Proposal for the Introduction of OETH as Collateral to Mint R
Dear Raft Community,
I am Peter, a member of the core Origin Protocol team. Currently there is only one market live for using tokens as R collateral. This is a proposal for another new form of collateral, Origin Ether (OETH), to be added alongside the existing collateral option from Lido and soon Rocketpool.
OETH contract address: 0x856c4Efb76C1D1AE02e20CEB03A2A6a08b0b8dC3
Dapp/website: oeth.com
Curve pool: Factory-v2-298
Docs: OETH docs
Audits: OETH audits
Logo: SVG logo
Background on Origin Protocol
Origin was founded by Web3 veterans Josh Fraser and Matthew Liu in 2017 and is one of the most venerable projects in the space. Josh and Matthew are joined by the fully doxxed Origin team and community, which includes hundreds of thousands of members and open-source contributors. Origin has raised $38.1M from top investors including Pantera, Spartan Group, Foundation Capital, BlockTower Capital, Steve Chen, Garry Tan, and Alexis Ohanian, and currently maintains a multimillion dollar treasury. As a technology partner, Origin Story has helped launch some of the largest NFT projects to-date:
- Paris Hilton Launches ‘Past Lives, New Beginnings’
- 3LAU Launches Record-Setting $11.7M Auction
- Charlie Bit My Finger NFT Sale Makes Headlines and Sets New Record
- Macallan Cask NFT Sells For $2.3 Million
- First Real Estate Sale via NFT Marketplace
Origin Story was followed up with Origin Dollar, a yield-generating stablecoin that reached a TVL of $300m in 2022. Origin Ether is Origin’s 3rd and latest launch.
OETH Overview
Origin Ether was launched in May 2023 and is an ERC20 LST aggregator that generates yield while sitting in your wallet. OETH is backed 1:1 by stETH, rETH, frxETH, ETH, and WETH at all times; holders can go in and out of OETH as they please. Similar to stETH, OETH yield is paid out daily and automatically (sometimes multiple times per day) though a positive rebase in the form of additional OETH, proportional to the amount of OETH held.
OETH yield, currently ~9% APY, comes from a combination of:
- Deploying ETH/WETH on Curve, Convex, and Morpho
- LST validator rewards
- A 50bip exit fee is charged to those who choose to exit OETH via the dapp (completely avoidable if using a DEX), this fee goes back to OETH holders
- OETH sitting in non-upgradable contracts does not rebase, instead the interest generated from those tokens is provided to those that can rebase
These 4 yield generating functions combined enable OETH to generate higher yields than holding or farming any single LST manually. The current collateral allocation and yield strategies can be seen via the OETH analytics page. Future OETH collateral and yield strategies are governed by OGV stakers.
ERC-4626 Compatibility
OETH yield is paid out daily and automatically through a positive rebase in the form of additional OETH, proportional to the amount of OETH held. In the event that it would not be possible or not make sense to add OETH as a Raft collateral option due to needing to opt-into OETH yield generation within smart contracts, an alternate solution would be using Wrapped OETH (wOETH). Similar to Lido’s wstETH, wOETH is a ERC-4626 vault designed to accrue yield in price rather than in quantity. When you wrap OETH, you get back a fixed number of wOETH tokens. This number will not go up - you will have the same number of wOETH tokens tomorrow as you have today. However, the number of OETH tokens that you can unwrap will go up over time, as wOETH earns yield at the same rate as standard OETH. The wOETH to OETH exchange rate can be read from the contract, or via the OETH dapp. More information on wOETH and the wrapping/unwrapping process can be found within the OETH docs.
wOETH contract address: 0xDcEe70654261AF21C44c093C300eD3Bb97b78192
Exchange rate as of 6/20/23: 1 wOETH = 1.035224 OETH
Risk Mitigation
There are five possible risks when using OETH, and Origin is making sure to reduce each risk as much as possible:
Small market cap risk - Given OETH is a relatively new token, some may be worried that OETH is prone to new attack surfaces. While this may be true for other new tokens, OETH was built reusing 95% of the OUSD code, of which 10+ audits have been done since 2020. Not that long ago, OUSD reached a market cap of $300m without breaking, and without diminishing the APY it was capable of generating. Origin continues to work on OUSD, despite the lower market cap.
Counterparty risk - OETH is governed by OGV stakeholders around the world. Everything from yield generation to fee collection and distribution is managed by a set of smart contracts on the Ethereum blockchain. These contracts are upgradeable with a timelock and are controlled by hundreds of governance token holders. While the initial contracts and yield-earning strategies were developed by the Origin team, anyone can shape the future of OETH by creating or voting on proposals, submitting new strategies, or contributing code improvements. We intend for all important decisions to be made through community governance and limited powers to be delegated to trusted contributors who are more actively involved in the day-to-day management of the protocol.
Smart contract risk of the yield strategies - Origin is only using platforms for yield generation that have a proven track record, have been audited, have billions in TVL, maintain a bug bounty program, and provide over-collateralized loans. Over-collateralization in itself, combined with liquidations, provides a reasonable level of security for lenders.
Collateral risk - Origin has chosen 3 of the largest LSTs to ever exist to back OETH, and they have maintained their peg quite well since launch. They have also demonstrated significant growth in circulating supply, so the Origin team is confident that the 3 LSTs will maintain their peg and that OETH will remain stable to ETH. OETH is also using Chainlink oracles for pricing data for rETH and stETH, and plans to utilize Curve’s time-weighted price oracle for frxETH to ensure accurate pricing at all times. In situations where any OETH collateral falls below peg, OIP-4 disables minting of additional OETH tokens using the de-pegged asset.
Smart contract risk of OETH - Origin is taking every step possible to be proactive and lessen the chance of losing funds. Security reviews are prioritized over new feature development, with regular audits being done, and multiple engineers are required to review each code change with a detailed checklist. There are timelocks before protocol upgrades are launched, and deep dives into the exploits of other protocols are constantly being done to make sure the same exploits don’t exist on Origin contracts. Security is extremely important to the Origin team. OETH was built reusing 95% of the OUSD code, of which 10+ audits have been done since 2020. All audits can be seen on Audits - OUSD , and OpenZeppelin is now on retainer. On-chain insurance protocol InsurAce awarded OUSD the highest possible security rating of AAA, which only 4 projects on the InsurAce platform have received.
Parameters
Since OETH is a newer token with a lower market cap, we are proposing the following conservative parameters for using OETH as collateral to mint R, alongside a comparison with the existing parameters for stETH and the soon to come rETH:
| stETH | rETH | OETH | |
|---|---|---|---|
| Minimum Collateralization Requirement | 120% | 120% | 150% |
| Borrowing spread | 0.50% | 1.00% | 1.00% |
| Redemption fee | 1.50% | 2.00% | 2.00% |
| Collateral cap | uncapped | 20,000 rETH | 3,000 OETH |
| Collateral cap per Position | uncapped | 1,000 rETH | 150 OETH |
We would be happy to adjust the above parameters based on feedback from the community and core Raft team and would be happy to answer any questions on Origin Protocol, OETH, or the proposal itself. Adding OETH as a market for R collateral will be mutually beneficial for both Raft and Origin Protocol, as it will increase the utility for OETH, while also increasing the Raft TVL and rollout of R. The Origin team can be reached at any time via the Origin Discord server.