[GIP-46] Add cbETH to Allowed List

Abstract

This is proposal to add Coinbase ETH (cbETH) as an AllowedList asset for Credit Account users, for all the current (and soon upcoming FRAX) passive pools.

Motivation

In a couple of months’ time, we will have the ETH Shanghai upgrade which will allow ETH stakers to finally withdraw the ETH they have been locking up since 2020. The amount of ETH to be unlocked is about 16% of the overall supply and a vast majority of these ETH are likely to be deployed back through LSDs (like LIDO, cbETH, rocket pool etc). Moreover, it’s possible to expect even more ETH to be staked as the risk of liquidity will gradually start perishing with Shanghai settling down in scared minds.

An LSD or liquid staking derivative is where a staker is able to stake their ETH and in turn receive a “receipt” token like stETH - which then effectively offers to liquidity to their staked position. And with this, they also accumulate the yield generated on staking, which is where Gearbox comes in. Given LSDs are one of the most sustainable sources of yield, the ability to lever them up produces a great opportunity for sustainable high yields potentially over 15% at manageable risk. Further, given the size of the unlock, this also presents to us a chance to grow our own TVL. Thus this proposal aims at adding cbETH based LSD strategies to the Gearbox LLSD cohort alongside the existing stETH strategies.

Coinbase Wrapped Staked ETH (“cbETH”) is a utility token that represents Ethereum 2 (ETH2), which is ETH staked through Coinbase. Coinbase customers can wrap their locked staked ETH to receive cbETH, which is an asset that can be traded, moved on-chain, and used in DeFi and other dapps. cbETH is known as a liquid staking token because it allows holders to get the benefits of staking without lockups or unbonding periods.

cbETH is a standard ERC-20 token designed using the cToken model — a model created by Compound Finance to represent depository assets in their protocol. cbETH maintains a conversion rate that represents the amount of underlying ETH2, and Coinbase will wrap or unwrap at this rate without charging fees.

The liquidity of cbETH on DEXes is much lower than on stETH (~$19M on Uniswap and ~$8M on Curve), however, there is quite deep liquidity on Coinbase. This allows being sure that at the current scale of Gearbox protocol, the liquidators will not face a lack of liquidity. However, it is proposed to put the LT a little less than that of stETH.

Specification

The proposed parameters are:

  • add cbETH (0xBe9895146f7AF43049ca1c1AE358B0541Ea49704) as allowed token to DAI, USDC, FRAX, WETH, WBTC and stETH pool’s Credit Managers.
  • add Curve cbETH/ETH pool contract (0x5fae7e604fc3e24fd43a72867cebac94c65b404a) as an allowed contract.
  • set Liquidation Threshold as:
Token USDC pool (%) DAI pool (%) WETH pool (%) wstETH pool (%) WBTC pool (%) FRAX pool (%)
cbETH 80 80 85 85 80 80

Price Feed

Set price feed as ChainLink’s oracle for cbETH.

References

  1. https://www.coinbase.com/price/coinbase-wrapped-staked-eth
  2. Whitepaper - https://www.coinbase.com/cbeth/whitepaper
  3. Chailink oracle: cbETH / ETH | Chainlink
  4. Audit: Coinbase Liquid Staking Token Audit - OpenZeppelin blog
  5. Twitter - https://twitter.com/coinbase

Voting

https://snapshot.org/#/gearbox.eth/proposal/0x5e348d327d89dd245c36953c6a44214e47d65afa353f93f4ed207cf2ae55c7ff


#### Current shortcomings and other LSDs

While this is not in the proposal yet, it would be great to soon see Curve and Convex pools respectively for cbETH. That’s work for later, whereas any develop can assist and adapt the price feeds to make that possible. It’s also desired by some to have frxETH and rETH being available as collaterals (for farming and arbitrage, for example) - but unfortunately those lack mainnet Chainlink oracles data feeds. As soon as those become available, Gearbox as well as other protocols can enable them.

2 Likes

Yes, excellent idea and proposal

Seems like a no-brainer to me. LSDs are among the most important assets for the protocol, cbETH is #2 in the LSD space currently, supporting it is obvious imo.

2 Likes

Amazing. All for it. Looking forward to others as well.

1 Like

Posting this on behalf of RiskDAO

Additional comments from RiskDAO

cbETH is an ETH staking derivative issued by Coinbase, and thus heavily centralized as there is only one node operator. Coinbases charges a 25% commission on staking revenues.

cbETH is a reward-bearing token whose underlying value increases over time as rewards accrue. Unlike rebasing tokens, these do not have an elastic supply that changes frequently. Coinbase, Rocket Pool, and Frax (sfrxETH) use this token mechanism.

There’s been considerable noise around retail-focused ETH staking in the US over the last 24hrs. First, Coinbase CEO Brian Armstrong commented on Twitter that he is hearing rumors of a SEC clampdown on staking service. Second, Kraken agreed to a $30m-settlement with the SEC for offering “staking as a service” after failing to register the staking service as securities.

DEX liquidity for cbETH is limited: A sell order of 2,150 cbETH ($3.3m) would result in a 4%-slippage.

Given cbETH is a reward token, the cbETH/ETH price is gradually going up. However, the recent FUD about a potential SEC clampdown has hit the price ratio.

On the upside it also has a significant liquidity on Coinbase itself, and hence when its DEX liquidity hits arbitrage prices, trades will arb it with the liquidity on centralized exchanges (however, with some delay). As per Coingecko data, Coinbase cbeth/eth has the deepest liquidity: $5m in cbETH sales volume would only result in a 2% slippage.

We agree with the suggested thresholds (the numbers are slightly lower compared to stETH as the DEX liquidity is lower).

Should this be put on pause pending Kraken’s recent SEC deal, given Coinbase is US-based? Seems that has been mentioned, I suppose with the reputation of coinbase they would be unlikely to shut it down without any sort of redemption mechanism, etc. Also, I believe their staking service is more akin to an actual staking service vs w/e Kraken was doing.

1 Like