We are opting to launch without borrowing of stETH initially. We will make a decision after some initial data on whether borrowing should be activated. We expect stETH, similar to ETH to have a very small borrowing market.
Case 1 – given we enable borrowing:
It would be option 1, meaning if the user has borrowed 1 stETH they have to pay back 1 stETH + interest rate, and get to keep the stETH yield.
Case 2 - again, given that borrowing is on:
It is option 2, except only the token representing the ‘unborrowed’ stETH in the lending pool rebases.
Option 2 in the second case involves significant changes to the AAVE debtToken, and it is very similar to ones made previously by AMPL.