[ARFC] Add wstETH to Optimism Aave v3
title: [ARFC] Add wstETH to Optimism Aave v3 Discussion: https://governance.aave.com/t/arc-add-wsteth-to-aave-v3-on-optimism/10932 short description: Add wstETH to Optimism Aave v3 deployment as collateral with borrowing enabled. Create an Ethereum eMode. author: Llama - Defi_Consulting dated: 2023-01-29
Summary
This ARFC presents the community with the opportunity to add wstETH to the Optimism V3 Liquidity Pool.
Abstract
Across the Aave Liquidity Pools, stETH is listed on Aave v2 Ethereum and wstETH is listed on Aave v3 Ethereum. This proposal seeks to list wstETH on the Optimism Liquidity Pool as Collateral with Borrowing enabled.
The stETH/wETH rewards-maximising loop on Aave v2 is the main source of borrowing demand for wETH and the wETH reserve generates a material portion of Aave’s revenue, more than $281k in January 2023. By listing wstETH on Optimism users will be able to enter the same recursive strategy creating borrowing demand for wETH and revenue for Aave.
The risk parameters have been provided by Gauntlet and Llama, with this post using the parameters agreed between the two service providers.
Motivation
The stETH reserve on Aave v2 is the largest reserve across all Aave deployments with $1.55B in deposits, exceeding USDC ($0.83B) and ETH ($1.42B). This is partially due to several communities having built products that deposit stETH and borrow ETH as part of a rewards-maximising strategy.
Demand for borrowing wETH on Aave v2 Ethereum increased significantly when stETH was listed as collateral. InstaDapp, Index Coop, Galleon DAO and others have all built products on top of Aave v2 that utilise the rewards-maximising stETH/ETH strategy. By adding wstETH to the Optimism Liquidity Pool, Aave moves closer towards enabling developers to deploy similar products on Optimism. This is expected to create borrowing demand for wETH and boost Aave’s revenue.
The charts below show the effect of stETH has had on the Aave v2 Ethereum liquidity pool. stETH drives most of the wETH borrowing demand and resulting wETH fee-revenue. The wETH reserve generated approximately $217k in revenue during December and has already generated $281k by late January.
Listing of stETH by Aave has enabled Aave to offer the best return on wETH, in wETH terms, across major lending markets, continually outperforming Compound. By listing wstETH on Optimism, the Aave community is helping create an environment capable of replicating the success of the Aave v2 Ethereum Liquidity Pool.
Specification
This section presents the risk parameters and interest rates parameters as discussed on the governance forum. The parameters shown below are a combination of Gauntlet’s and Llama’s work.
Gauntlet’s Risk Assessment can be found here.
Llama’s Risk Assessment can be found here.
Risk Parameters
| Parameter | Value |
|---|---|
| Isolation Mode | No |
| Borrowable | Yes |
| Collateral Enabled | Yes |
| Supply Cap (wstETH) | 6000 |
| Borrow Cap (wstETH) | 940 |
| Debt Ceiling | 0 |
| LTV | 70.0% |
| LT | 79.0% |
| Liquidation Bonus | 7.2% |
| Liquidation Protocol Fee | 10% |
ETH eMode Category
| Category | Assets Included | Loan to Value | Liquidation Threshold | Liquidation Bonus |
|---|---|---|---|---|
| Ethereum Correlated | wstETH wETH | 90% | 93% | 2% |
Borrow Rates
| Category | Value |
|---|---|
| Base | 0.25% |
| Slope1 | 4.50% |
| Slope2 | 80.00% |
| Uoptimal | 45.00 |
| Reserve Factor | 15.00 |
Copyright
Copyright and related rights waived via CC0.
| Voter | Cast Power | Vote & Rationale |
|---|---|---|
 0x329c...543eD4 | 234,497 | YAE (without emode) |
 FranklinDAO (Prev. Penn Blockchain) | 90,071 | YAE (without emode) |
 0x62a4...96816a | 81,016 | YAE (without emode) |
 0xB83b...Fbcf5C | 80,000 | YAE (without emode) |
 Wintermute Governance | 42,892 | YAE (without emode) |
VOTE POWER
Proposal Status
- Tue January 31 2023, 12:00 pmVoting Period Starts
- Thu February 02 2023, 12:00 pmEnd Voting Period
Current Results
1-YAE (without emode)
540,527.33
2-YAE (with emode)
3,257.004
3-NAE
5.1