Based on evolving market conditions, Chaos Labs has updated its ezETH liquidity recommendations.
Current State
During the flash crash, the liquidity buffer remained stable. There was no concerning increase in outflows, and overall liquidity conditions remain healthy. The Liquidity Buffer currently holds approximately 36,000 ETH-equivalent tokens, most of which are available for fresh withdrawals. These total approximately:
- 28k ETH
- 8.3k stETH
Liquidity has significantly decreased on Unichain by three orders of magnitude, with only a small amount now remaining in Unichain’s ezETH/ETH pools. However, overall liquidity has generally remained stable throughout September, thanks to increased activity on Linea, where approximately 800 ETH are currently deployed in the DEX pool.
Modeling the Target Liquidity for ezETH
We applied our existing simulation-based methodology to estimate the required Liquidity Buffer size across various risk levels. The following minor updates were made to the model:
- We refined our methodology and code to more accurately account for cross-chain ezETH holders, including those on Linea.
- We expanded the model to include inflows during the simulation period, rather than focusing solely on outflows as we did previously.
We also reviewed the impact of Ethereum’s exit queue dynamics. On October 30, the Beacon Chain’s exit queue had a 44-day waiting time.
However, this waiting time only applies if ETH has to be unstaked to add to the buffer. Since ezETH can be redeemed against stETH, and many users choose this option rather than ETH, we do not believe that using the full 44 days in the simulation parameters is necessary. We assume that some users will prefer ETH rather than stETH; therefore, the 15-day simulation time horizon should be increased. However, we also believe that stETH would become the majority choice if the waiting time for ETH were significantly longer, where “significant” means five or more days of waiting. Therefore, we propose increasing the refill period by 5 days, and using a 20-day simulation time horizon.
The results of both 15 and 20 day time horizons are shown below:
Recommendations
Total Liquidity
We recommend maintaining a minimum 95% probability level with a 20-day refill duration, which requires 35k ETH-equivalent in available liquidity within the protocol’s buffer.
DEX Liquidity
Regarding DEX liquidity: In current market conditions, major ezETH suppliers on Aave face don’t face increased liquidation risks. This means DEX liquidity requirements are primarily driven by users entering or exiting positions.
Once DEX aggregators fully integrate instant withdrawals through the liquidity buffer, exit liquidity on DEXs can be significantly reduced. Until then, we recommend maintaining at least 3k ETH exit liquidity on Ethereum and at least 100 ETH on each of Arbitrum, Base, and Linea.
Recommendations vs. Current Status
Based on our assessment, both the Total Liquidity and DEX liquidity levels are currently sufficient. We are actively monitoring holder activity and any lending protocol positions that may be at risk, and will promptly update our recommendations should any changes occur.