Support for Origin Ether (OETH)

Dear TAI Community,

I am Peter, a member of the core Origin Protocol team. This is a proposal for another new form of collateral to mint TAI, Origin Ether (OETH), to be added alongside the existing collateral options from Lido, Rocketpool, and Coinbase.

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:

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 by tapping into blue-chip protocols. OETH is backed 1:1 by ETH, WETH, stETH, rETH, and frxETH 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) through a positive rebase in the form of additional OETH, proportional to the amount of OETH held.

OETH yield comes from a combination of:

  1. Deploying collateral across Curve, Convex, Morpho, Balancer, and Aura
  2. LST validator rewards
  3. 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
  4. 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 .

Price Feed

Since OETH is designed to remain pegged to ETH, some projects are using standard ETH oracles for OETH. However, direct OETH oracles are available currently through Tellor and Dia Data.

Methodology

  • Volume Weighted Average Price with Interquartile Range (VWAPIR) is used to calculate price
  • 2% deviation threshold for updates trigger will be applied
  • 120s trades aggregation window size will be applied
  • The feed will be updated every 24h period if there are no deviation based updates

Discussions are currently taking place for building additional price feed oracles with Redstone and Pyth.

Performance & Growth

The OETH TVL, now over $66m (41,523.20 ETH), has been trending upwards and has been crushing it in comparison to direct competitors with the yield OETH is generating. OETH yield is currently at 7.17% APY, whereas competitors icETH and Cian are down to 3.50% APY and 4.02% despite taking leverage.

Motivation & Benefits to TAI

At the time of writing, there is no other platform to use OETH as collateral - OETH holders have been asking for leverage opportunities since the launch of OETH. Adding an OETH market for TAI collateral will be mutually beneficial for both TAI and Origin Protocol, as it will increase the utility for OETH, while also increasing the TVL for TAI and the TAI protocol. Any TVL created from OETH lending to TAI creates additional revenue for the TAI Protocol and DAO from active loans and liquidations.

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 TAI 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 10/20/23: 1 wOETH = 1.061744 OETH

Potential Risks and Mitigation

The introduction of OETH provides an opportunity for diversification and broadening the collateral base while mitigating concentration risks. However, Origin does acknowledge the concerns around the potential risks associated with OETH too. There are six possible risks when using OETH, and Origin is making sure to reduce each risk as much as possible:

New token 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. To ensure accurate pricing at all times, OETH is using Chainlink oracles for pricing data for rETH and stETH, and a dual oracle for frxETH that combines two sources: the Curve frxETH/ETH EMA oracle and the Uniswap frxETH/FRAX TWAP oracle. In situations where any OETH collateral falls below peg, OIP-4 disables minting of additional OETH tokens using the de-pegged asset.

Slashing risk - Since OETH is collateralized by multiple LSTs at the same time, OETH is protected from slashing from any individual collateral LST. If there is a small slash, the OETH yield will simply decrease, as income will likely exceed the size of the slash. During a major slashing event, both the slashed LST and OETH will experience a drop in value relative to ETH, but OETH should not fall as low and for as long as the slashed LST, as the remaining un-slashed OETH collateral LSTs will soften the blow. There will never be a negative OETH rebase.

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 OETH and OUSD the highest possible security rating of AAA, of which only 3 other projects on the InsurAce platform have received. Optional OETH cover is currently available for both OETH and OUSD on InsurAce. Origin Defi also maintains a $1m bug bounty through Immunefi, with a resolution time of 7 hours.

Peter is a core member of Origin Protocol and is joined by the fully doxxed Origin team and community, which includes hundreds of thousands of members and open-source contributors. Many members of the Origin team, including both founders, are holding a significant portion of their personal wealth in OETH. Origin Protocol’s corporate treasury is also holding millions of dollars in OETH. We have skin in the game and are willing to put our own money at risk with the code we have written.

There are no lockups with OETH, users can move in and out of OETH at all times. OETH remains completely liquid at all times, and can be spent in the same way as its backing collateral, if unexpected expenses were to arise.

External OETH analysis:

Llama Risk - Asset Risk Assessment: Origin Ether (OETH)
Auxo - OETH - Protocol Analysis

We would be happy to answer any questions on Origin Protocol, OETH, or the proposal itself. The Origin team can be reached at any time via the Origin Discord server.

3 Likes

Add wOETH as collateral for TAI?

  • Yes
  • No
0 voters

I support the addition of wOETH with a small debt ceiling ($500k) to gauge demand. wOETH seems safe, but right now I do not see a large benefit over other LSDs.

1 Like

I support a larger debt ceiling, as TAI really needs to build liquidity. As stated above, this would be the only use case for wOETH, so would be nice to take advantage and attract new minters.

Current debt ceilings are 10M for all except CBETH collaterals, which are 2M.

I think we should create only a single collateral type for each new collateral, until there is demand for more. Additional collateral types require more fees from the treasury for price updates.

I support a single wOETH-A collateral type with following properties(same as RETH-A)
Debt ceiling: 5M
C-ratio: 150%
Debt Floor: 15k
Interest: 2.25%
Liquidation Penalty: 2%

1 Like

I think this debt floor might be a bit high for most users, but agree on everything else!

Initial impression is a little too much complexity/attack surface, also the post implies 5% of the code is unaudited. That initial impression suggests either a high fee that is too high in order to compensate for risk (e.g 4%) or low debt ceiling that is unhelpfully low (<5% of supply).

Then after further consideration, I further decided to vote no based on TAI not being an optimal fit for them. This asset may temporarily find a home in TAI, but it is very strongly destined to end up in a high leverage relative to ETH protocol. For example on Ajna the system will easily support and automatically move to ~40x leverage on OETH/ETH. Granted we probably have 3-9 months before the oeth leaves. That said, perhaps the efficiency issue can be ignored; after all every collateral could be claimed to have this issue of eventually leaving unless CDP protocols find ways to increase capital efficiency without risk to the stablecoin holders. Either way in summary I am concerned it may be higher risk than lido and temporary since they are more sensitive to yield and leverage than other collateral types.

If added to at least get the temporary benefits of more liquidity, here are my recommendations:

Debt ceiling: 0.5M (if its actually impossible outside of solidity issues for oeth to instantly lose say 30% while lido loses far less, this can be much higher like 3M)
C-ratio: 150%
Debt Floor: 7.5k
Interest: 3% (I need to know the actual chance their protocol could have instant major sudden depeg to decide this, for now this suggestion assumes only an increase ~2x in smart contract risk relative to Lido. For sure its higher risk than lido, so must be higher than 2.25%)
Liquidation Penalty: 2% (would need to look into how much friction their protocol has with divesting funds, 50% higher than lido penalty sounds fine though.)

2 Likes

Hi @imkharn, thank you for your consideration. Please see my response below:

While 95% of the OETH codebase as been reused from the heavily audited OUSD, the remaining 5% was audited by both OpenZeppelin and Narya. The latest OETH audit was completed about a month ago and covered the Balancer strategy. We now have OpenZeppelin on retainer to constantly review 100% of our smart contract changes. Please see the full list of audts, including several community audits, on our GitHub repo.

We actually had a small Ajna pool set up for about a week before pulling the liquidity due to the potential griefing vector. We are very risk-averse, security comes first, always. As of now there is still no place to borrow against OETH.

The OETH peg to ETH has remained mostly flat since launch, but in situations where any OETH collateral falls below peg, OIP-4 disables minting of additional OETH tokens using the de-pegged asset. If Lido were to depeg, OETH would too, but OETH should not fall as low or for as long as Lido, as the remaining OETH collateral will soften the blow. There’s a great stress-test of this happening from earlier this year with OUSD and USDC’s depeg, I covered it in my comment here on the Aave forum.

This would be up to each individual user to decide on.

This is better than the earlier proposed 15k floor, though we’ll support whichever floor makes it to the voting stage. Taking a quick look at the number of current OETH and wOETH holders, here are the number of possible users of the TAI market based on the debt floor at 150% c-ratio, assuming current ETH price of $1793 and all calculations correct:

Debt floor # of possible users
15k 123 / 544
7.5k 165 / 544
5k 194 / 544
3k 211 / 544

The above numbers would be the max number of people who could borrow at each debt floor, of course at the max borrow amount you’re risking liquidation, but it’s up to each individual to decide on their risk level.

1 Like

Ty.

I corrected/edited the comment regarding “in it for the leverage not the stablecoin”. I didn’t put enough effort into summarizing the concept. I meant to say OETH users are more temporary than other collateral types since they are more sensitive to yield and leverage. They are likely to leave to go 10-40x long on OETH/ETH, relative to WSTETH holders who are fine being 4x long WSTETH/TAI.

If its true that the diversification of the portfolio limits the risk of each strategy as opposed to OETH having the combined attack surface of the ~dozen protocols it uses, then perhaps the most it can lose in a single moment is a small fraction (e.g. 2-10%), but with many exposures, that 2-10% cliff is many times more likely perhaps inevitable.

I am new in my understanding of OETH. Unless I have something so far incorrect, even if given further assurances, I suggest keeping the debt ceiling at a restricted amount. One where if OETH suffers a permanent and instant 15% drop, TAI+RATE is barely hurt / minimal reputational damage.

I can’t speak for all users, but I can assure you we’ll be marketing the hell out of the first OETH CDP, because it’s something holders have been asking for since the launch of OETH.

While there are additional attack surfaces, each yield strategy is siloed with its own smart contract. You can see the full contract registry here: OETH Registry - Origin DeFi Docs

Some quick facts and resources for you:

  • Launched in May 2023, with a codebase that’s been live since 2019
  • $77.18m+ TVL in underlying ETH/LST deposit
  • Collateral: ETH, wETH, stETH, rETH, frxETH
  • Yield Strategies: LSTs, Curve, Convex, Morpho, Balancer, and Aura
  • One of only five projects to receive the highest security rating of AAA from InsurAce
  • Website / dApp: https://www.oeth.com/
  • Analytics: Analytics | Overview
  • 6.30% trailing 30 Day APY
  • APY API here

No problem with having a debt ceiling. It can always be raised with a future proposal :slight_smile:

1 Like

Am a fan of 3-5k floor to help reach a larger audience

Here is the current backing of TAI. We’re currently very dependent upon WSTETH. Adding OETH will increase the security of TAI. OETH might have a higher probability of a medium de-pegging as it’s a composite, but because it’s a composite it should have a much lower probability of a large de-pegging.

The largest risk for TAI right now isn’t an LSD failure. It’s the risk of failure due to non-adoption. At this stage of TAI, we need to weigh this risk of non-growth when adding collaterals. Being the first and only CDP use case for OETH holders is invaluable.

These are the reasons I support the higher 5M debt ceiling.

2 Likes

Hello sirs,

I’m working on the proposal to include Oeth in the system, but have some doubts about the Tellor feed.

The tellor docs point to 0x8cFc184c877154a8F9ffE0fe75649dbe5e2DBEbf (oeth feed works here), but in the FP above it was listed as 0xD9157453E2668B2fc45b7A803D3FEF3642430cC0, which one is the correct?

Another question, I’m setting a stale threshold (so if the oracle is not updated for a long time the system will not use its price). I initially set it to 6h, but it seems updates happen less often than that, do you know what is the frequency of updates? Tellor docs do not list this.

Thanks

Hello!

The contract should be 0x8cFc184c877154a8F9ffE0fe75649dbe5e2DBEbf.

The oracle should update once every 24 hours OR when there is a price move of more than 2% from the last price. This is confirmed on the oracle request form here: [New Data Request Form]: OETH/ETH Spot Price on Ethereum Mainnet · Issue #123 · tellor-io/dataSpecs · GitHub

There is also an OETH/ETH oracle thru Dia Data, if it’s easier to use or if you’d like to incorporate a backup oracle: CDR #057: OUSD Price Feed - CDRs - Custom Delivery Requests - DIA Forum | Cross-Chain Oracles for Web3