Moonwell

Upgrade Moonwell’s Liquidation Incentive Recapture on Optimism’s ETH/USD Market Replace Solidity Labs’ Flat-Fee Wrapper with Api3’s Auction-Based OEV Network --- Author: Dave Connor, API3 Related Discussions: https://forum.moonwell.fi/t/switching-moonwells-glmr-market-to-using-api3s-oev-enabled-data-feed-for-glmr/1530 Moonwell Governance Call: December 2024 Submission Date: 22/07/2025 Summary Moonwell currently operates two distinct Oracle Extractable Value (OEV) recapture systems. On Moonbeam, Api3’s auction-based OEV Network is live and consistently returns significant revenue to the protocol. On Base and Optimism, Moonwell relies on a Solidity Labs-designed wrapper that charges a fixed, gas-derived tax to unlock oracle updates early. After running both systems in parallel for several months, Api3 has significantly outperformed the Solidity Labs feed wrapper, both in terms of protocol revenue and systemic design. The flat-fee wrapper has recaptured surprisingly little value, while Api3 has returned over 70% of liquidation MEV from a single low-TVL, low-liquidity market. This proposal recommends migrating the ETH/USD price feed on Optimism to Api3, to act as a proof of concept for Api3’s OEV solution in a larger TVL Moonwell market, and allow for a comparison to the current implementation of the Solidity Labs wrapper and any upcoming changes suggested (i.e. to fix the current underperformance). --- Background: Two Systems in Parallel In February 2025, Moonwell integrated Solidity Labs’ OEV wrapper on Base and Optimism. This system delays oracle updates for a configured period, currently 10 seconds, unless a liquidator pays to “unlock” the price early. The fee required is calculated as (tx.gasprice - block.basefee) * feeMultiplier, meaning it is tied entirely to gas volatility, not liquidation value. In April 2025, Moonwell adopted Api3’s auction-based OEV Network on Moonbeam. Api3’s design enables searchers to bid competitively for the right to trigger a fresh price update and execute a liquidation with real-time data. Api3 then returns 80% of the bid revenue back to the protocol. A more detailed description of how API3’s OEV solution works can be found in the previous proposal, and in Api3’s docs. There is also a video which looks into the differing approaches to OEV design between Solidity Labs and API3 in more detail. --- Issues with the Flat Fee Model for Onchain OEV 1. Raising the unlock fee doesn’t solve the problem Moonwell could try to improve value recapture by simply raising the unlock fee. But this overlooks the core flaw: the fee is calculated based on gas volatility, not the economic value of the liquidation it enables. This disconnect could lead to unintended outcomes when the fee is simply raised, for example, requiring a $1,000 payment to unlock a price that only allows for a $500 incentive. In these situations, no rational liquidator engages, and the protocol gains nothing. The liquidation still happens, just after a delay, and with no value returned to Moonwell. The problem isn’t that the fee is too low, it’s that the pricing logic is fundamentally misaligned with the opportunity it’s meant to capture. No adjustment to the fee multiplier can fix a mechanism that’s priced on the wrong variable. 2. Pegging fees to opportunity value doesn’t reliably work either You might wonder: why not solve the problem by simply tying the flat fee to the value of the liquidation? For example, the protocol could charge a fixed percentage of the incentive (e.g. 99%) and retain nearly all of the upside. But this approach breaks down under real-world execution. Imagine a liquidation that, on paper, yields a $1,000 reward. A 99% fee would leave the liquidator with $10. In theory, that’s still profitable. But in practice, performing the liquidation means the liquidator must swap the seized collateral, which can incur slippage. If that slippage is large enough the $1,000 opportunity might actually only be worth $900. That means the liquidator is paying $990 to earn $900, which is a guaranteed loss. As a result, the liquidation won’t happen through early access; it will simply occur later, after the delay period and with no value returned to the protocol. The root issue is that the wrapper has no awareness of what actually happens onchain. It can’t account for execution costs like slippage, so it misprices the opportunity. The fee ends up being disconnected from the value it’s trying to capture. This disconnect becomes more pronounced with larger liquidations, where execution costs scale with position size. Even setting the fee to something more conservative (like 50% of the estimated incentive) might ensure the liquidation is profitable, but would still leave significant value on the table. By contrast, Api3’s system lets liquidators bid based on what they expect to realize after costs. This ensures the protocol captures value that actually exists and isn’t just theoretical upside, thus avoiding pricing itself out of its own opportunities. 3. Auctions are the prevailing design Across the MEV ecosystem, there is a clear trend toward auction-based mechanisms as the preferred way to allocate value and prioritize transactions. Different systems apply this principle in different ways: Flashbots uses auctions to bundle and prioritize transactions during block building Arbitrum uses Timeboost, an auction-based ordering mechanism Api3’s OEV Network uses auctions to determine who can trigger a prioritized oracle update While the implementations vary, the underlying principle is consistent: letting participants compete based on what they can actually realize leads to better outcomes, for protocols, searchers, and end users alike. --- Comparative Performance: Solidity Labs vs Api3 Solidity Labs (Feb 25 – Jul 7, 2025) Base - Base Dune dashboard Total MEV: $537,634.77 Protocol revenue: $7.00 Capture rate: 0.0013% Total liquidations: 7,515 OEV-enabled (early unlocks): 223 Over 97% of liquidations were executed with a delay (not using OEV) Optimism - Optimism Dune dashboard Total MEV: $97,121.80 Protocol revenue: $0.55 Capture rate: 0.0005% Total liquidations: 448 OEV-enabled: 75 ~83% of liquidations were executed with a delay (not using OEV) Api3 (Apr 18 – Jul 7, 2025, GLMR/USD only on Moonbeam) - OEV dashboard for Moonbeam GLMR/USD market Total MEV: $4,829.57 Processed via OEV auctions: $3,568.42 Protocol revenue: $2,556.16 Capture rate: ~70% Value returned per $ TVL secured Solidity Labs: $0.000000025 Api3: $0.005 Despite operating on a single feed with significantly lower TVL, in a liquidity-constrained environment, Api3 returned thousands of times more value than the Solidity Labs system. --- What the Protocol Missed The cost of continuing with the current system is not abstract, it's measurable. If Api3’s auction-based OEV Network had been live on Base and Optimism during the same time period, Moonwell could have recaptured an estimated $400,000 in additional protocol revenue. That revenue wouldn’t just have gone unclaimed, it would have translated directly into stronger protocol economics. Based on historical token pricing and acquisition patterns, this additional value could have enabled Moonwell to acquire approximately 13 million more WELL tokens through reverse auctions. During the same period, 31 million WELL was acquired under the existing setup. With Api3’s system in place, that number could have risen to 44 million WELL, representing a 42% increase. This isn’t a hypothetical improvement. It reflects a tangible, quantifiable opportunity lost due to the limitations of the current fee model. Limiting the initial switch to Optimism, and to a single market is designed to allow continued comparisons to be made with the Solidity Labs designed OEV solution in production, and prove to the Moonwell community the benefits of switching more feeds in future. --- Why Api3? Api3’s OEV Network has been live with Moonwell on Moonbeam since April, where it has consistently delivered strong value recapture, despite initially operating on a single feed in an environment with thin liquidity, high slippage, and poor routing. These conditions are suboptimal for MEV searchers, yet the system has still performed well. An integration on a single feed on Optimism would provide a risk-minimized approach to demonstrating the potential returns that swapping more feeds to Api3 would bring. Api3 has already distributed nearly $300,000 in OEV revenue to integrated protocols, including Yei Finance, a lending market with over $400M in TVL on the Sei Network, and Compound Finance on Mantle. Api3 supports hybrid feeds (like wstETH/USD) that are currently unsupported by the Solidity Labs wrapper. It also operates across more than 40 EVM chains, giving Moonwell flexibility to expand its markets without needing new infrastructure. The system has already proven that it works under pressure. On chains like Base and Optimism, where liquidity is deeper, routing is better, and searcher activity is higher, the system is expected to perform more successfully. --- Implementation Plan 1. Replace current ETH price feed on Optimism with Api3’s price feed 2. Api3 will manage feed deployments and updates 3. Monthly OEV revenue (80%) is returned to Moonwell (e.g., via addReserves) 4. A monthly report will be published and shared on the forum with complete liquidation and revenue data 5. A public dashboard for Api3’s performance on Optimism will go live shortly after proposal execution, and will be shared on the forum (a similar dashboard for Moonwell on Moonbeam is here https://oev-dashboard.api3.org/#/dapps/moonwell-moonbeam) This upgrade requires no changes to the core protocol and can be executed with minimal coordination. --- Conclusion The Solidity Labs wrapper was an interesting attempt to build an onchain-only OEV solution, but the data and logic show it has not performed as intended: It fails to price liquidations accurately It leaves most value on the table It does not support hybrid feeds By contrast, Api3’s auction-based system has already outperformed in difficult environments, including the extreme volatility seen during February 2025, not only operating flawlessly but successfully returning value to users. Api3 has already been shown to work without issues and return value to Moonwell through the Moonbeam deployment. Switching the ETH/USD feed on Optimism to Api3 will allow for more direct comparisons to be made between the Solidity Labs solution and Api3, and show the Moonwell community the benefits of a wider switch to Api3. Improving protocol revenue will further help increase security by improving yield paid to safety module stakers, encouraging more WELL to be staked. Using Api3 also gives Moonwell the ability to scale cross chain easily to any Api3 supported chain, regardless of MEV presence, and without having to wait for any additional infrastructure to be deployed. --- Vote Options Yay – Replace the Solidity Labs wrapper with Api3’s data feed address for the ETH/USD feed on Optimism, enabling Api3 to recapture OEV Nay – Retain the current system and continue with negligible OEV recapture Abstain – No opinion

Summary This proposal recommends replacing Elliot from Solidity Labs with Ana (@anajuliabit) as a member of the Moonwell Security Council. Ana is a core developer for both Moonwell and Mamo, and her expertise and direct involvement with the protocol make her an ideal candidate to strengthen the Security Council. She is very familiar with the onchain proposal process, and is a lifesaver in all technical developments of the protocol. This is not a hostile removal by any means, Elliot recently winded down Solidity Labs, and is stepping away from his involvement at Moonwell. Additionally, Ana formerly worked with Elliot but was enshrined into the Moonwell team. Motivation For those unfamiliar, the Moonwell Security Council plays a critical role in safeguarding the protocol and responding to emergency situations. Given Ana’s deep familiarity with Moonwell’s codebase and operations, her addition would provide the Council with enhanced technical expertise and protocol-specific knowledge. Elliot has served diligently on the Security Council, and this proposed change reflects the evolving needs of the protocol rather than any concern regarding past performance. Rationale Technical Expertise: Ana is a core contributor to Moonwell and Mamo, giving her firsthand knowledge of the protocol’s architecture and security requirements. Responsiveness: As an internal developer, Ana can respond swiftly in the event of an emergency requiring Security Council action. Alignment: Ana’s day-to-day involvement with Moonwell ensures her incentives are directly aligned with the protocol’s safety and success. Specification Remove Elliot (Solidity Labs) from the Moonwell Security Council multisig. Add Ana (@anajuliabit) as a new signer on the Security Council multisig. This proposal requests that the Moonwell DAO approve this change and authorize the necessary updates to the Security Council’s Gnosis Safe configuration. Next Steps & Voting Options If approved, this change will be implemented by the appropriate Moonwell DAO administrators or multisig signers.

Summary This proposal seeks to update the composition of the Moonwell Security Council by removing Gauntlet and adding Anthias Labs. This change reflects the recent transition in the Moonwell DAO’s risk management partnership, with Anthias Labs now serving as the protocol’s risk manager. Motivation Gauntlet has served the Moonwell community with dedication, providing invaluable support as a risk manager and as a Security Council member. Their contributions have played an important role in strengthening the protocol’s risk framework with the MALF, and overall security. Following Gauntlet’s decision to step down as Moonwell’s risk manager, it is appropriate to also transition their Security Council responsibilities. Anthias Labs, the DAO’s new risk management partner, brings fresh perspectives and advanced methodologies to Moonwell’s risk oversight. Including Anthias on the Security Council will align security governance with our current risk management team, ensuring continuity and effective collaboration in safeguarding the protocol. Rationale Since Anthias has been approved through an on-chain vote as the borrow and supply cap guardian for all of Moonwell’s core markets, it is both logical and appropriate for them to also hold a seat on the Security Council. Gauntlet’s membership on the Security Council was closely tied to its role as the protocol’s risk manager, as that position required emergency access to respond swiftly to vulnerabilities, whether technical, economic, or otherwise. This proposal ensures that the Security Council remains aligned with the DAO’s active risk management partner. Specification Remove Gauntlet from the Moonwell Security Council multisig. Add Anthias Labs as a signer on the Security Council multisig. This change will update the Council to reflect the DAO’s new risk management structure. This proposal requests that the Moonwell DAO approve this change and authorize the necessary updates to the Security Council’s Gnosis Safe configuration. Next Steps & Voting Options Upon DAO approval, Moonwell’s administrators or multisig signers will execute the necessary updates to the Security Council’s Gnosis Safe configuration.

Summary This proposal seeks to list cUSDO, a non-rebasing, yield-bearing stablecoin issued by OpenEden, as a new market on Moonwell Base. cUSDO is a wrapped version of USDO — a stablecoin backed 1:1 by U.S. Treasury Bills — and allows users to earn real-world yield while participating in DeFi lending, borrowing, and collateralization within the Moonwell ecosystem. --- Motivation Integrating cUSDO brings several benefits to Moonwell: Capital Efficiency – Supply cUSDO, earn passive yield, and use it as collateral simultaneously. Real-World Yield – Backed by U.S. T-Bills through OpenEden's USDO vault. Non-Rebasing = DeFi Ready – cUSDO maintains ERC-20 compatibility, avoiding issues of rebasing tokens. Institutional-Grade Structure – Transparent, regulated custodianship, real-time reserve attestation. This listing would further Moonwell’s mission to bridge DeFi and real-world assets (RWAs). --- Asset Overview | Item | Description | | ---------------- | --------------------------------------------------------------------------------------------------------------- | | Token Name | cUSDO (Compounding Open Dollar) | | Type | ERC-20, yield-bearing, non-rebasing | | Network | Base | | Token Address | 0x83dB73EF5192de4b6a4c92bD0141Ba1a0Dc87c65 | | Contract Code | Verified Source on BaseScan | | Issuer | OpenEden | | Underlying Asset | USDO (rebasing stablecoin backed by T-Bills) | | Documentation | OpenEden Docs | | Audit | ChainSecurity (No critical issues) – Audit Report | | Oracle Status | Chainlink | --- Market Risk Assessment 1. Swap Size & Liquidity A \$500K swap on Base and Ethereum DEXs (e.g., Aerodrome, Curve) results in <25% price impact. !Screenshot 2025-05-29 025237|365x500, 75%!Screenshot 2025-05-29 025329|363x500, 75% 2. TVL Requirements Combined TVL of USDO and cUSDO > \$40M across Base and other chains. !Screenshot 2025-05-29 042910|510x500, 60%!Screenshot 2025-05-29 042634|513x499, 60% 3. Security & Audit Fully verified contract Standard role-based access controls for mint/burn Third-party audit by ChainSecurity (no critical vulnerabilities) Transparent reserves and regulated custodians 4. Market Caps on BASE: 3.5M on ETHEREUM: 214M 5. Total Transactions on BASE: 65K transfers & 15K direct txs & 9K holders on ETHEREUM: 60K transfers & 9K direct txs & 2K holders 6. Age of Token on BASE: 131 days on ETHEREUM: 237 days --- Smart Contract Review Contract: cUSDO Proxy Architecture: The cUSDO contract is deployed as an ERC1967Proxy. Base Contracts: The logic implementation inherits from OpenZeppelin’s battle-tested upgradeable libraries: * ERC4626Upgradeable – Vault standard * AccessControlUpgradeable – Role-based permissions * PausableUpgradeable – Circuit breaker functionality * IERC20PermitUpgradeable, EIP712Upgradeable – Meta-transactions support Permission Structure: Role-based access is enforced using AccessControl. Critical roles include: * DEFAULTADMINROLE * UPGRADER_ROLE * PAUSER_ROLE All minting/burning and upgrades are gated by these roles. Security Observations: * ChainSecurity audit (Feb 2024) identified no critical issues. * No proxy self-destruct, delegatecall hazards, or unsafe upgrade paths were found. * The proxy implementation was verified on BaseScan and follows standard OpenZeppelin conventions. Blacklist Functionality: No. Is the token pausable? Yes. Does the project have an active bug bounty program? No. Top 10 holders on Base click here for latest changes! | Rank | Address | Name Tag | Quantity | % Supply | Value (USD) | | ---- | -------------- | ----------------- | ------------ | -------- | -------------- | | 1 | 0x1155...a28 | PT-cUSDO | 2,029,779.43 | 58.56% | \$2,068,345.24 | | 2 | 0x5fed...023 | Aerodrome-LP | 806,591.92 | 23.27% | \$821,917.16 | | 3 | 0x5e3a...ba0 | Curve-LP | 373,079.07 | 10.76% | \$380,167.57 | | 4 | 0xbbbb...fcb | Morpho: Morpho | 144,642.12 | 4.17% | \$147,390.32 | | 5 | 0xe79c...262 | | 14,816.28 | 0.43% | \$15,097.79 | | 6 | 0xf875...142 | | 8,912.84 | 0.26% | \$9,082.18 | | 7 | 0x39c3...959 | | 8,338.93 | 0.24% | \$8,497.37 | | 8 | 0x77b5...78c | | 7,583.06 | 0.22% | \$7,727.13 | | 9 | 0x5d47...068 | pandario.base.eth | 4,937.63 | 0.14% | \$5,031.44 | | 10 | 0x3399...d9f | | 4,751.73 | 0.14% | \$4,842.01 | --- Why List cUSDO Instead of USDO |Feature|USDO|cUSDO| | --- | --- | --- | |Token Type|Rebasing|Non-rebasing| |DeFi Compatibility|Limited|Full (ERC-20 standard)| |Interest Handling|Balance increases via rebasing|Value increases via internal exchange rate| |Use as Collateral|Problematic|Seamless| |Price Oracle|Less practical|Available via Chainlink| Reserve Attestation Transparency OpenEden's USDO vaults are backed 1:1 by U.S. Treasury Bills. Reserve holdings are verified via a live Chainlink Proof-of-Reserves (PoR) oracle, ensuring transparency and onchain trust in the asset’s collateralization. Risk Considerations To ensure safe integration, the following risks should be reviewed: RWA Exposure – USDO is backed by U.S. T-Bills. Low volatility but subject to regulatory or market shifts. Centralization – While the token is issued by a regulated entity (OpenEden Digital Limited), it remains a centralized asset in terms of custody and minting permissions. However, it uses independent custodians (e.g., Zodia Custody) and a bankruptcy-remote trust structure to mitigate this. Oracle Risk - Chainlink’s native cUSDO/USD price feed is live and operational on Base, ensuring a decentralized and reliable price source. It uses a time-weighted average price (TWAP) model to reduce volatility or manipulation. And Of Course Smart Contracts Risk! --- OpenEden Team Overview OpenEden was founded in 2022 by a team of seasoned professionals with extensive experience in both traditional finance and the digital asset industry. The team collectively brings experience from top-tier institutions such as Goldman Sachs, Morgan Stanley, Deutsche Bank, Barclays, BlockFi, Bybit, Binance, SEA, and Accenture. twitter(X) : profile with 55K followers linkedin : profile with 19 employees discord: profile with 2.8K members telegram : channel with 2K subscribers Service Providers of OpenEden | Category | Service Provider | | ----------------------- | ---------------------------------------- | | Digital Asset Issuer | OpenEden Digital Limited | | Digital Asset Custody | Bitgo Custody / Coinbase MPC Web3 Wallet | | Smart Contract Auditor | ChainSecurity | | Financial Auditor | Harris And Trotter | | Onramp | Coinbase Prime | | Compliance Analytics | Elliptic | | Offshore Representation | Carey Olsen | | Third-party Signing | Protege Fund Services | --- Technical Implementation Plan 1. @Gauntlet Risk Assessment – Set CAPS , CF , and IR model. 2. Snapshot proposal – Community approval on Snapshot will be required before proceeding to mainnet launch. 3. Mainnet Launch – Deploy with active monitoring and community feedback. * MIP-based deployment using Moonwell Contracts V2 guide Proposal Author Information Name: AsgardAdmin X: Azgardinvest Github: AzgardMultiSig (AzgardAdmin) · GitHub Delegate Address: 0xC4c1e942c6B97EE736d15E6edE71dBc323200c3d Relationship with Token: I have no personal or professional relationship with openeden team. Conclusion cUSDO is a strong candidate to expand Moonwell’s Base markets with a secure, transparent, and yield-generating RWA-backed asset. The combination of Chainlink oracles, proof of reserves, and OpenZeppelin-based upgradeable contracts offers both transparency and safety. We look forward to the community’s feedback and collaboration to move this proposal forward.