Answers to @EzR3aL and @WintermuteGovernance questions here:
The benefit of new instance is it allow wstETH users best experience for looping and keep Aave DAO as main venue for largest Lido users. It also allow DAO to be more aggressive on main Aave v3 instance where borrowers are willing to pay higher rates for WETH borrow without negative impact on our long term users.
We expect that new instance to bring net new inflows of WETH because of Lido and potential Merit incentives. So this should grow overall Aave deposits of WETH and wstETH. This also keep isolated risk to onboard Lido Alliance assets like the new LRTs from Mellow.
Aave DAO will be the sole recipient of revenue generated from the Lido instance.
Our expectation is that wtstETH and wETH migrated is offset by growth in deposits to that instance over the long term as it will be the most attractive place to loop stETH on chain. It will also benefit from Lido marketing and incentives. Long term additional Lido Alliance assets like LRT can be added to add further revenue streams for Aave DAO.
Risk stewards have agreed to adding this instance to their scope of work, and can confirm here.
Coverage by the Safety Module for this instance would need a separate governance vote.
To recap benefits for Aave DAO are many. This will solidify our position as venue of choice for wstETH loopers; improve economics of wETH borrow for our users and DAO as we can go with higher rates later; and drive inflows from Lido Alliance incentives and new assets in risk isolated manner. Long term this grows Aave TVL, market share and revenues.
We have asked Lido and the other service providers to weigh in with further details on their respective scopes so that the community has full clarity on this proposal.