Summary
Using our risk framework and Uniswap V3 price impact tool we give wstETH a strong oracle rating.
This report is related to eIP 11.
Methodology
For maximum security of the oracle, it needs to fulfil 3 criteria:
- Liquidity is provided over the full price range
- Elevating the TWAP (Time-Weighted-Average-Price) to a meaningful extent is impossible or extremely costly.
- Depressing the TWAP to a meaningful extent is impossible or extremely costly.
For more in-depth research on the nature of attacking TWAPs, check out Michael Bentley’s research paper and Seraphim Czecker’s video explanation .
Analysis
Full Range
Linear Chart:
Logarithmic chart:
https://info.uniswap.org/#/pools/0xd340b57aacdd10f96fc1cf10e15921936f41e29c
Overall, wstETH/WETH has full range liquidity (non-zero% is 100%) and liquidity is provided by a multitude of liquidity providers (147 initialised #).
In fact, if we use the logarithmic version of this chart, we can see that there is somewhat more liquidity on the downside than upside of wstETH/WETH. While there is substantial liquidity on both sides, this partially explains why manipulating the price higher is cheaper than lower. (more on this below)
Oracle Sponsorship
In fact, 3 instances of liquidity provision is a result of lobbying FTX ventures, Jump and other key DeFi participants to provide and lock in substantial liquidity as a public good. By making this liquidity semi-permanent, we add another layer of security to the oracle.
By doing this we are hopefully setting the precedent of oracle sponsorship to prevent manipulation.
Cost of Attack
We have analysed the cost of moving the TWAP of wstETH/WETH by 20% up and down over 1 to 10 blocks. The results are:
This shows that manipulating the TWAP over a 1-2 block attack (the most realistic for an attacker) would cost at least $2 billion, which is extremely expensive.
Conclusion
Given the presence of full-range liquidity, substantial cost of attack and oracle sponsorship, we give the asset above a strong oracle rating.