Profitability Assessments

Utilization Rates

Treehouse will implement two internal rates to manage the utilization rate of ETH borrowing. This ensures sustainable borrowing costs, and addresses potential challenges arising from fluctuations in borrowing demands on lending platforms.

Internal Utilization Rate - Upper Bound

This rate serves as a precautionary threshold, designed to preemptively address situations where the lending platform’s ETH vault utilization rate approaches levels that might lead to unfavorable borrowing costs.

When the actual utilization rate on the lending platform exceeds the upper bound of the protocol’s Internal Utilization Rate, Treehouse will rebalance to mitigate any potential impact, thereby safeguarding tETH’s strategy.

Internal Utilization Rate - Lower Bound

This rate represents the target utilization rate that the protocol aims to maintain on lending platforms. This rate is strategically determined to balance the cost of borrowing and the availability of liquidity, ensuring that the protocol operates efficiently while minimizing borrowing costs.

Loan-repayment Strategy

The protocol monitors the utilization rate of ETH vaults continuously. For Aave, triggers are activated when the Internal Utilization Rate Upper Bound (>89%) is crossed and sustained above the threshold for more than two consecutive days. This approach aims to differentiate between temporary fluctuations and stable trends that warrant the protocol’s intervention.

Treehouse continuously calculates the necessary amount of LST that must be converted into ETH to keep the utilization rate within the predetermined bounds.

Despite this, if the utilization rate increases further during the LST to ETH conversion window (e.g, from 90% to 91%), the protocol recalculates and prepares additional LSTs for conversion. This ensures the repayment amount always adjusts the utilization rate towards the internal optimal level.

Note: The specified values in the doc are currently arbitrary and subject to governance determination in the future.

Vault Oversubscription

If demand for interest rate arbitrage strategies significantly outpaces the available opportunities, the protocol will diversify excess capital to the highest-yielding approved LSTs.