[Proposal] Introduction of cbETH as Collateral to Mint R

General
1

I have been tracking Raft since its inception and love what is being built.

I am writing this proposal to introduce a new form of collateral - cbETH, a liquid staking derivative from Coinbase, to be added alongside the existing collateral options, the stETH from Lido and rETH from RocketPool.

In line with the onboarding of rETH, the introduction of cbETH would provide an opportunity for further diversification, broadening the collateral base and thereby mitigating specific risks associated with dependency on a limited number of collateral.

cbETH carries a significant market cap of $2.28 billion, with strong liquidity on the Coinbase exchange platform and almost $ 20 mln TVL on decentralized exchanges, and holds an 11% share within the liquid staking industry. Furthermore, cbETH is likely to become a cornerstone of the Base blockchain which is showing promising signs of early DeFi adoption. As the interoperability potential of the Base blockchain and dApps unfolds, the cbETH usage could lead to more adoption on Ethereum and other blockchains as well. These metrics suggest a robust and active market for cbETH, making it a viable candidate as a new form of collateral.

I am aware of the potential hurdles cbETH entails (see here a detailed risk assessment of the cbETH token). Hence, I have considered such risks in the proposed parameters listed below:

table

The conservative approach to cbETH parameters, including borrowing/redemption fees, and the limit on maximum cbETH collateral in Raft, as well as on a per-Position basis, reflects the currently lower liquidity of cbETH compared to stETH. These parameters are designed to account for potential market volatility and risk.

However, these parameters should not be static, but dynamic and adjustable according to market conditions. As the liquidity of cbETH potentially increases, and its market presence becomes more robust, the community could review and possibly relax these parameters.

I invite all community members including the core Raft team to provide their feedback on this proposal. I think this proposal to integrate cbETH within Raft will benefit all stakeholders and contribute significantly to the growth of Raft. I would love to start a discussion about the potential of cbETH as a collateral option and how best to incorporate it within the Raft ecosystem.

Thanks for your time and consideration. I look forward to all the community’s insights and discussions on this proposal.

13 Likes
2

Hi @threecube ,

20000 $cbETH collateral cap and 1000 $cbETH per position cap isn’t something I would agree with.
There is less than 10000 $cbETH onchain liquidity. Even at its peak, there was only 23700 $cbETH.

The regulatory uncertainity, consistent insider trading accusation on coinbase, combined with the lower onchain liquidity compared to rETH, makes me skeptical in having similar collateral cap to rETH.

Source:
@PrismaRisk : 9500 $cbETH as on July 4,2023 Collateral Risk Assessment - Coinbase Wrapped Staked ETH (cbETH) - HackMD

Screenshot 2023-08-01 at 23.53.18
Screenshot 2023-08-01 at 23.53.181473×1103 101 KB

Dune query:

2 Likes
3

Thank you @threecube for the well-thought-out and structured proposal. Exciting to see the Raft community getting involved in the direction and growth of Raft.

Of course, Coinbase is a mainstay name in crypto, and cbETH is currently the 2nd larger Liquid Staking Token in the market. It would be a great asset to add as an eligible collateral on Raft.

The only other consideration worth highlighting is the blacklist function within cbETH, we would like Raft to be as censorship resistant as possible which includes the asset which is used within the protocol. I do hope Coinbase will not be obliged to use this function at any point, but it is a risk worth mentioning. That said, if it were to be used, I imagine would be targeted at bad actors.

In terms of collateral caps, I agree with @maybeyonas. Even though cbETH has the 2nd largest market cap in Liquid Staking Tokens, a majority of the cbETH is held on Coinbase. We could start with a lower collateral cap between 3,000 and 5,000 cbETH. The community can gradually look to increase as demand and on-chain liquidity increases.

1 Like
4

Looks great, agree on the reduction of collateral caps. One question regarding the peg: since redemptions have been turned off, how would the new PegKeeper mechanism take into account the different collaterals? Or is it something completely independent of the kind of collateral used to mint R (like a PSM or AMO)? Just wanted to make sure that the addition of new collaterals doesn’t come at the expenses of price stability

5

thanks @threecube for your proposal to add $cbETH as collateral.

We’re happy to see so much activity taking place in the governance forum. A valid point raised by @maybeyonas on the liquidity and the collateral cap of $cbETH being similar to that of $rETH on mainnet and Sandro’s comment about the pegkeeper mechanism since our latest update on the redemption mechanism.

Would be great to see what others think about this proposal.

6

Other than the valid points already raised about the blacklist function and the collateral caps, I think this is an interesting proposal that is in line with Raft’s general aim to diversify the collateral base. Definitely worth exploring more closely.

7

Great sir. This is good project