Proposal to increase st-yETH market’s Collateral Factor and Daily Borrow Limit


This proposal seeks to increase the collateral factor parameter of FiRM’s st-yETH market from 70 to 75% and the daily borrow limit from 100,000 to 200,000 DOLA.


As part of our ongoing efforts to enhance FiRM attractiveness as a lending platform, the Risk Working Group periodically advises on proposed adjustments to market parameters. These adjustments, which may include changes to daily borrow limits, liquidation factors, and market supply ceilings, are meticulously evaluated by the RWG. The goal is to strike a balance between attracting new users and maintaining the platform’s stability and security.

The st-yETH market, first introduced in May, warrants a reevaluation of its parameters to align with the latest market conditions and risk profiles. Since inception, the st-yETH market has yet to undergo a parameter adjustment via governance proposal, having completed its soft launch timeline requirement. Recently, ALE was successfully integrated into the market. As of June 17th, 2024, the market has two borrowers, with $70k in deposits and $36k in borrows. Users of the market have, on average, a borrow limit of 74.92%. There have been 0 liquidations in the st-yETH market since inception. All in all, there is insufficient data to draw conclusions from the market and to compare it with our predicted user behavior outlined in the original st-yETH risk assessment document.

Risk Assessment

In order to realize its full potential, the st-yETH market is prime for expansion and the collateral factor and daily borrow limit are the relevant parameters needing to be assessed. The collateral factor for st-yETH must reflect its volatility and the diversification of underlying assets. A balanced collateral factor ensures that the lending protocol remains adequately collateralized, even during market downturns. This factor should be set by analyzing the historical price stability, on-chain liquidity, and risk profile of the underlying asset. The daily borrow limit should be set to balance user demand with the protocol’s capacity to sustain withdrawals without affecting the underlying yield strategies adversely. Analyzing daily transaction volumes and liquidity patterns can inform a prudent borrow limit.

In the case of yETH, the depth in the yETH/ETH Curve liquidity pool has shown a significant increase of 20% during the soft launch period. This enhancement in liquidity depth is indicative of greater market confidence and robustness, providing a stronger buffer against price volatility and slippage, which are crucial for maintaining collateral stability in lending operations. The backing of yETH remains a well-diversified basket of LSTs. The protocol allows for proportional withdrawals from yETH into the constituent LSTs or for withdrawals focused on any single one of them. Furthermore, the RWG maintains close contact with the Yearn core contributors team as well as yETH admirers. This ongoing communication helps ensure that our risk assessments are informed by the most current insights and developments, facilitating timely updates to our models and strategies.

The interaction between the various market parameter settings are complex and often non-linear. Our in-house models provide valuable insights into these dynamics, enabling us to fine-tune the parameters for optimal performance. When modeling for parameter values, we value above all else that current settings are generally favorable for liquidators. This is crucial as active liquidator participation is essential for the health of the protocol. At the same time, analysis should also suggest that parameters we decide on are such that liquidation cascades are extremely unlikely given present-day on-chain liquidity and competitive markets.

Parameter Recommendations:

  • The RWG approves an increase in the collateral factor of the st-yETH market from 70% to 75%.
  • The RWG approves an increase in the daily borrow limit of the st-yETH market from 100,000 to 200,000 DOLA.
  • Supply ceiling, liquidation factor, liquidation incentive, and minimum debt amounts are recommended to remain unchanged due to their effectiveness in managing risks and maintaining market equilibrium.

The recommended changes are designed to have no adverse impact on the protocol’s ability to conduct profitable liquidations or increase the risk of liquidation cascades, as per the findings from the FiRM collateral parameter modeling.


As always, a meticulous approach toward parameter settings is crucial to ensure stability and risk mitigation in the protocol. The RWG utilizes both quantitative and qualitative measures to come up with market parameter recommendations. These changes are designed to optimize the market’s performance on FiRM, balancing growth opportunities with risk mitigation, and underlining our commitment to market stability and user security.

On-Chain Actions

  • Set FiRM’s st-yETH market’s Collateral Factor to 75%
  • Set FiRM’s st-yeTH market’s Daily Borrow Limit to 200,000 DOLA