A Quick Look at the Assets New LSD Protocol OETH Opportunities and Risks

Origin Ether (OETH) Introduction

development path

In July 2021, Origin Protocol launched Origin Dollar (OUSD), a stablecoin that earns yield without collateral or asset lock-ups. The total market capitalization of OUSD is about $27 million, down from its peak of $30 million in early 2022 (before UST). Subsequently, Origin Governance Token (OGV) was applied to OUSD Token to promote decentralization and inclusive decision-making.

In May 2023, the protocol launched Origin Ether (OETH), an interest-yielding token pegged to the value of Ethereum, designed to capitalize on the Liquid Collateralized Derivatives (LSDs) trend and provide holders with hassle-free yield.

Team

Origin Protocol's core team consists of experienced professionals with backgrounds in various industries and companies, including Coinbase, YouTube, Google, Paypal, Dropbox, and Pinterest. The founder and several team members are serial entrepreneurs who have launched and successfully exited multiple companies.

The following is a brief introduction of the core team members:

Josh Fraser: Co-founder, co-founded three other VC-backed companies: EventVue, Torbit (acquired by Walmart Labs), and Forage.

· Matthew Liu: Co-founder, served as the third product manager of YouTube (acquired by Google), and vice president product manager of Qwiki (acquired by Yahoo) and Bonobos (acquired by Walmart).

**· Franck Chastagnol: **Engineering Director, has led engineering teams at Inktomi, Paypal, YouTube, Google and Dropbox.

**· Micah Alcorn: **Product Director, was the technical co-founder of WellAttended, a self-service ticketing management platform.

**·Linus Chung: **Vice President of Product, previously worked as a product director at Coinbase, and led product work at companies such as Tesla, Pinterest, and LinkedIn.

**· Andra Nicolau: **OUSD Director of Business Development. She was most recently Head of Growth at 1inch, raising over $250 million.

**· Justin Charlton: **Finance Director, worked for PwC and KPMG for seven years, designing budgets for satellite launches, and providing M&A and strategic consulting to technology clients.

YES Dapp

OETH can be minted through the Origin Dapp by offering ETH, WETH, stETH, rETH, frxETH or sfrxETH. The Dapp integrates several contracts (Curve Pool, OETH Vault, and OETH Zapper) to find the best route, taking slippage and gas fees into account. If OETH is lower than the anchor price, the router will acquire OETH already in circulation (obtained from the Curve pool or through Uniswap) instead of minting new OETH Token from the vault. OETH can be converted back to its portfolio or individual assets via Dapp.

OETH protocol overview

Contract Structure

The contract architecture uses the familiar proxy pattern around OETH vaults, where assets are escrowed and deployed to various policy centers that are governed and managed by authorized Strategists.

Vault

The OETH vault mints and burns OETH from WETH, frxETH, rETH, and stETH. Supported assets can be queried in getAllAssets. The vault is also a core system contract, hosting deposit funds and storing various strategies (see: getAllStrategies), where underlying assets are deployed for yield. It calculates the interest earned from the strategy and performs benchmarking of the OETH supply.

OETH redeemed from the vault will be returned to the user at an equal value for each supported asset (WETH, frxETH, rETH, stETH). A 0.5% exit fee is charged for direct redemption from the vault and returned to OETH holders. There is also a performance fee, assigned to the delegate address, which receives a 20% fee of the yield earned when calling the rebase function. The address is set to Origin's 2-of-8 Strategist multi-signature. The purpose of this fee is to accumulate Flywheel Token 100%.

Zapper

OETH Zapper is a smart contract designed to help users mint OETH using Ether (ETH) and Frax Collateralized Ether (sfrxETH), as OETH vaults only directly support WETH, frxETH, rETH and stETH. Such a setup increases the security of the system and optimizes gas costs during minting.

The Zapper feature can mint OETH in one transaction and automatically route ETH/sfrxETH to the Vault, then send the newly minted OETH to the depositor. Funds cannot be withdrawn from Zapper, but users can redeem their OETH via the OETH Vault in a combination of WETH, rETH, stETH, and frxETH or by selling OETH directly for ETH in the Curve pool.

Harvester and Dripper

OETHHarvester collects the rewards obtained by the strategy and sells them in the form of WETH, and then transfers the proceeds to rewardsProceedsAddress. This address is set to the dripper contract, which is designed to gradually distribute the full yield generated by the protocol to OETH holders within 3 days (see: dripDuration). This approach balances sudden fluctuations in yield and prevents potential attacks by removing the ability to predict important liquidity events within the protocol. Anyone can call the harvest function with a 2% reward as an incentive.

Oracle

OETH relies on Chainlink oracles to ensure proper Liquidity Staking Token (LST) pricing. OETH aims to always be backed up 1:1 with ETH, and the LSD price is calculated during the minting/redeeming process to prevent overpayment.

The contract call sets the minimum required amount to mint and redeem. This ensures that the transaction risk due to price changes, if the output of OUSD/OETH or stablecoin/LST is insufficient, the transaction will fail.

The protocol also uses Chainlink oracles when selling reward tokens on Ethereum for additional revenue. This helps ensure that sales price slippage remains acceptable, and this also applies to OGV repurchases in the proceeds of the agreement.

As of April 2023, Chainlink provides pricing oracles for stETH and rETH, while frxETH has a hard-coded 1:1 ratio. The Origin team plans to implement Curve's time-weighted price oracle for frxETH.

Oracle address:

· stETH/ETH: 0x86392dc19c0b719886221c78ab11eb8cf5c52812

rETH/ETH: 0x536218f9e9eb48863970252233c8f271f554c2d0

· CRV/ETH: 0x8a12be339b0cd1829b91adc01977caa5e9ac121e

· CVX/ETH: 0xC9CbF687f43176B302F03f5e58470b77D07c61c6

Adjust the baseline

OETH provides benefits to Token holders by rebalancing the benchmark. This process adjusts the total money supply according to the yield earned by the protocol. OETH dynamically modifies its money supply to ensure its value equals 1 ETH. At the same time, the Token balance in the holder's wallet will fluctuate in real time, reflecting the accumulated income of the agreement. Rebasing is "up only" and if losses are incurred due to strategy reallocation (transaction fees and slippage), rebasing will stop until gains catch up to repay debt. Other loss events, such as a strategy being hacked or a slashing of LSD, will cause the price of OETH to drop on major liquidity venues.

In order to receive benefits, smart contracts must actively opt-in to the protocol via the rebaseOptIn() function. This enables the protocol to optimize capital usage and enhance integration with DeFi protocols that were not originally designed to handle balance changes. Therefore, OETH operates as a regular ERC-20 Token in other DeFi protocols until a change is explicitly requested. The standard EOA wallet will be automatically added to the system without explicit selection. OETH managed by the AMO will not be rebaselined.

To verify that a specific address is configured to receive yield, a public function on the OETH contract can be called. The function returns an indicator showing whether the address has opted in or opted out, regardless of wallet type.

Encapsulated OETH

Origin also offers wOETH, an ERC-4626-compliant wrapped version of OETH in a fixed amount that appreciates in value. This feature makes wOETH compatible with other contracts and may offer tax benefits in some jurisdictions instead of rebasing. Unwrapping wOETH into OETH does not require approval or be subject to minimum deadlines or lock-up periods since the user already owns the wrapped version. Although the number of wOETH Token is static, the number of equivalent OETH unwrapped from wOETH can be gradually increased. The redemption function allows specifying the number of encapsulated Tokens to be unwrapped, and can also use the extraction function of Etherscan to specify the amount of OETH to be retrieved.

wOETH is still a fringe token with very few holders:

AMO

Origin employs an Automated Market Operation (AMO) design originally pioneered by Frax. AMO implements the ConvexEthMetaStrategy adopted by OETH Vault. AMOs operate by depositing funds into the Curve pool and distributing liquidity to both sides of the pool (ETH and OETH). Its primary function is to maintain the peg, improve capital efficiency, and optimize returns for OETH holders.

LP Token is staked into the Curve Gauge to maximize rewards (CRV and CVX). When these rewards are exchanged for ETH, the collateral formed is added to the Vault. Instead, the protocol can remove excess OETH from the pool to keep the price stable. Ultimately, the AMO can independently implement monetary policy within a closed system, provided it does not negatively impact the peg. The protocol claims that it remains fully collateralized even as the money supply expands and contracts automatically based on market conditions.

OETH Tokens generated by AMO are unique in that they are not backed by collateral provided by Vault. Think of the system as Vault pre-sold some OETH for Curve, and these tokens become 100% backed when they enter circulation. These tokens are self-backed and only circulated after collateralization. The user behavior of adding or removing OETH from the Curve pool can be achieved through strategic burning or minting new tokens, making this behavior similar to the minting or redemption process. OETH Token can be exchanged at a ratio of 1:1 at any time to ensure that the protocol remains 100% collateral-backed at all times.

Source of income

There are 3 active strategies in OETH Vault. In addition, a portion of ETH LSD is stored in the OETH Vault, earning interest through staking. A portion of the deposit is unallocated in the form of WETH. The latest asset allocation on June 7, 2023 is as follows:

Curve/Convex Earnings

Convex ETH+OETH: Origin mainly provides liquidity to the ETH-OETH Curve pool through ConvexEthMetaStrategy. LP Token is staked into Gauge and then staked on Convex, enabling Origin to collect transaction fees and protocol Token rewards (CRV and CVX). This AMO strategy allows OETH to safely increase its deposits, enhance yield and maintain pool balance.

Liquid Pledge Derivatives Income

**1. Staked Frax Ether (sfrxETH): **Using a dual-token model, Frax increases revenue by staking validators. OETH deposits frxETH into the Frax Ether pledge contract to further amplify the benefits. These funds are managed within the FraxETH strategy as one of three OETH vault strategies.

2. Lido Staked Ether (stETH): As a liquid staking solution for Ethereum, Lido allows ETH staking without locking Token or maintaining infrastructure. OETH holds stETH and receives staking rewards from the Ethereum network, and also has the advantage of automatic compounding. stETH balances are stored directly in the OETH Vault.

3. Rocket Pool Ether (rETH): As a community-owned decentralized protocol, Rocket Pool issues rETH, an ETH package that accumulates interest. OETH holds rETH for income, and calculates by distributing additional Tokens directly to user wallets. rETH balances are held directly in the OETH Vault.

DeFi strategy income

Other DeFi strategies, such as OETHMorphoAAVEStrategy, can provide yield generation capabilities to the OETH protocol. Morpho enhances platforms like Compound and Aave by integrating a peer-to-peer layer that optimizes the matching of borrowers and lenders, thereby offering higher interest rates. If no suitable pair exists, funds will flow directly to the underlying protocol.

unallocated funds

When OETH is minted, the collateral will be placed in the Origin Vault until the allocation function is called. For larger transactions, this process is automatic and less affected by gas fee increases.

market

Stable currency/anchor asset

As of June 7, 2023, OETH in circulation is backed by approximately 12,000 ETH in total.

OETH is primarily liquid in Curve's OETH-ETH pool, which has a liquidity of over 5,300 ETH, or approximately 44% of circulating OETH. In contrast, the number of OETH on Uniswap is relatively small, with only about 100 ETH in the Uniswap 0.05% pool.

Anchored

The goal of OETH is to always remain anchored to the price of ETH, enabling holders to gain exposure to Ethereum's price fluctuations and at the same time obtain stable income. OETH has maintained its peg relatively steadily since its launch.

Coingecko's chart:

Chart of data on Curve chain:

In early June, the peg was compromised by a large account (victim of the Atomic Wallet hack) who sold OETH to the Curve pool. Subsequently, other buyers quickly seized the opportunity to buy OETH at a discount, restoring the balance of the pool to the anchored state.

risk

Smart Contract Risk

Although rigorously audited and based on OUSD's code base, the OETH protocol covers many complex factors, increasing potential smart contract risks. Additionally, the DeFi policies used internally by the system are constantly evolving, and Origin is able to enforce or remove policies as needed. The dynamic nature of the strategy adds another layer of complexity and potential risk.

OUSD suffered a $7 million attack in November 2020 due to a previously undiscovered recursive vulnerability. Origin Dollar relaunched in December after completing several audits and security upgrades. You can read about the steps being taken to secure the protocol in its relaunch announcement. All users receive compensation from the Origin Community Fund.

audit

All audit reports for Orgin (including OUSD) can be found here:

Two obvious OETH audits are as follows:

· OpenZeppelin - Origin Dollar OETH Integration - 2023 年 5 月

· Narya - Origin OETH Report - May 2023

Aside from an Oracle issue where date data could be out of date, no other security issues were found and have been fixed.

An audit of other protocol systems and related policies can be found here:

Bug Bounty

The awarding of bug bounties is at the sole discretion of Origin Protocol. Rewards range from 100 OUSD for minor bugs to 250,000 OUSD for major bugs. Currently, the bounty program is only applicable to OUSD and OETH, not to other Origin products. The bounty program is currently managed by Immunefi. As of early June 2023, Origin has paid out $154,850 in bounties and has the fastest response time on Immunefi.

For more details see:

Risks and Tradeoffs of the AMO System

Origin uses the AMO system to provide a large amount of liquidity to the protocol at a low cost. However, the risks of bad debt need to be kept in mind. The ability of the AMO system to prevent bad debt mainly depends on the effect of the interaction between AMO and the OETH/ETH Curve pool. If the AMO's transactions with the pool (such as deposits and withdrawals) generate positive slippage overall, they will make a profit and remain fully funded. Importantly, while the AMO spends all yield farm income in OETH, it also has the potential to generate additional profits or absorb losses through arbitrage within the pool.

In this system, liquidity providers (LP) also face certain risks. For example, if a large amount of ETH is removed from the pool (as seen in early June), this imbalance increases the chances for AMO to profit through arbitrage. Conversely, if the AMO's trades cause the pool to become unbalanced, i.e. create negative slippage, then bad debt could enter the system. In this case, AMO's best strategy is to let the pool unbalanced escalate. Ultimately, they can use this situation to profit from the losses suffered by those withdrawers by restoring the pool balance.

As of June 15, 2023, Origin's total POL share in the Curve ETH/OETH pool is 83%. This can be determined by comparing the value in the ConvexEthMetaStrategy to the liquidity in the OETH pool.

Origin has offered voting incentives in the ETH/OETH pools of Votium and StakeDAO Votemarket since mid-May. Incentives are paid in OGV governance tokens, and in the latest epoch (week of June 14, 2023), reached a weekly amount of approximately $40,000. These incentives enable Origin to swap their native tokens for CRV/CVX emissions, of which the AMO strategy is currently recovering 83% of emissions. Emissions are sold for WETH and allocated to the Dripper contract, increasing the yield for OETH holders. Therefore, a large portion of the revenue earned by OETH depends on Curve's emissions.

Escrow risk

Trust in the OETH system relies on signers holding multi-signature keys. These signers are responsible for the proper handling of assets within the system and must be trustworthy not to engage in behavior that could destabilize the system, such as unlimited coin minting. In order to provide a layer of security and trust, a 24-hour time lock mechanism is set. This ensures that major actions cannot be taken immediately, providing a window of time for potential problems to be identified and resolved.

OETH also utilizes DeFi platforms such as Aave, Compound, and Curve, introducing significant smart contract risk. While these collaborations are with platforms that manage billions of assets and conduct security reviews, there is no absolute certainty that they will continue to operate without error. Any failure in these underlying strategies has the potential to result in losses for OETH holders.

Governance

Origin Protocol uses Origin DeFi Governance Token (OGV) to achieve decentralized decision-making within its ecosystem. Similar to OUSD, Origin Ether will ultimately be governed by veOGV holders, and any upgrades to the contract will be delayed by a 48-hour timelock. According to the team, if any significant issues are found in the early deployment of OETH, five 8-signature multisigs will take control of OETH in the next few weeks.

As of this writing, the OETH Vault's governance is set to the Governor contract. The manager of this contract is set to 5 multi-signatures of 8 signatures. The delay time for performing voting is set to 1 day. Only managers can queue proposals and execute votes. Since OETH Vault is an upgradable proxy contract that contains all underlying assets and is the center of all policies, 5 multi-signatures of 8 signatures actually host all user funds.

Multisig can increase security if the key signing process is distributed and diversified among multiple participants. This security measure can be further enhanced by adding external entities to the list of signers.

Another potential governance risk is the manual allocation of funds. The ability to change the composition of collateral has not been added. Therefore, any deposited ETH either goes to the Convex or remains idle.

As far as future governance is concerned, it is expected that additional strategies will be introduced, but this may introduce new risks. (For example, a policy called Morpho was recently added, but quickly retired due to possible vulnerabilities.)

Access control

The access control of the contract is controlled by 5 8 (Admin) and 2 8 (Strategist) multi-signatures. The identities of those signatories were not disclosed. Origin claims that they are unique and trusted individuals with close ties to Origin.

Signer (for both):

0xAbBca8bA6d2142B6457185Bec33bBD1b22746231

0xce96ae6De784181d8Eb2639F1E347fD40b4fD403

0x336C02D3e3c759160E1E44fF0247f87F63086495

0x6AC8d65Dc698aE07263E3A98Aa698C33060b4A13

· 0x617a3582bf134fe8eC600fF04A194604DcFB5Aab

0x244df059d103347a054487Da7f8D42d52Cb29A55

0xab7C7E7ac51f70dd959f3541316dBd715773158B

0xe5888Ed7EB24C7884e821b4283472b49832E02f2

Admin 5-of-8 multisig：0xbe2AB3d3d8F6a32b96414ebbd865dBD276d3d899

Currently, Admin multi-signatures have full ownership of contracts and underlying assets, but all contract changes must be time-locked. Since OETH is a new protocol, the team wants to be able to respond quickly to any unforeseen issues, so this is a temporary situation. Full governance will soon be transferred to veOGV holders, such as OUSD today. Once the transfer is complete, the Admin multisig will no longer have special permissions.

Strategist 2-of-8 multisig: 0xF14BBdf064E3F67f51cd9BD646aE3716aD938FDC

Certain functions, such as adjusting funds between strategies or temporarily stopping deposits, require less time and fewer authorizations, allowing the Origin team to quickly respond to changing market conditions or potential security issues. Strategist can only perform a restricted set of functions with the approval of 2 of 8 authorized signers. Strategist can only allocate funds among previously approved strategies.

Strategist multisig can perform the following operations on a vault:

· Redistribute - move funds between strategies

setVaultBuffer - adjusts funds stored outside the policy for cheaper redemptions.

setAssetDefaultStrategy - a strategy for minting and redeeming strategies

Withdraw all funds from strategy - remove funds from a single strategy and send them to the vault

Withdraw all funds from all active strategies - remove funds from all active strategies and send them to the vault

· Pause Rebase - Pauses all rebases

Suspension of Capital Operations - Suspension of all minting and redemption

· Unsuspend capital operations - allow all minting and redemption

Oracle Risk

The OETHOracleRouter contract is set as the priceProvider for OETH Vault. This contract uses Chainlink's price source to obtain the prices of all underlying assets and reward assets (CRV/ETH, CVX/ETH, rETH/ETH, cbETH/ETH, stETH/ETH). It should be noted that frxETH/ETH is always programmed as The value is 1 ETH.

The purpose of the price feed is to ensure that the protocol does not overpay for LST that may be lower than the pegged price. Since 1 OETH aims to be always backed by 1 ETH, it may need to adjust the amount minted or redeemed based on current market data. Additionally, the protocol uses price feeds to check whether price slippage exceeds reasonable limits when tokens are sold for additional revenue.

A key issue with Oracle is that Origin uses a hard-coded 1:1 ratio of frxETH/ETH. This means that in the event of a major decoupling of frxETH, the Strategist multisig will need to manually suspend deposits. If multisig takes too long to react or decoupling persists, losses could result. The Origin team said it plans to implement an EMA Oracle for Curve's frxETH/ETH pool. This trust assumption and risk to the protocol is explicitly disclosed in the Origin Protocol documentation.

Risk of decoupling

Under normal circumstances, the AMO aims to restore the peg and ensure that all funds remain safe in the process. Additionally, if the amount of ETH in the pool decreases, it becomes more profitable for the AMO strategy to increase its allocation to restore balance. This is a dynamic response mechanism to maintain the stability of OETH value. Since the majority of funds in Curve pools (over 80%) are owned by AMOs, it is almost impossible for the decoupling to persist unless there is an underlying protocol failure (such as a smart contract bug leading to loss of user funds).

There are several scenarios where OETH could decouple from its expected value. These situations include large additions or removals of funds from Curve pools, strategies that result in losses, or vulnerabilities related to automated market making operations (AMOs). For example, if a large shareholder sells funds into a Curve pool, it could temporarily break the peg.

Collateral Risk

The risks faced by OETH holders are related to policies deployed within the system and LSD tokens (such as penalties), making risk assessment challenging. Given the complex and changing nature of these strategies and LSDs, understanding and quantifying underlying risk factors can be complicated. Users must closely monitor the underlying assets and remain vigilant for system policy changes. Although the system was designed with robustness and security in mind, the complexity of its components underscores the importance of careful engagement and a thorough understanding of its operating mechanisms.

The security of the collateral may depend heavily on the timely response of the multisig. For example, on June 2, 2023, the Strategist multisig temporarily withdrew funds from the newly launched Morpho strategy back to the OETH Vault by calling withdrawAllFromStrategy(tx) to resolve a possible issue with its interest rate model. The funds were re-deposited (tx) on June 14th.

Actions taken by the Strategist are communicated in the #DeFi-Governance-Forum channel on the Origin Discord server in the "Strategy Assignment" thread.

Origin also provides risk analysis for some of its LSDs:

frxeth-sfrxeth：

about:

LlamaRisk Criteria

Centralization Factors

**1. Can a single entity manipulate users? **

No, however, Strategist and Admin multisigs have important permissions. The identity of the signer is not known to the public, and the user must trust that the Admin multi-signature will not perform operations against the user's interests, such as upgrading the contract to transfer the underlying assets.

**2. Can the project continue if the team disappears? **

cannot. The project currently relies heavily on manual operations (such as rebalancing) performed by multisig. There is a plan to transfer control to a DAO managed by veOGV Token holders, at which point the project will no longer be dependent on the core team.

economic factors

**1. Does the viability of this project depend on additional incentives? **

To some extent yes. The ultra-high yields offered by OETH are largely dependent on mining incentives, although yields from LSD hosted by Origin establish a minimum APY. The Flywheel Token owned by the protocol ensures that as long as mining activities exist, CRV and CVX will remain valuable and there will always be additional rewards.

**2. If demand drops to 0 tomorrow, will all users be fully reimbursed? **

Can. Under normal circumstances, OETH always maintains a support relationship with ETH at a ratio of 1:1. All active strategies (sfrxETH strategy, MorphoAave strategy, Convex AMO strategy) and LSD Token are easy to realize, so that in the worst case where the demand drops to 0, all users can withdraw to ETH. Redemptions will first attempt to withdraw funds from the OETH Vault, and if the Vault liquidity is exhausted, will withdraw permissionlessly from the strategy.

safety factors

**1. Do the audit results show any signs of concern? **

No. OETH has undergone two audits and functions similarly to OUSD, which has also undergone multiple audits. The underlying policies are also audited before deployment. In addition, there is an Immunefi bug bounty program that pays out up to $250,000 in OUSD for responsible disclosure.

Risk Team Advice

Although OETH is a new product, Origin Protocol has been integrated with Curve's OUSD/3CRV pool since August 2021. The design of OETH has much in common with previous products and takes advantage of the trend of Ethereum liquid mortgages to create a diversified and yield-generating Ethereum Token.

The current version of OETH has some less-than-ideal centralization factors, but this is understandable given the early stages of the product and the need for quick response in case of emergency. The five Admin multi-signature accounts have considerable control over the system, including custody of user funds. While it is unlikely that multi-signature accounts controlled by the team could be compromised or manipulated maliciously, this could expose the protocol to regulatory risk. The team intends to hand over control to the DAO of veOGV Token holders, and users should closely monitor the team's active measures to decentralize governance.

Another weakness of the current design is the hardcoded price of frxETH. This allows users to become dependent on the policy multi-signature account in situations where they are relying on the policy multi-signature account to withdraw funds from the policy in a timely manner to protect the protocol. The team plans to implement the Curve EMA oracle from the frxETH/ETH pool, so users should monitor this process closely. In general, OETH's performance relies on the responsible management of a strategic multi-signature account that manages the deployment of funds and has the power to suspend minting/redemption and suspend adjustments.

There is a reasonable path to overcoming the centralization factor present in current OETH, and the team has a proven track record of progressively decentralizing the protocol. The system is transparent and the documentation is clear and detailed. Users are able to independently verify the deployment of assets and determine whether the system is suitable for their risk tolerance, although they should pay close attention to changes made to the underlying policy. OETH meets our requirements for a Curve gauge.

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