Onboard wETH (LayerZero OFT) to Bonzo Lend
Submission Date: October 28, 2025
Implementation Date: Upon approval (est. October 30, 2025)
Author(s): Re7 Labs / Bonzo Finance Labs
Bonzo Finance Voting Interface: Change Memo
Related Memos / Discussion: None
Historical Risk Parameter Updates: Link
Re7 Analysis: Link
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 and USDC/WETH depth 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.
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)
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, Uopt 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/Uopt 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.
Close factor conventions & liquidation literature.
LayerZero OFT / DVN risk background.
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