MIR-23┃Add wstETH as collateral for PAR on Parallel on Polygon

Summary:

This proposal aims to add wstETH as new collateral for PAR on Parallel on Polygon.

Rationale:

Adding wstETH as collateral for PAR to the Parallel Protocol would bring additional diversity and liquidity to the ecosystem. Onboarding wstETH is a source of additional revenue for Parallel and benefits the ecosystem as a whole because this onboarding has an effect on assets liquidity & peg resilience.

Lido protocols enhance the security of the Ethereum network by enabling more users to stake ETH. When they stake ETH through the Lido Protocol software they receive stETH. stETH tokens are fungible and liquid. The total balance of stETH in existence is based on the total amount of ETH staked via the Lido protocols plus total staking rewards minus any slashing applied on validators. stETH rebases daily.

Due to the rebasing nature of stETH, a user’s stETH balance changes daily as staking rewards are received. As some DeFi protocols require a constant balance mechanism for tokens, Lido protocols offer wstETH, which is a wrapped version of stETH. wstETH keeps a user’s token balance fixed and uses an underlying share system to reflect users’ received staking rewards. wstETH on Polygon is the bridged version of wrapped stETH on Ethereum. The bridge used is the official Polygon bridge.

You can learn more about these mechanisms in their documentation / whitepaper.

Once the vote is accepted on Snapshot, we will determine the associated liquidation ratio, minimal collateral ratio, debt ceiling, liquidation bonus on a second MIR discussion.

Project Presentation:

Protocol name : Lido Token requested : wstETH Token contract address : https://polygonscan.com/token/0x03b54a6e9a984069379fae1a4fc4dbae93b3bccd Audit(s) links : https://docs.lido.fi/security/bugbounty https://github.com/lidofinance/polygon-contracts/tree/main/audits/v2 Chain requested : Polygon Relation with the project : None. Website: https://lido.fi/ Github: https://github.com/lidofinance Twitter : https://twitter.com/LidoFinance Discord : https://discord.com/invite/lido Telegram: https:// t.me/lidofinance

Token metrics & Risk assessment:

• Smart Contract risk: C+

wstETH was deployed 5th August 2022 and is bridgeable since that day on Polygon. Lido Protocol code has multiple audits. The contract is responsible for Ether deposits and withdrawals, minting and burning liquid tokens, delegating funds to node operators, applying fees, and accepting updates from the oracle contract on the Ethereum chain while wstETH is the wrapped version of stETH that we used on the Polygon chain. wstETH has generated more than 42k transactions on Polygon.

• Counterparty risk: C+

Lido relies on a set of oracles to report staking rewards to the smart contracts. Lido on Ethereum is a protocol that runs on the Ethereum blockchain and it is upgradable. The Lido DAO controls the ability to implement day-to-day changes and upgrade the protocol with a successful DAO vote. The Lido DAO is an Aragon organization and the roles and addresses can be checked in the Aragon UI. To mitigate withdrawal risks, Lido staking went live on December 18th through a withdrawal key ceremony performed by a group of the industry’s most trusted builders. Lido has recently been upgraded to v2 and has implemented stETH withdrawal on their webapp, it means that it’s now possible to redeem ETH from stETH on Ethereum without using liquidity pool (but the processus has a waiting time of 1-2 days).

The process to bridge wstETH use the official polygon bridge who is controlled by a 2/5 multisig. The multisig doesn’t have the possibility to deposit/withdraw funds from contracts. wstETH has 7.5k holders on Polygon

• Market Risk: B

stETH is currently ranked 1st in the list of Ethereum and Polygon Liquid Staking assets with a capitalization of $8,5B. Furthermore, wstETH is the wrapped version of stETH and is redeemable at any time on the Ethereum chain, the price is correlated to the ETH since stETH is the representation of ETH staked through Lido. Since the Shanghai hard fork, it’s now possible to redeem ether by burning stETH at the same 1:1 ratio (cf withdrawals feature design). For these reasons, we consider the risks of stETH mitigated by his principal collateralized assets: ETH. The wstETH liquidity available is nearly $5M with approximately $150k of volume per day on Polygon.

Ethereum Staking wars : https://www.defiwars.xyz/wars/eth

• Chain Risk : A

Polygon had 0 outages over the last 6 months. (https://polygonscan.com/chart/blocks)

• Liquidity Risk of PAR on Polygon: A-

The PAR-jEUR Balancer pool has 811k$ in liqudiity, composed of 60.3% of PAR and 39.7% of jEUR at the time of writing. The PAR-USDC UniV3 pool has 580K$ in concentrated liquidity, composed of 21.5% PAR and 78.5% USDC at the time of writing. The 2eur Curve pool has 26k$ in liquidity, composed of 52% PAR and 48% jEUR at the time of writing. The 4eur Curve pool has 218k$ in liquidity, composed of 23% PAR, 22% jEUR, 34% EURS and 21% EURT at the time of writing. The MIMO-PAR Balancer pool has 136k$ in liquidity, composed of 80% MIMO and 20% PAR.

This provides the following price impact on the following trade sizes:

1000 USDC → PAR: 0.00% 10000 USDC → PAR: 0.12% 25000 USDC → PAR: 0.34% 50000 USDC → PAR: 0.71%

• Overall Risk : B

The Overall Risk is the average of the points mentioned above.

Means:

• Human resources: Multisig DAO signers will need to sign and execute transactions to add wstETH as collateral on Parallel Protocol on Polygon.
• Treasury resources: There is no cost for the treasury to add wstETH on Parallel on Polygon.

Technical implementation:

1. Add wstETH in the ConfigProvider Contract with all parameters decided by the Mimo governance.
2. Set the chainlink oracle related to the wstETH into PriceFeed Contract → wstETH-ETH price feed + ETH-USD price feed

Voting options:

• Add wstETH as new collateral for PAR on Parallel on Polygon
• Against adding wstETH as new collateral for PAR on Parallel on Polygon
• Abstain

Authors: @starny & @JeanBrasse from Mimo Labs