Source: DeFiLlama - OETH TVL

Looking at Origin Analytics, Protocol owned liquidity (POL) continued to decline and now represents 18% of total supply. The upward TVL trend seen in the initial report has since flattened.

Source: Origin Analytics - OETH Total Supply

2.1.2 Transaction Volume

Note: Transaction volume includes all on-chain operations, including mint, burn and all other methods. Transaction count includes all on-chain token transfers.

Source: Etherscan and CoinGecko

In our initial analysis, Curve exploits caused three days to experience significantly larger trade volumes and therefore skewed the average at the time.

Source: CoinGecko | 04/26/2024 - 07/25/2024

Recent trade volume has seemingly declined, with July 2024 only experiencing 2 days of trade volume over $1M.

Source: Etherscan | 04/26/2024 - 07/25/2024

On-chain transactions have experienced a general uptrend from June to July.

2.1.3 DEX Volume

DEX volume remained low since the drop off seen a year ago.

Source: Dex Guru | 07/07/2024 - 07/25/2024

2.1.4 Average Transaction Size

Relative to the initial all-time 62.24 OETH average transaction size, there's been a decline to 51.97 OETH.

Source: Bitquery Explorer

2.1.6 Active Addresses/Users

Note: According to the Token Terminal methodology, an active user is an address that has interacted with at least one of the six Origin protocol smart contracts: OGV, OUSD, OETH, OUSD Vault, OETH Vault, and OUSD Flipper.

Active daily users have grown significantly. In the initial analysis observation over a 90-day period, the Origin protocol recorded 130 active users, averaging 1.44 active users daily. Now the daily figures are regularly double digits, with a high of 241 active addresses in a single day (05/24/2024) and low of 24 (07/26/2024).

Source: Token Terminal

2.1.7 User Growth

Source: Etherscan

2.1.8 DeFi Integrations

In our initial analysis, the vast majority of OETH held in contracts was in Curve pools, with a minor presence on Pendle yield futures platform. Integrations have increased, introducing wider DeFi utility mainly on Arbitrum. Full list of OETH ecosystem.

• Morpho Blue: Peer-to-peer lending, wOETH/WETH pool.

• EigenLayer: Restaking, LST collateral. Eigenpie Pendle: yield futures protocol that allows users to earn a fixed yield on their OETH.

• Silo Finance: WOETH/ETH/USDC.e money market

• Curve: OETH/ETH pool, primary DEX that contains protocol owned liquidity via the AMO.

• Dolomite: Margin trading and lending protocol, wOETH

• SummerFi: ETH/wOETH derivative looping via Morpho.

• Shezmu: Collateralized Debt Position (CDP) platform.

• Interest Protocol: Collateralized Debt Posiiton platform to mint the USDi stablecoin.

• Davos: Collateralized Debt Position (CDP) platform to mint the DUSD stablecoin.

• Origami Finance: Automated leverage protocol.

• InceptionLRT: A protocol for streamlining restaking processes.

• Zerog: A liquid restaking protocol.

2.2 Competitive Analysis Metrics

2.2.1 Market Share

OETH now falls within the LSD market and as a new entrant its TVL market share only accounts for 0.278% (37,721 ETH / 13.56M ETH) as of 07/26/2024. Relative to other participants this places OETH in 12th position out of 28 tracked by DeFiLlama.

2.2.2 Trading Volume Share in Total LSD Trading Volume

Source: CoinGecko | 4/24/2024 - 7/23/2024

Compared to the LSD’s previously onboarded to Prisma (wstETH, rETH, sfrxETH, cbETH, ETHx), OETH volumes are, on average, lower than wstETH, rETH and cbETH in daily volume but performs marginally better than sfrxETH and ETHx over the 90 day period observed.

Source: CoinGecko | 4/24/2024 - 7/23/2024

2.2.3 Protocol Staking Yield

As noted in the initial report, higher historic yields were associated with CRV and CVX rewards farming; this continued decline could be attributed to a reduction in asset allocation to AMO strategies due to a prior vote (see section 1.1.1) and a higher allocation to SSV due it being a more scalable yield source, according to the Origin team.

Source: Dune Analytics - OETH APY

OETH still outperforms onboarded LSD’s, rETH, stETH and sfrxETH but its lead has narrowed.

Source: DeFiLlama | 04/24/2024 - 07/23/2024

2.2.4 Slashing Rate

No SSV validators have been slashed to date. Additionally, staking service provider, P2P has also not been slashed.

2.3 Subsidization of Economic Activity

2.3.1 Existence of an Incentive Program

As described in section 1.1.7, OGN has since inherited OGV/veOGV governance and value accrual properties. In addition to OGN staking rewards (xOGN) from OETH and OUSD performance fees, a 1-year incentive program of ~6.84 OGN/block has been allocated to OGN stakers, beginning May 28, 2024. Other incentives programs related to driving OETH adoption include (related to LST model):

• Dolomite: Origin allocated 24,000 ARB to the Dolomite wOETH pool, starting July 2024 to incentivize liquidity.

• primeETH: an OETH backed liquid restaking derivative. Following a merger with YieldNest LRT ynLSD, a portion of YieldNest’s governance token YND has been allocated to holders and xOGN (2.5%) as a part of the migration.

• Morpho: wOETH/WETH pool liquidity incentives worth $45k in OGN rewards over 3 months & 6667 MORPHO over 30 days from June 6 2024.

• Arbitrum: 185,000 ARB incentives for wOETH users on Arbitrum over 12 weeks (from May 2024), with distributions to AMMs and money markets on the network. (allocations were made to Gyroscope, Ramses and Silo Finance incentives)

Recent incentives in Arbitrum indicate a push to expand OETH usage and utility to another network.

Section 3: Market Risk

3.1 Volatility Analysis

3.1.1 Liquid Staking Basis (LSB)

Note: The LSB (Liquid Staking Basis) represents the price difference between OETH (liquid staking token) and its underlying asset, ETH.

Source: Coingecko Historical Data | 04/24/2024 - 07/23/2024

LSB between OETH and ETH appears to have increased when comparing the absolute values of the 90 day averages of 0.31% and 0.12%.

3.1.2 Relative Volatility

OETH daily returns averaged 3.022%, previously this was 1.77%. Compared to ETH average daily returns are 3.001%, so this is inline with the underlying asset.

Source: Coingecko | 04/25/2024 - 07/24/2024

3.1.3 Yield Volatility

Note: Yield volatility is calculated from reported DeFiLlama APY compared against the STYETH ETH staking yield index.

OETH yield for periods experienced less volatility than the index.

Source: DeFiLlama and Compass ETH Staking APY index | 04/25/2024 - 07/24/2024

Additionally, OETH yield outperformed the STYETH index (3.80% vs 3.26%) and generally exhibited more consistent yields.

Source: DeFiLlama and Compass ETH Staking APY index | 04/25/2024 - 07/24/2024

3.2 Liquidity Analysis

3.2.1 Supported DEXs and CEXs

Previously, OETH liquidity was concentrated on Curve but has now expanded to centralized exchanges MEXC and Poloniex. wOETH is also supported on Arbitrum but is limited to Balancer.

Source: Coinmarketcap

3.2.2 LSD Token Total On-chain Liquidity

Liquidity still seems to be concentrated on Curve (98%), similar to the 97% share seen in the initial analysis. Total on-chain liquidity reported by DexGuru is ~$44.23M.

Source: DexGuru | 07/22/2024

3.2.4 Leverage Ratio

wOETH is listed as collateral on the following money markets:

• Morpho: Mainnet wOETH/WETH pool, with a 86% liquidity LTV.

• Silo Finance: Arbitrum WOETH/ETH/USDC.e, currently 0% utilization.

• Dolomite: Arbitrum wOETH, 80.00% liquidation threshold

• SummerFi: ETH/wOETH derivative looping via Morpho.

• Shezmu: ETH money market, wOETH.

• Interest Protocol: Mainnet with max 50% LTV.

• Davos: Mainnet with max 66% LTV.

• Origami Finance: Mainnet, 5x leveraged strategy on Morpho's lend market (86% LLTV).

Source: Dolomite

Source: Morpho

Utilization is most active on Morpho, while the Silo WOETH/ETH/USD.e market on Arbitrum has somewhat lower utilization (35% on ETH and 3% on USD.e). This could be due to the recency of these markets, as incentives were announced fairly recently (see section 2.3.1).

3.2.5 Slippage

Source: DeFiLlama | 07/27/2024

Price resistance has declined slightly, with more marginal slippage being affected by a lower dollar value and quantity of OETH.

Section 4: Technological Risk

4.1 Smart Contract Risk

4.1.1 Protocol Audits

2 recent audits have been done that relate to OETH:

• Perimeter, OETH Vault Fuzzing, March 2024

• OpenZeppelin, OETH Native Staking, June 2024

The Perimeter audit had 1 high risk finding, which seems to be mitigated with the 0.1% exit fee. The OpenZepplin audit focused on OETH’s integration with SSV Network (NativeStakingStrategy), observing 2 medium and 1 low severity finding. 1 medium and the sole low severity concerns were resolved, while the remaining medium severity finding was acknowledged but now resolved.

4.1.2 Concerning Audit Signs

Due to rounding errors in the amount minted, amount redeemed, and yield gained after rebasing, a malicious actor could receive a yield in OETH redeemable for more WETH than minted to the vault before the rebase (stealing from other users and the vault). An example is a potential sandwich attack around a rebase transaction. A recommendation was made to remove rounding errors from the protocol or to keep the redemption fees sufficiently high. Potential loss of funds protections are essential and assessing whether the 0.1% exit fee is high enough to cover all rounding error scenarios.

4.2 Product and Layer Composability

4.2.1 Dependencies

SSV Network

Origin protocol integrates with the SSV Network to manage validators and staking operations. The NativeStakingSSVStrategy contract shares functionalities with other OETH contracts, with functions such as collectRewardTokens to gather both consensus and execution rewards and checkBalance to view the amount of ETH backing the strategy. Execution rewards are collected in the FeeAccumulator, which includes transaction fees and MEV rewards, whereas consensus rewards are sourced from the Beacon Chain.

As a Distributed Validator Technology (DVT) ETH staking network, SSV Network currently has over $3.6B in TVL, 1.1M ETH staked, 34,507 validators and 771 registered operators.

SSV audit history can be found here.

4.2.2 Withdrawals Processing

Withdrawals are no longer returned in LSDs but in WETH only. Withdrawals continue to be available with two active methods, one being integrated presently, and another in beta-testing.

Currently Available Withdrawal Methods

• Instant Vault Redemption: Users may pay a 0.1% fee to redeem OETH for WETH held in the Vault. This value is 311 WETH on 8/6/24 and is idle funds acting as a buffer. The fee accounts for rounding errors described in section 4.1.2.

• OETH AMO (Curve Pool): Users may directly swap OETH for ETH in the Curve pool. This value is 6,826 ETH. Swapping incurs a 0.04% swap fee and slippage depending on swap size. The Origin multisig can burn AMO OETH and exit staking validators as needed to balance the pool in case of heightened redemption demand.

• Async Withdrawal: The async withdrawal proposal is in governance at time of writing. According to the Origin team, it is expected to pass and will be executed this week. This will involve a queuing process as it involves exiting validators to process redemptions. It will honor withdrawals 1:1 with no fee.

Upcoming Withdrawal Methods

• Automated Redemption Manager (ARM): This innovative redemption process is undergoing testing and is intended to allow instant 1:1 swaps of OETH to ETH. Instead of using a bonding curve to price assets, it prices against borrow rates and the length of the redemption queue. Given that OETH can be redeemed 1:1 for ETH after some unstaking period, and the ARM can front ETH by charging the market rate, it can competitively quote the time value of the LSD.

Async Withdrawals

The introduction of async withdrawals presents a tangible improvement to the redeemability assurances of OETH, which until now has primarily depended on indirect redemption through the Curve pool managed by the OETH AMO. Since async withdrawals will become available imminently (the OETH withdrawal queue is expected to by live by mid-August), we explore the process further.

The design aims to allow both the public and the OETH ARM to make asynchronous, perfectly 1:1 withdraws. It should protect against yield attacks that can happen with a rebasing token, and prevent flash loan mint/redeem attacks from imprecisions.

A validatorRegistrator manages SSV validator registration, staking, exiting, and removal. This is currently a Defender that can be used by the OETH team or by automated Defender Actions. The automated doAccounting() processes will convert to WETH and transfer to the vault, precluding the Guardian role from actively managing the redemption flow.

Source: Origin GitHub

4.3 Oracles Pricefeed Availability

4.3.1 Understanding the Oracle

Development on the custom oracle that would use a dual data sourcing architecture was abandoned after a bug was found in Curve's oracle implementation. It was intended for the OETHOracle contract to be updated by the OETHOracleUpdater from aggregated on-chain OETH/ETH prices from Curve. Essentially, the OETHOracleUpdater isn’t used to update price data on the OETHOracle. The initial intent of the contract was to provide an oracle for lending platforms to price OETH as collateral.

The OETH/ETH oracle, an EACAggregatorProxy contract, is used as a trusted proxy (only access-enabled addresses) for updating price feeds fetched from an underlying Chainlink aggregator (a receiver contract for periodic data updates). Since the price feed went live (8/3/2024), the mean and median prices were 1.000385 and 0.996843 respectively over a 30-day period.

Source: OETH/ETH Price Feed Updates | 06/26/2024 - 07/25/2024

The Origin team indicated that potential consumers of the oracle should contact Chainlink before implementing and relying on the oracle, which they have facilitated for their other integrations with Morpho and Silo Finance. In Silo’s case, a custom oracle is used in their wOETH, ETH, USDC.e market which computes wOETH value by converting wOETH to OETH using the Chainlink wOETH-OETH exchange rate and hardcodes OETH 1:1 with ETH.

Given this utilization and further confirmation from the team, OETH is also treated as 1:1 with ETH in the OETH/ETH oracle. One possible risk vector noted by Silo was that “hardcoding OETH to ETH might prevent liquidations if OETH loses its peg to ETH”.

Note additional OETH oracles available by Tellor and DIA.

4.3.3 Attack Vectors

A high reliance on Curve OETH/ETH pool depends on the reliable operation of the pool and the AMO strategy. Additional possible vectors:

• Rounding error: possibility of sandwich attacks around a rebase transaction i.e. potential loss of user funds/yields, mitigated by exit fee.

• Centralized services provider: Since +700 validators are assigned to 8 P2P operators this introduces centralization risk. Organizational change or vulnerabilities relate to P2P could also affect validator operations.

• Custom oracle risk: as mentioned a depeg in OETH from ETH could prevent liquidation given hardcoding.

Section 5: Counterparty Risk

5.1 Governance

5.1.1 Governance Scope

In general xOGN controls the following protocol mechanics:

1. Yield generation

2. Fee collection and distribution

3. Contract upgrades

Changes to the OUSD and OETH contracts and the movement of funds require on-chain proposals, while most other proposals happen off-chain via Snapshot. Votes can be delegated for off-chain proposals only.

A minimum of 20% of the xOGN supply is required to reach quorum. All passing proposals are subject to the 48-hour timelock before being executed. Time-delayed admin actions give users a chance to exit OUSD or OETH if any malicious proposals are passed or the protocol is changing in a way that users do not like. These conditions are similar to the ones seen previously in veOGV.

Other participation criteria include:

• No minimum xOGN to vote on existing proposals,

• at least 5,000 xOGN to create a Snapshot proposal and

• 100,000 xOGN to create an on-chain proposal.

5.1.3 Distribution of Governance Tokens

Voting power and unique addresses that have voted is no longer visible from the governance portal. However when looking at individual proposals, we noted that the address associated with the Origin team still has unilateral power to govern the protocol (can pass quorum alone).

5.1.5 Participation

All off chain participation metrics have increased:

• Total Proposals: 96 > 117

• Lifetime Voters: 70 > 114

• Proposal Authors 18 > 22

• Proposal Pass rate 62% > 66%

Source: Messari Governor

Origin has made an effort to diversify governance participation through a University Governance Program. 10 universities in the USA have been allocated xOGN as part of the University Governance Program and have been participating in Origin governance at their own discretion, as each university sees fit.

5.2 Economic Performance

5.2.1 Revenue Source

The protocol charges a 20% performance fee (rebase events). 50% of the protocol fee is used to buy back OGN on the open market to be distributed as additional rewards for stakers, while the other 50% going towards acquiring flywheel tokens (CVX) to boost yield generation (see section 1.1.3 for full context).

5.2.2 Revenue

Source: OETH Analytics

Source: Token Terminal

5.3 Legal

The transition to a pure ETH liquid staking token design does not materially alter the legal risk assessment as established in the original report. Our conclusion is predicated on the fact that OETH continues to be backed 1:1 by ETH, preserving the essential characteristic that formed the basis of the initial risk evaluation.

Section 6: Risk Management

6.1.1 Market Risk

LIQUIDITY: Does the token have a liquid market that can facilitate liquidations in all foreseeable market events?

OETH liquidity still remains predominantly on Curve, with the AMO playing an important role in its liquidity management and additional revenue generation. This trade off, as previously noted, increases reliance on a single DEX for liquidity. The addition of 2 centralized exchanges improves the initial low market depth with consistent daily volume going through these CEXs (e.g. MEXC and Poloniex handled >70% 24h market volume on July 27).

VOLATILITY: Has the asset had any significant depeg events?

Relative to the initial analysis, price deviations were largely similar, with marginally higher deviations in LSB (market price in comparison to the underlying).

In terms of yield, volatility was comparable with the ETH staking index and outperformed it generally. The simplification of strategies employed also reduces the volatility risks associated with managing multiple strategies.

6.1.2 Technology Risk

SMART CONTRACTS: Does the analysis of the audits and development activity suggest any cause for concern?

The native staking model contracts have been audited and the discontinuation of multiple strategies removes a layer of complexity that created potential vectors. A new dynamic is introduced with the integration of SSV Network’s staking services, 3rd party smart contract dependency risk now becomes a factor to be aware of.

DEPENDENCIES: Does the analysis of dependencies (e.g. oracles) suggest any cause for concern?

Vault withdrawals are currently available, albeit in an incomplete form that relies on an indirect approach. The primary redemption mechanism currently requires OETH holders to swap through the Curve pool, which is regularly balanced via the OETH AMO. There is an improvement becoming available imminently with async withdrawals undergoing a DAO vote for integration. This will be supplemented at a later date with an innovative Automated Redemption Manager (ARM), a process that will allow immediate OETH:ETH swaps with no fee.

OETH utilizes a custom price feed that accesses aggregator Chainlink data via AggregatorV3Interface. The Chainlink compatible contract has yet to be audited but is currently used by Silo Finance for pricing collateral. In the event of a depeg of OETH to ETH, liquidations may be prevented. Since access is controlled it's reasonable to assume that there are anti-manipulation measures in the absence of an audit.

6.1.3 Counterparty Risk

CENTRALIZATION: Are there any significant centralization vectors that could rug users?

The team-controlled strategist multisig (Guardians) still controls important functions related to assets and operations, including pausing deposits and withdrawals. In the worst case, it may prevent legitimate withdrawal requests from being fulfilled, although its power is limited to controlling the flow of funds within the strategies approved by the DAO. The team-controlled admin multisig continues to have significant control over the outcome of voting, so although governance is on-chain, it has yet to progress to a level of being credibly decentralized.

The use of a single staking service provider also introduces another dimension of centralization, however since P2P provides services to over 130 institutional clients and has over $7.5B in TVL they should be considered a credible and low-risk operator.

LEGAL: Does the legal analysis of the protocol suggest any cause for concern?

The revised yield accrual mechanism, particularly the implementation of native staking and corresponding rewards, provides additional support for Origin Protocol Labs' position regarding the decentralized nature of OETH. The transition reinforces the argument that OETH is neither issued, custodied, sold, nor facilitated by a centralized entity. Furthermore, the shift to native staking-derived income mitigates counterparty risk (e.g. reduces reliance on potentially vulnerable lending strategies). This revised mechanism maintains consistency with the decentralized ethos of the protocol.

6.1.4 Risk Rating

The following chart summarizes a risk rating for wOETH as collateral based on the risks identified for each category. The rating for each category is ranked from excellent, good, ok, and poor.

• We rank wOETH as ok on liquidity (no change) because its liquidity profile has not materially changed since our previous review. The introduction of the ARM redemption mechanism positively influences OETH's liquidity profile.

• We rank wOETH as good on volatility (no change) because the protocol makes significant use of an AMO that should manage the peg during normal operation and has several redemption mechanisms deployed or in progress to manage the peg.

• We rank wOETH as good on smart contracts (improved from ok) because it removes complexity associated with additional yield strategies, although the protocol continues to roll out redemption mechanics that introduce potential for bugs.

• We rank wOETH as good on dependencies (improved from ok) because composability risk from yield strategies has been mitigated, a Chainlink feed is now available, and async withdrawals are recently introduced.

• We rank wOETH as ok on decentralization (no change) as the team continues to have majority governance power and the strategist multisig maintains a notable influence over protocol operations.

• We rank wOETH as good on legal (improved from ok) as the transition to a pure liquid staking protocol improves the case that OETH is not issued, custodied, sold, and facilitated by a centralized entity.