Counterparty Risks

LST Platform Default

In the event of a collapse in one of the underlying LST protocols used by tETH, all related LST deposits may face a complete loss of their assets. This risk is systemic, affecting all stakers of the particular LST protocol.

While Treehouse has no direct control over the handling of external LST protocols, it actively seeks the integration of additional LST protocols to diversify its risk exposure. Moreover, the protocol conducts risk assessments and establishes risk-weight and caps for specific LSTs.

Lending Platform Default

tETH’s strategy utilizes on-chain over-collateralized lending platforms. If an underlying lending platform within the tETH strategy were to collapse, the tETH protocol will still have access to the loan-to-value (LTV) of the collateral posted.

Treehouse will ensure the remaining assets are returned to the users, aiming to maintain the maximum recovery in such an event. Moreover, the protocol conducts risk assessments and establishes risk-weight and caps for specific lending platforms.

LST:ETH De-peg

De-pegging risk for tETH arises when the price of the underlying LST becomes significantly lower than that of ETH. This price discrepancy can potentially trigger liquidation events if the value of the LST collateral falls below the lending platform’s liquidation threshold. Each platform has its own set of liquidation thresholds designed to protect the platform and its users from market volatility and insolvency risks. If the LST's value drops too much relative to ETH, it might not sufficiently cover the borrowed ETH value, leading to potential forced liquidations.

For instance, if tETH’s underlying LST is wstETH and the ETH borrowed took place on Aave. A major de-peg of 16% would raise the strategy’s LTV to 96%, exceeding Aave’s liquidation threshold of 95%, thereby liquidating the collateral posted.

Refer to the De-pegging Contingency Plan section for more information.