasury to a multi-signature wallet managed by Reservoir Finance. Reservoir Finance will engage a competent third-party auditing firm as recommended by Euler.

Upon completion, the full audit report will be made publicly available in the git repo, with changes made based on the audit findings. These funds are allocated solely for the purpose of conducting the security audit of the Reservoir Finance Oracle, and any remaining unused funds will be returned to the Euler DAO treasury.

The Reservoir price oracle will only be used to integrate with EulerV2 and future versions of Euler vaults / money markets. Additionally Reservoir will also not partner with competing money market protocols with the use of its oracles.

Return on investment

Assuming a USDC vault with consistent 80% utilization, and consequently a 5.64% APY borrow rate and to return $25K back to EulerDAO in 12 months:

  • 60% (50% base + 10% additional) borrowed interest paid would imply $41666 of total borrowed interest, which requires $739K borrowed and $923K TVL.

Moreover, for the lifetime of the vault the additional fee will be paid to the EulerDAO, which, if extrapolating the above figures, gives an additional $25K every 12 months.

Poll

  • Yes, in favor of the proposal
  • No, against the proposal
  • Modify the proposal
0 voters

We welcome any questions the community may have about the proposal.

After discussions with the Euler team, all parties have agreed that Euler can sponsor 50% of the audit cost, and thus the additional fees allocated to the EulerDAO will be adjusted to 5% instead of 10%, proportionate to the amount spent by the DAO.

I fully support this. The Reservoir team have worked hard to build on Euler and are taking security seriously be funding an audit for the product from a top-tier audit partner we’ve worked with extensively in the past.

How do you project to reach the stated TVL / borrow targets? How has your previous experience in growing Reservoir informed this strategy?

To be clear, Euler DAO is sponsoring $12,500 of this audit cost now? Which auditor will you use?

To reach the target TVL, we will allocate some of the idle capital in our AMM pairs, through our asset manager. To reach the borrow target, we will be incentivizing borrow activity with either USDC or our own protocol governance token (to be confirmed).

At Reservoir, we have integrated with swap aggregators such as yield yak. Integrating with aggregators drives swap volume which then attracts TVL. Furthermore in our previous iteration as Vexchange on Vechain, we had a TVL of $33M at its peak, which can be observed on defillama. This shows our track record in attracting TVL and users.

We will most likely be going with Spearbit/Cantina for the audit, as recommended by the Euler team. Yes the total cost is estimated to be around $25K (in fact, slightly lower based on most recent quotes), so both Euler and Reservoir will come up with ~$12.5K as you mentioned.

Let us know if you have any other questions/concerns!

1 Like