Aave

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Title: [ARFC] Updating weETH Risk Parameters Date: 2024-04-18 Author: MarcZeller - ACI

Summary:

This proposal aims to update the risk parameters and interest rate strategy of the weETH asset on the Ethereum pool to boost Aave DAO revenue and encourage collateral adoption.

Motivation

The successful onboarding of EtherFI into Aave has demonstrated significant demand for weETH usage as both collateral and a borrowing asset, with both initial supply caps reached in minutes and second cap increases filled under similar conditions. To accommodate this demand and facilitate protocol growth, this proposal suggests increasing the supply cap of weETH on the Ethereum pool and the borrow cap at 35% of the new supply cap amount. This proposal also aims at changing the interestRate Strategy to place the optimal ratio at 35% of liquidity.

Expanding borrow capacity will result in a higher collateral yield, which in turn creates a positive flywheel effect on supply and demand. By maintaining the borrow cap at an optimal ratio (35%) of the supply cap, we can balance risk, available liquidity, and LP yield effectively.

We also propose to increase weETH RF to 45% to contribute to Aave DAO revenue.

Specification

Chain	Asset	Current Supply Cap	Recommended New Supply Cap	Current Borrow Cap	Recommended New Borrow Cap
Ethereum	weETH	16,000	84,000	800	29500

Chain	Asset	Current Optimal ratio	Recommended optimal ratio	Current reserve factor	Recommended New reserve factor
Ethereum	weETH	45%	35%	15%	45%

Next Steps

1. Gather consensus from the community and risk service providers.
2. Escalate to ARFC Snapshot vote stage.
3. If the Snapshot vote outcome is YAE, escalate to AIP stage for formal implementation.

Disclaimer

This proposal has been created independently by the ACI without external compensation or incentives.

Copyright

Copyright and related rights waived via CC0