[OGP-08] - Ethos Reserve V2 Implementation

Proposal Title: Ethos Reserve V2 Implementation

Proposal Chain: Optimism
Proposal Type: Ecosystem Sentiment Vote
Proposal Author: Justin Bebis / A S
Date: 10/20/2023

Executive Summary:

The OATH Foundation proposes the implementation of Ethos Reserve Version 2 (Ethos V2), which aims to enhance the existing Ethos Reserve protocol with a range of improvements and updates. Ethos V2 seeks to address key challenges in the DeFi ecosystem and provide a more efficient, secure, and versatile CDP platform that will push the boundary of decentralized stablecoins.

Proposal Motivation:

The team’s motivation for submitting this proposal is rooted in the rapidly evolving DeFi landscape. We have identified critical issues in decentralized stablecoins, including the challenge of maintaining a stable peg ($ERN currently sits at $1.04 at the time of writing this proposal). Ethos V2 aims to tackle these issues by leveraging its unique mechanisms to drive further protocol adoption and maintain a peg around $1.00.

Proposal Specifics:

Our team proposes a migration of the Ethos Reserve platform to a V2 implementation.

Ethos V2 builds upon the foundation of the current protocol. It includes the following updates and features:

  • Robust Support for Interest-Bearing Collateral: Ethos V2 will enhance support for interest-bearing collateral, including tokens like $wstETH, $swETH, and $frxETH. Asset types will be determined by governance. This update will provide added debt ceilings and reward hooks for improved incentive alignment alongside enhanced configurability to handle exotic collateral types.

  • One-Click Leverage Tools: Users will be able to leverage their debt positions with a single click, and have the ability to easily unwind and repay in the same manner.

We will outline features in more detail in the Risk section of this proposal.

Team Experience:

Our team, colloquially known as Byte Masons, is an engineering firm with extensive experience in Ethereum Security and financial engineering. We built Ethos Reserve V2, and our team has worked for months engaging with hedge funds and institutions to better understand their mandates and needs as they pertain to the Ethos Reserve platform.

Key Objectives & Success Metrics:

The primary objectives of Ethos V2 include improving accessibility and performance of $ERN for DeFi funds and users, growing the addressable market, and scaling the Ethos Reserve platform. Success will be measured by the growth in adoption, improved peg stability, and user satisfaction.

Length of Engagement & Budget Breakdown:

The deployment of Ethos Reserve V2 will be a comprehensive and ongoing process. So far, months have been spent designing and implementing changes by an OATH Foundation core engineer, with multiple code and security reviews throughout the process by secondary engineers and 3rd party auditors.

Maintenance of the platform primarily involves monitoring, adding new assets, and funding the stability pool. These are minor tasks, and will be performed in conjunction with the implementation of updated periphery including $OATH tokenomics and maintenance of the Digit platform.

Community Support:

We seek the support and engagement of the OATH community in upgrading the Ethos Reserve protocol. Community feedback and collaboration are vital for the success of Ethos V2, and we are committed to actively involving the community throughout the implementation process.

We specifically ask for feedback about asset support for Ethos Reserve V2, and will be shipping a proposal gauging user interest in a list of assets curated by our team. Please use this post as a vehicle to voice opinions and concerns about various collateral types.


With Ethos V2, we seek to enhance our existing partnerships by re-pegging $ERN to $1 and adding support for new collateral types. Not only will this allow us to support the mandates of delta-neutral stablecoin funds and risk-sensitive asset managers, but the strategic addition of new collateral types will allow us to unlock new markets.

Risk Assessment:

Ethos Reserve V2 was designed to be minimally invasive, making small updates to interfaces and changing no core business logic. Below, we highlight each new feature and its associated risks.

Ethos Hooks

This feature adds an external function call to a parent delegator contract for each collateral type, allowing us to extend functionality of the Ethos Reserve system without altering business logic.

This pattern is especially useful because it allows execution of arbitrary business logic with no risk to the core platform. The purpose of this system is to enable our team to add functionality to Ethos and external platforms over time without need for migration.


BorrowerOperations Interface Update

We added openTroveFor and adjustTroveFor functions to the BorrowerOperations interface in Ethos Reserve that allow permissioned, delegated management of positions on Ethos Reserve. Typically, securing functions like this would require implementation of an approval mechanism or similar, but we have opted instead to allow only the Leverager contract to use the interface.

This inhibits future extensibility but is a more secure approach overall and any extensibility issues can be navigated through proxy patterns and other abstraction methods.


Collateral Configuration

These functions enhance the CollateralConfig contract with a permissioned function that allows an administrator to add new collateral types and make updates to existing collateral types. This is controlled by a 4/7 multisig composed of OATH Foundation members, who are all contracted and vetted by the Byte Masons engineering firm.

The risks associated with this change are the possibility of unauthorized administrative actions. Overall, however, the risk profile of the platform does not change as similar actions are already possible.

Any administrative actions that alter the risk profile of Ethos Reserve will go through governance before execution.


Addition of Debt Ceilings

Because we seek to add interest-bearing collateral to the platform, there will be an influx in short interest in $ERN from users leveraging wstETH or similar collaterals. To manage these new collateral types and ensure healthy, balanced growth of the ecosystem, we have introduced limits to the amount of $ERN that can be issued per collateral type.

In practice, these debt ceilings will primarily be applied to interest-bearing or exotic collateral types to limit Ethos Reserve’s exposure. These debt ceilings will be increased alongside yield and liquidity depth.

Keep in mind, these efforts are designed to limit the amount of collateral redeemed on Ethos, as we see it as a fairly miserable UX. There will always be a hard peg at 99.5 cents for $ERN.



The Leverager’s primary risk stems from its ability to use the adjustTroveFor and openTroveFor functions. This is a tight integration designed to allow users to manage positions directly from their EOA. Because of the strict requirements when opening a position on Ethos Reserve, however, the risk is fairly minimal as the Leverager must abide by both system invariants and user token approvals and balances. Combined with extensive code review and an audit, we believe the risks of this integration are suitable for production release.

The economic risk to the system stems from the ability to open leveraged short trade on $ERN with extreme efficiency. This of course means users can also leverage long on their collateral assets, and we believe this speed and efficiency is necessary to realize the full economic benefit of Ethos Reserve.

With careful management of debt ceilings along with the mint fee to prevent toxic arbitrage, our team has the tools to manage the peg successfully with few redemptions.


Additional Details:

Counter Asset for bOATH

We are considering a move to 80% OATH and 20% ERN for the new counter asset, but can also keep OATH/ETH. Input here before this proposal is shipped would be much appreciated.

Starting Collateral Types

Despite the competitive LTV, we see little utilization of OP tokens on the platform. It may be worth deprecating this collateral type.

For interest-bearing collateral, what should we add? wstETH seems obvious, but are there any others we should consider?

Exotic Collateral LTV

We can set low collateral ratios for interest bearing collateral, but it won’t be necessary to be the most competitive lender because users are already getting an amazing deal. Using wstETH as an example, I propose a low Minimum Collateral Ratio - between 110% and 115% with a higher Critical Collateral Ratio - closer to 130-150%.

This would ensure users taking on leverage in size would need to respect the higher CCR requirements, but smaller users who may benefit more from the leverage can sneak in closer to the MCR.


First! :slight_smile:

Thrilled to be kicking off the discussion here.

V2 implementation seems like a no brainer imo. This broadens our addressable market while providing downward pressure on the peg, hard to see it as anything but a win-win.

As far as LST collateral types, wstETH would be my top pick by far. I would urge everyone to consider the amount of liquidity there is for these tokens on Optimism when it comes to support and subsequent debt ceilings. Very important when it comes to liquidations and can also indicate the level of user interest on Optimism.

Overall super excited about this proposal going live and curious to hear everyone’s thoughts on the matter.


I fully support the migration to V2!

I like the idea of having a few LSTs available, especially wstETH. I feel that there is a bit of a chicken-and-the-egg scenario with other LSTs on Optimism. There aren’t too many compelling LST yield opportunities on the network to bring in more liquidity, but offering them on Ethos V2 could potentially bring in more liquidity. Offering a few LSTs coupled with conservative initial debt ceilings could be great at gauging how liquidity reacts.

My favorite LSTs would be:
tier 1: wstETH
tier 2: sfrxETH, swETH, cbETH
tier 3: yETH


This is a great proposal and in principle I am fully supportive.

I would prefer to keep OATH/ETH because I like ETH as a highly liquid trade route, but am open to considerations for OATH/ERN.

One idea for OP as collateral is to implement an OP governance delegation program but that is a seed idea and I have not considered resources required. Beyond that, if it is not seeing utilization then I am in favor minimizing technical and maintenance debt and removing it as collateral.

wstETH is an obvious choice for exotic collateral. rETH has deep liquidity on optimism as well. I am a fan of swETH and note that the Ethos team and Swell team already communicate about BD. yETH is good for the same reasons; Yearn and Ethos will be working closely together so this one makes sense.

Excited to see this progress through discussion, voting, and hopefully launch!


Everything here sounds great. Especially adding sfrxeth :slight_smile: I’d also suggest sfrax.

Thoughts -

Counter Asset for bOATH

1 - I imagine keeping the Oath/ETH LP would lead to less IL over the next upswing. That said… It would be interesting if bOATH could be switched from OATH/ETH to Oath/ERN when the community feels like the market is changing directions

2 - What about Oath/stERN as a possibility for bOATH?

Debt Ceilings

  1. How will the debt ceilings for each asset be determined? What events would need to take place to raise or lower it?

Exotic Collateral

  1. Would using veNFTs be technically possible as collateral? I imagine that could be challenging to implement, but I can imagine some people wanting to use veVelo as collateral, and the benefit for ethos to control that potential voting power would be a plus.

It’s a no brainer Yes for me on this Proposal.

  1. About the counter asset for bOath, I also prefer keeping wEth.
  2. About other collateral types for Ethos, besides wBtc and wEth, and LSTs, I don’t see any other solid options here, especially during this bear market . Maybe we should focus on attracting more TVL from those assets.
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Great Proposal, LFG!

I would prefer OATH/ETH for bOath. Less IL. What are the considerations to opt for OATH/ERN? Please elaborate.

w/r/t/ LST’s I would focus on the biggest 2 available on OP


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Great proposal, in favor of the implementation of Ethos V2.
Also say that I completely agree with Yuvi’s comment about keeping OATH/ETH,
his idea about the OP token and about adding yETH.
Looking forward to V2 arriving soon ^^


Lovely Proposal and very much needed. The biggest obstacle standing in the way of $ERN expansion it’s the over peg price action. With Ethos V2’s introduction of LSTs as collateral types we are paving the way for stablecoin domination!

I would like to highlight to points:
1.) We should be careful with what assets we list as collaterals in order to preserve stability in $ERN. I have heard mentions of swETH which I don’t think it a smart choice for example. Nothing against the project itself and I think we need plenty of LSDs to further diversify the market but swETH in particular doesn’t have redemptions live (afaik) so they are at much higher risk of depegging than stETH for example.

2.) I think we should keep OATH/ETH as the de facto bOATH pair. Leaving aside USDC and USDT, ETH is the main liquid medium of exchange in DeFi. Having a deep OATH/ETH pair is fundamental to facilitate big swaps in and out of OATH and further integrate OATH in DeFi, let is be as collateral on other lending platforms or CDPs.


This is a cool concept but is far out of scope because of the security infrastructure required to support veNFTs as collateral (oracles, liquidation mechanics, etc.)

Great ideas though, keep flowing

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This is great insight.

With regards to LST assets, only wstETH and cbETH have full chainlink oracles. rETH currently has a calculated oracle and sfrxETH isn’t supported yet. Maybe @jonsteps can help us understand the Frax timelines better. My vote is for wstETH mainly because of its deep liquidity and broad infrastructure. cbETH or rETH would be fine options as well if we can secure interested LPs from their organizations.

I definitely think the choice with ETH is smart, as the 20% ERN wouldn’t be worth the lesser liquidity.

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OATH/ETH seems to be the most popular choice so far, making a switching mechanism would be cool but definitely out of scope for now.

OATH/stERN would be possible but it would get little trading volume.

To choose a debt ceiling, we will look at Optimism market liquidity for each asset alongside trading volume and total DeFi market liquidity, then select an LTV that ensures these elements are all in balance. For liquid staking tokens, we would calculate the amount of ERN that can be shorted at any given point without pushing $ERN below a dollar and allow ~60% of that value into the system, ramping up over time and as we analyze behavior of borrowers.

veNFTs as collateral would probably require a unique OATH Chapter to support considering their novelty. Exotic probably goes as far as liquid staking tokens or similar assets for Ethos due to its risk-off nature.


also, currently setting up a public repository for Ethos V2 for review, currently the github links are private. apologies!

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1.) I prefer OATH/ETH for bOath, more trading volume and less IL for those who view it that way.
2.) Exotic collateral - IMO it should start with only the most vetted assets, adding more as they earn a reputation that coincides with Byte Masons values & standards.

Lets get this baby to a vote


love it, Teenus, agree wholeheartedly

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I can’t believe I am 5 days late but…

1- pair for bOath: I prefer Eth. But technically possible and worth it we could make both option’s available? Then both lps minting the same bOath? Or minting a different token with same name (bOath) and both get rewards the same way? I am just thinking about the possibilities to let open to people that prefer stables over any other token. But to be honest cant think of anyone that prefer stables over Eth.

2- Assets to be accepted: I have no technical knowledge for suggesting what is good and what is too risky. My only point is: keep it safe. No point on getting bit tvl and blowing up some time after. We have seen this over and over. I know byte masons are not stupid, but sometimes getting over excited makes us “too brave”. Staying safe and not getting exploited or similar is the best choice. Of course that comes with the trade-off of having more difficulty to scale.

Excited for v2 launch. And finally the bOath relic


Hi fam!

Would want the bOATH to continue as ETH-OATH!

Also wanted to enquire, any LPs planned as collateral?


At the moment, no. Down the line, as better infrastructure for LP pricefeeds is built, this will become possible.


Chiming in that I also like OATH/ETH as the bOATH composition. FWIW


I also support continued OATH/ETH