# Onboard wETH (LayerZero OFT) to Bonzo Lend * **Submission Date:** October 28, 2025 * **Implementation Date:** Upon approval (est. October 30, 2025) * **Author(s):** [Re7 Labs](https://www.re7labs.xyz/) / [Bonzo Finance Labs](https://bonzo.finance) * **Bonzo Finance Voting Interface:** Change Memo * **Related Memos / Discussion:** None * **Historical Risk Parameter Updates:** [Link](https://docs.bonzo.finance/bonzo-risk-framework/asset-risk/risk-parameters-per-asset) * **Re7 Analysis**: [Link](https://files.gitbook.com/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FRl3dkXEKv1yqGhH70g65%2Fuploads%2FOxIUnwEkuLuHbHv0cdfj%2FWETH%20Risk%20Parameters%20for%20Bonzo%20-%20Oct%2024.pdf?alt=media\&token=8cd7eb27-d18b-49ed-a2c4-e48bbf0da156) * *Addendum: Analysis performed prior to the addition of liquidity to the HBAR/WETH SaucerSwap v2 pool; at current liquidity depth / width, recommended supply cap is 220-230 WETH.* ## Simple Summary This memo proposes listing wETH (LayerZero OFT) on Bonzo Lend with conservative, liquidity-aware risk parameters derived from Re7’s analysis of local Hedera DEX depth and liquidation feasibility, plus alignment to industry norms (Aave/Compound) where appropriate. **Primary levers:** * Supply & Borrow Caps * Loan-to-Value (LTV) * Liquidation Threshold (LT) * Liquidation Bonus (LB) * Reserve Factor (RF) * Close Factor (CF) * Interest Rate Model ## Motivation **User demand & composability:** ETH exposure is a cornerstone collateral across DeFi; adding wETH enables safer leverage, hedging, and cross-asset strategies on Hedera. **Liquidity-constrained venue:** SaucerSwap’s [HBAR/WETH depth](https://www.saucerswap.finance/liquidity/0.0.10018365) and [USDC/WETH depth](mailto:undefined) is meaningful but not yet comparable to mainnet venues; parameters must assume shallow local unwind paths and favor liquidation success over peak capital efficiency. **Industry anchors:** Mature markets (e.g., Aave v3) run WETH with LTV ≈ 80%, LT ≈ 82.5–85%, LB ≈ 5%, RF ≈ 15% (varies by instance). Bonzo’s initial settings intentionally underrun these to reflect Hedera-side liquidity and bridge risk. **Bridge/OFT considerations:** LayerZero OFT tokens add messaging & DVN assumptions; listing starts with tighter caps and explicit monitoring. ## Method (Re7) Re7 modeled DEX price impact vs. liquidation profitability, linking caps to swaps that keep price impact below the liquidation bonus; they present conservative/realistic/capital-efficient supply-cap bands and a recommended parameter set tailored to today’s Hedera liquidity. {% file src="/files/tvbF3Xf5Jgv1gIzKyLJf" %} > ***Addendum**: Analysis performed prior to the addition of liquidity to the HBAR/WETH SaucerSwap v2 pool; at current liquidity depth / width, recommended supply cap is 220-230 WETH.* ### Specification (Initial Listing — Phase 1) **Asset:** `wETH (LayerZero OFT on Hedera)`
ParameterRecommendedRationale
Enable BorrowYesStandard for blue-chip collateral; limits via caps.
Enable CollateralYesETH-class collateral w/ conservative LTV/LT.
Supply Cap225 wETHWithin Re7 “realistic” 35–40 wETH band; sized to ensure profitable liquidations under local DEX depth.
Borrow Cap112 wETH50% of Supply Cap to limit borrow-driven sell pressure in shallow markets.
LTV70%Below Aave’s typical ~80% to reflect Hedera liquidity/bridge risk.
Liquidation Threshold (LT)75%5% gap vs LTV gives reaction time and supports higher LB; wider than some mainnet settings.
Liquidation Bonus (LB)7%Above mainnet norms (~5%) to ensure liquidation profitability in shallower liquidity.
Reserve Factor (RF)20%Above Aave’s common 15% to accrue extra safety reserves in low-liquidity conditions.
Close Factor (CF)50%Industry-standard to prevent full wipes and smooth execution.
Interest Rate Model (Variable)

Base 0%

Uopt 80%

Slope1 3.3%

Slope2 85%

Uses well-understood WETH curves observed across Aave v3 markets (0% base; 80% kink; low Slope1 to target Uopt; high Slope2 to protect tail liquidity).
> **Note on cap sizing:** *Analysis report was performed prior to the addition of liquidity to the HBAR/WETH SaucerSwap v2 pool; at current liquidity depth / width, recommended supply cap from Re7 is 220-230 WETH; **225 wETH** is selected to balance utility with liquidation success given a 7% LB.* ## Impact & Rationale ### **Why these levels now** * **Liquidation feasibility first:** With LT 75%, LB 7%, CF 50%, worst-case unwinds remain profitable for liquidators under modeled price impact bands, reducing bad-debt risk if markets gap. * **Conservative vs. Aave:** Aave’s WETH often sits around LTV ≈ 80/LT ≈ 82.5 with LB ≈ 5%; Bonzo starts at 70/75/10 to account for Hedera liquidity and OFT bridge risks, then ratchets up as liquidity deepens. * **IR curve choice:** 0% base, U*opt* 80%, and modest Slope1 (3.3%) encourage healthy utilization without inducing rate spikes; Slope2 85% sharply disincentivizes >80% utilization, preserving on-chain liquidity for liquidations. ### **Bridge/OFT risk notes** * Listing an OFT-bridged wETH introduces messaging/DVN trust assumptions; therefore, caps and RF are higher than mainnet peers, and monitoring (below) is mandated. ## Monitoring, Triggers & Next Steps ### Operational monitoring (weekly and on 10% price moves) * **Dex Depth Check:** Track SaucerSwap WETH/HBAR active liquidity and effective swap impact bands; revisit caps if active liquidity falls materially. * **Utilization & Rates:** If wETH utilization persistently >85% or <30% for 3+ days, consider Slope1/U*opt* nudges (industry precedent). * **Bridge/DVN Health:** Track LayerZero incident advisories and DVN composition changes; pause increases or reduce caps on adverse signals. * **DEX liquidity deterioration:** 14-day average active WETH liquidity down >40% versus today’s baseline. * **Volatility shock:** 24h WETH/HBAR move >20% or repeated >10% shocks over 72h (per Re7 tail analysis). * **Bridge risk elevation:** Verified DVN/endpoint incident or materially increased trust assumptions. ### **Phase-up plan (subject to passing all guardrails for ≥2 consecutive weeks)** * **Step 1:** Supply Cap 50 wETH, Borrow Cap 30 wETH (unchanged LTV/LT/LB/RF/CF). * **Step 2:** If local depth materially increases (or Bonzo LP boosts are deployed), consider LTV 75%, LT 80%, LB 6% (approaching mainnet norms), with independent memo and stress test. ## Implementation * Configure wETH (LayerZero OFT) with the Phase 1 parameters above. * Announce listing + parameters in Bonzo docs / interface. * Begin monitoring loop (weekly + on 10% price moves). * Prepare follow-up memo for any cap increases or LTV/LT/LB adjustments post-stabilization period (≥2 weeks). ## Appendix — Parameter Sources & Industry References * **Re7 Labs:** **WETH Risk Parameters for Bonzo Lend** (Oct 2024) — liquidity analysis, cap bands, and recommended settings. {% file src="/files/tvbF3Xf5Jgv1gIzKyLJf" %} * **Aave references (comparables / norms):** parameters & governance threads on LTV/LT/LB/RF/IR curves ([1](https://governance.aave.com/t/arfc-aave-v3-deployment-on-base/13708), [2](https://aave.com/docs/resources/parameters), [3](https://aave.com/docs/developers/smart-contracts/interest-rate-strategy), [4](https://governance.aave.com/t/gauntlet-interest-rate-recommendations-for-weth-and-wmatic-on-v2-and-v3/14588)) * Close factor conventions & liquidation literature. * LayerZero OFT / DVN risk background. --- # Agent Instructions: Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter: ``` GET https://docs.bonzo.finance/bonzo-risk-framework/change-memos/october-2025/onboard-weth-layerzero-oft-to-bonzo-lend.md?ask= ``` The question should be specific, self-contained, and written in natural language. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.