Protocol overview

OETH is a self-custodial, interest bearing ETH derivative launched by the Origin Protocol (the same protocol behind oUSD) in May 2023. The token can be minted and redeemed though the ‘Origin Dapp’ by supplying one of the following tokens: ETH, wETH, frxETH, stETH, rETH. The protocol generates yield by deploying collateral assets through diverse DeFi strategies. Yield generated is then utilised to mint more OETH which is distributed to holders as a form of rebasing.

At a high level the protocol works as follows: the vault contract can mint and burn OETH from wETH, frxETH, stETH, and rETH. This contract will also custody deposits and the strategies where assets are then deployed for yield generation. Direct redemptions from the contract incur a 0.5% fee which is then redistributed to OETH holders. The protocol also charges a 20% performance fee on rebases which is utilised to accrue flywheel tokens.

The OETH harvester contract collects all the rewards from the different strategies, sells them for wETH and sends the proceeds to the dripper contract. The latter was designed to smooth the rebase of OETH over 3 days to avoid strong fluctuations in yield distribution and deter users from minting OETH exclusively in anticipation of large reward distributions.

Governance overview

Origin protocol has its own governance token ‘OGV’ that allows decentralized decision making through snapshot votes. To vote on proposals users must time-lock OGV tokens for veOGV. Votes that pass are then subject to a 48 hour timelock. While this is true at the time of writing for OUSD, OETH is currently controlled by a 5-of-8 multisig. This was chosen to be so by the team for the first weeks of the protocol to act quicker in case critical vulnerabilities arise. Furthermore, delay time for vote execution is currently set at 24h. The multi-sig currently has full control and ownership over contracts and underlying assets. Over time however, governance will be transferred to veOGv stakers as for OUSD.

Source of yield

As of now, the OETH vault is able to generate yield in three different ways:

1. Staking yield deriving from held LSTs (stETH, rETH, sfrxETH)

2. DeFi strategies as supplying liquidity on onchain lending markets (Morpho, Aave, Compound)

3. Automated market operations (AMO) on the oETH/ETH pool on Curve

At the time of writing, assets are allocated as follows:

• 57.5% are in the Convex AMO

• 17.95% are in rETH

• 16.32% are in sfrxETH

• 5.1% are in stETH

• 2.41% unallocated wETH

Meaning that nearly 60% of the yield is generated by farming on Curve and staking on Convex, while most of the remaining assets are yielding from different sources of staking.

Team assessment

Unlike many teams in the DeFi space, the core team of Origin if fully doxxed and is composed by a series of experience professionals with varied backgrounds and proven track records of successful venture building. Members are: Josh Fraser, Matthew Liu, Franck Chastagnol, Micah Alcorn, Linus Chung, Andra Nicolau, Justin Charlton. Although, the team is doxxed, it is not known who or how many of them are multi-sig signers.

Security

According to the Origin team, 95% of the codebase of OETH is equal to the codebase of its parent product OUSD. OUSD has been audited more than half a dozen times over the past three years by reputable auditing firms as Open Zeppelin and Trail of Bits.

The codebase of OETH has also been separately audited twice, by Narya and Open Zeppelin, with both audits being completed and issues resolved by May 2023. The strategies for generating yield outside of simple LST holding were also in the scope of the audits.

No critical nor high severity issues were found in the audits. Open Zeppelin had found only one medium severity issue in regards to outdated Chainlink data feeds which was quickly resolved. Majority of low severity issues and informational notes were resolved and the remaining acknowledged.

More information regarding all mentioned audits can be found here.

Risks

The first and notable risk derives from the fact that the OETH vault is governed by a 5-of-8 multisig, meaning one must trust signers to be acting in good faith. As the OETH vault contract holds all collateral assets and is the hub for all deployable strategies, the multisig is in fact in custody of all deposited assts. Transferring governance to veOGV stakers is in the roadmap and should occur in the coming months.

As OETH yield generating strategies deploy capital on other protocols as Curve, Aave and Compound, composable smart contract risks are also risks to be mindful of no matter the degree of trust and relevance the underlying protocols have accrued.

Shall one of the collateral assets loose its peg for any reason, the vault is capable of freezing all direct redemptions from the protocol. As a result, the only way to unload OETH would be to swap them for the liquidity available on Curve, which is currently owned by the protocol itself by more than 80%. Interestingly, as redemptions freeze, users would still be able to mint OETH from the vault. This detail was noticed and pointed out by Open Zeppelin in the audit as a low severity issue, the Origin team aknowledged the issue and responded that ‘for code simplicity, OUSD/OETH prioritizes protecting the protcool over protecting interacting users. If a user mints with a non-depegged coin when another coin is depegged, this is a benefit for the protocol.’

To note also that while minting can be done with a single asset, upon direct contract redemption one will receive a mix of underlying assets based on momentarily asset availability.

Even though moving governance of the vault from the multisig to veOGV stakers will certainly increase decision making decentralization, thus security, it is worth mentioning that voting participation in Snapshot for Origin proposals is not exactly high and a handfull of wallets control a larger amount of voting power.

It is worth mentioning that the OETH deployed by the AMO on the Curve pool are not backed by an equivalent 1:1 in ETH or other LSTs, rather these OETH are backed by themselves (or, unbacked). The moment a users swaps ETH for OETH in the pool then these OETH can be considered collateralised. As the AMO can single-handedly mint and burn OETH entering and exiting the pool backing is tightly controlled. Nonetheless, this also introduces the risk of bad debt shall the AMO begin to imbalance the pool for any reason. At the time of writing, protocol own liquidity composes 82.7% of the entire liquidity in the Curve pool. Furthermore, with nearly 60% of collateral being deployed on Curve, the rebasing yield of OETH is heavily dependant on CRV/CVX emission and thus the ability of the AMO to capitalize on liquidity provision.

Suggested allocation

As per the information above the committee was considering to allocate part of its holding to OETH to either earn rewards as simple rebases or by providing liquidity in the OETH-ETH pool. The allocation should be capped at a maximum of 600 ETH or ETH backed LSTs.

Resources for further analysis and contracts

Origin website: https://www.oeth.com/
Origin documentation: https://docs.oeth.com/
Github repository: https://github.com/originprotocol/origin-dollar
List of contracts: https://docs.oeth.com/smart-contracts/registry/oeth-registry

Contracts

OETH token: 0x856c4Efb76C1D1AE02e20CEB03A2A6a08b0b8dC3
OETH vault: 0x39254033945AA2E4809Cc2977E7087BEE48bd7Ab
OETH zapper: 0x9858e47BCbBe6fBAC040519B02d7cd4B2C470C66
OETH harvester: 0x0D017aFA83EAce9F10A8EC5B6E13941664A6785C
Oracle router: 0x3cCD26E82F7305B12742fBb36708B42f82B61dBa
AMO strategy: 0x1827F9eA98E0bf96550b2FC20F7233277FcD7E63
Morpho strategy: 0xc1fc9E5eC3058921eA5025D703CBE31764756319