ARC: Add support for stETH (Lido)

Governance New Asset
5

Contrary to other productive tokens already supported by Aave (like xSUSHI), stETH’s productivity comes in the form of rebasing as you mentioned (staking yield is expressed as a growing balance of stETH instead of as a growing value per token)

How would a rebasing token work in lending and borrowing?

Case 1
A borrower of 1 stETH via Aave would be liable to pay back:

  1. The 1 stETH + the interest accrued from the borrowing itself (plus incentives);
    OR
  2. The 1 stETH + the interest accrued from the borrowing + incentives + the stETH yield in the form of rebased balance?

Case 2
(Same thought as above)
A depositor of 1 stETH in Aave is entitled to:

  1. The 1 stETH + the interest accrued from the lending (plus incentives);
    OR
  2. The 1 stETH + the interest accrued from lending + incentives + the stETH yield in the form of rebased balance?

Following the normal contract structures that are in place for other assets in Aave, would it be option 1 for both cases (1 and 2).
In this scenario, the borrower of stETH would receive the staking yield and the stETH depositor would only deposit if the deposit APY was greater than lido’s staking APY.

@jbeezy is the proposal to add stETH to Aave under options 1 ou 2 for each case? Would the choice of option 2 require a significant amount of changes to the existing Aave contracts used for the other assets?

Case 3
[Only in case the proposal is to add stETH to Aave without taking into consideration it is a rebasing, productive token - i.e. opting for option 1 in case 1 and case 2]:

Since positions are overcollateralized, in every Aave market there is a higher balance of deposited tokens (market size) than borrowed tokens (total borrowed).

How would stETH’s staking yield of the difference work in these cases (the yield in the form of rebasing of the amount of tokens corresponding to market size - total borrowed)?

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