# 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](https://app.gitbook.com/u/eMeLAVOk9dW9L8XS5kwelK8D2ua2) 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="" %} > ***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)`

Parameter	Recommended	Rationale
Enable Borrow	Yes	Standard for blue-chip collateral; limits via caps.
Enable Collateral	Yes	ETH-class collateral w/ conservative LTV/LT.
Supply Cap	225 wETH	Within Re7 “realistic” 35–40 wETH band; sized to ensure profitable liquidations under local DEX depth.
Borrow Cap	112 wETH	50% of Supply Cap to limit borrow-driven sell pressure in shallow markets.
LTV	70%	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="" %} * **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.