[ARC] Add wstETH to Aave v3 on Optimism

Gauntlet Recommendations

eMode Category: In eMode, we recommend a higher liquidation bonus of 2%. Compare the slippage in swapping wstETH for WETH on Optimism:

image

to the slippage on ETH mainnet:

image

This suggests that wstETH on Optimism is a lower-quality collateral compared to wstETH on Ethereum. Even after we adjust for the lower supply cap (6000), the slippage incurred from swapping wstETH for WETH on Optimism is 3x compared to that incurred on ETH mainnet. If a whale deposits an amount of wstETH near its supply cap to borrow ETH, and then the whale becomes liquidatable, a liquidation bonus of 1% would not be enough to incentivize liquidators to act (on this size) since it would cost them more to swap for wstETH than they would make on the liquidation bonus. This introduces insolvency risk for the protocol.

IR curve: While it is difficult to formulate Interest Rate curves for new assets, given the conservatism in Llamaxyz’s assumptions, we have no recommendations to change Llama’s suggested curve at this time.

Borrow cap: Given the borrow cap recommended by Chaos for wstETH on v3 ETH is 3000 and the liquidity for wstETH on Optimism is much lower than on ETH (as we mentioned in our previous response), we recommend a borrow cap significantly lower than 3000. As such, we maintain our recommended borrow cap of 940. We can always consider increasing the cap as the market for wstETH on Optimism evolves.

1 Like