Overview
Chaos Labs has conducted a comprehensive assessment of the proposed Debt Manager parameterization for the Cash product on the Scroll Network. The review considers recent shifts in on‑chain liquidity conditions, asset-specific considerations, and the proposed initial parameters of the protocol.
While liquidity for several collateral assets has moderated over the last quarter, the analysis assumes that the EtherFi treasury will step in to execute liquidations whenever third‑party opportunities are not immediately profitable, thereby protecting protocol solvency under all market circumstances.
The two initial borrowable assets are USDC and LiquidUSD. We expect minimal borrow demand for LiquidUSD given its yield accrual properties. However, this analysis will also consider LiquidUSD, which currently has a circulating supply on Scroll of about 27.5 k tokens. The parameter proposed in this recommendation follows the assumption that market depth and on-chain supply for LiquidUSD will deepen; if that evolution does not materialise, the asset can be phased out as a borrowable token without impacting the remainder of the parameterisation.
As the Debt Manager is designed for the Cash product, and the current liquidity profile of Scroll is limited, the recommended framework maintains conservative buffers between LTV ratios and LT. This design materially reduces the likelihood of liquidations. The Liquidation Bonus is sized to incentivise permissionless liquidators whenever profitable, with the understanding that the treasury provides a reliable backstop when market spreads or oracle deviations would otherwise disincentivise external participation.
Parameterisation
Under this configuration, liquidations are open to all third‑party actors. The LB parameter has been minimized to account for the backstop liquidations covered by the Etherfi team as whenever a position cannot be profitably closed by external participants, the EtherFi treasury executes the liquidation, subsequently managing the collateral via bridging or other portfolio actions.
| Asset | LTV | Liquidation Threshold | Liquidation Bonus |
|---|---|---|---|
| USDC | 90 % | 95 % | 1 % |
| WETH | 55% | 75% | 3.5% |
| weETH | 55 % | 75 % | 3.5 % |
| SCR | 20 % | 50 % | 5 % |
| LiquidETH | 50 % | 70 % | 5 % |
| LiquidUSD | 80 % | 90 % | 2 % |
| LiquidBTC | 50 % | 70 % | 5 % |
| eBTC | 52 % | 72 % | 5 % |
| eUSD | 80 % | 90 % | 2 % |
| ETHFI | 20% | 50% | 5% |
Asset‑Specific Considerations
USDC
USDC remains highly correlated with the borrowable base and benefits from deep secondary liquidity, supporting an LTV of 90 % and LT of 95 %.
WETH
WETH’s market depth on Scroll has decreased over the last months. A prudent LT of 75 % and an LB of 3.5 % ensures liquidations can clear efficiently until liquidity rebounds.
weETH
For weETH, market depth on Scroll has decreased since February. A prudent LT of 75 % and an LB of 3.5 % ensures liquidations can clear efficiently until liquidity rebounds.
SCR
SCR supply is concentrated in a limited number of multisig wallets, and the token’s DEX depth is presently in the low five‑figure range. A more conservative LTV and an elevated LB are therefore appropriate to mitigate concentration risk while still allowing the asset to serve as collateral.
liquidETH
liquidETH is the ERC‑20 share token for ether.fi’s Liquid ETH Yield Vault. Each liquidETH represents a pro‑rata claim on eETH held by the vault (1 : 1 backing); its price moves as the vault earns yield from DeFi strategies rather than by rebasing balances. Deposits can be made with eETH, weETH or WETH, and the vault reallocates that collateral across whitelisted positions such as Pendle PT‑eETH, Aave ETH lending, Morpho weETH markets and several weETH‑based LP pools on Balancer, Aura and Uniswap.
LiquidETH is currently allocated to a wide variety of strategies, including $42M weETH, $58M wstETH looping on Aave, $15M tETH, $13.7M deposited in the EVK Vault on Euler, and $11M LPing on Uniswap.
Withdrawals are not atomic. Instead, users submit a request to a Withdrawal Queue, specifying how many shares they want to redeem, a deadline and a small discount that pays the solver who fulfills the request. A solver then sources the underlying assets and completes the withdrawal within the user‑defined window; if the request can’t be filled—e.g., because the vault’s LP‑token price falls below the user’s target—it simply expires.
Vault pricing relies on a PriceRouter that pulls data from Chainlink feeds (and, for some assets, Redstone) and can aggregate prices for complex LP tokens, so both deposits and queued withdrawals are settled against externally validated oracles rather than internal TWAPs.
LiquidETH’s on-chain liquidity is currently poor. However, under the assumption that its liquidity will improve, and noting its BoringVault architecture and the additional risk associated with deploying funds in a variety of smart contracts, we recommend more conservative parameters than weETH; these can be increased as liquidity improves. By maintaining a large gap between LT and LTV we can reduce the likelihood of liquidations while liquidity is poor.
liquidUSD
LiquidUSD shares the same vault architecture as LiquidETH but benefits from fiat‑pegged stability.
It generates yield via deposits of USDC, USDT, DAI, and USDe, which are then utilized on Aave, Curve, Convex, Gearbox, and Pendle and it currently maintains exposure of $7M in sUSDe, $5M on Curve (USDC/RLUSD), $7M PT-eUSDE on Morpho, $3M in stdeUSD on Elixir, and $2M on Pendle, amongst other smaller allocations.
Despite its present float being comparatively small, its tight peg and alignment with the borrowable assets justify parameters in line with other stable‑denominated collateral, alongside a modest LB uplift to reflect early‑stage liquidity.
liquidBTC
LiquidBTC functions in the same way as the other Liquid assets discussed above, instead allowing users to deposit eBTC, WBTC, LBTC, or cbBTC.
LiquidBTC is primarily allocated to eBTC, with large deposits on Morpho — primarily the MEV Capital and Pendle WBTC vaults — and is also supplying LBTC on Aave. Additionally, it has Convex staked USDC/fxUSD LP position worth $3M.
LiquidBTC presents a small float and limited liquidity, as such we suggest a slightly lower LT and higher LB until liquidity matures.
eBTC
eBTC, backed one‑to‑one by LBTC, avoids additional smart‑contract risk from DeFi strategies and therefore receives marginally more accommodative parameters than LiquidBTC.
eUSD
eUSD’s circulating supply on Scroll is limited, but its peg stability allows the protocol to apply the same LTV and LT as LiquidUSD. A marginally higher LB secures smooth execution in thin markets.
ETHFI
ETHFI, representing the governance token of EtherFi, offers significant advantages for holders within the Cash product. And, while the asset is currently not deployed on Scroll, we expect the DEX liquidity and supply to match its utility.
Pricing for LiquidAssets
We recommend the following methodology to construct the oracle feeds of liquid assets:
| Token | Oracle Path |
|---|---|
| liquidETH | getRate(liquidETH → eETH) × eETH/ETH × ETH/USD |
| liquidBTC | getRate(liquidBTC → wBTC) × BTC/USD |
| liquidUSD | getRate(liquidUSD → USDC) × USDC/USD |