[ARFC] Deployment of Aave on Linea

[ACI]

[ARFC] Deployment of Aave on Linea

Author: ACI

Date: 2024-11-19

Risk Parameters have been updated and ARFC has been updated 2024-11-29

Simple Summary

The current ARFC proposes deploying Aave V3 on Linea to expand Aave’s reach and use cases on zk-Rollups. By integrating with Linea, Aave can offer users more efficient transactions while maintaining the security of the Ethereum mainnet. This ARFC seeks governance approval to deploy an Aave V3 instance on Linea.

Motivation

Linea is a Layer 2 built on Ethereum, powered by a zkEVM tech stack developed by Consensys. Linea is the result of more than five years of cryptographic research and 20 months of dedicated R&D. The Consensys team has a strong track record in the zk space, including contributions like the GNARK library and active involvement in Ethereum’s Merge. Linea is well-positioned within the developer ecosystem through relationships with MetaMask, SMG, and Infura.

By deploying on Linea, Aave can leverage high throughput and fast finality, enabling efficient transaction processing and reduced gas fees. Additionally, Linea’s integration with Consensys products allows seamless distribution to users, potentially reaching MetaMask’s 30 million active users. This presents an opportunity to make DeFi more accessible and expand Aave’s user base.

Linea’s TVL currently sits at ~$780M. Further Linea market data can be found here.

Benefits of deploying to Linea

1. Scalability and Performance: Linea enables high throughput and fast finality for zk networks, allowing Aave to scale effectively alongside Linea as its technology advances.
2. Accessibility and Distribution: Linea is integrated with Consensys products like MetaMask, and Infura, facilitating seamless distribution to users and making DeFi more accessible to MetaMask’s 30 million active users.
3. GHO Integration: Upon successful deployment and bootstrapping of Aave on Linea, the Consensys team is motivated to enable GHO, Aave’s stablecoin, to be spendable on the MetaMask Debit Card, which is exclusively available on Linea.
4. Growth Opportunities: With exciting growth catalysts for Linea in the upcoming H1, establishing Aave as the premier lending market on Linea will ensure long-term sustainability and growth for the Aave protocol.

Proof of Liquidity (POL) and Deposit Commitments

1. Aave DAO commits to redistribute to Aave users via liquidity mining, GHO secondary liquidity incentives, safety module deployments, or merit programs any airdrop provided by the Linea ecosystem.
2. ACI, on behalf of the Aave DAO, will coordinate any liquidity mining campaign on a Linea Aave V3 deployment.

Risk Parameters

Risk parameters will be provided by service providers and this section will be updated in due course.

Asset	Supply on Linea	Marketcap on Linea	Volume	Liquidity	Lineascan
WETH	22,800	$78,9M	$18.15M	$11.7M	URL
weETH	22,900	$83,3M	$2.5M	$5.1M	URL
ezETH	34,600	$124,4M	$4.9M	$12.1M	URL
wstETH	2,500	$10,2M	$85,000	$4.6M	URL
WBTC	220	$20,2M	$2.7M	$3.6M	URL
USDC.e	28,700,000	$28,7M	$4.7M	$8.8M	URL
USDT	10,400,000	$10,4M	$7.3M	$9.9M	URL

	WETH	wstETH	ezETH	weETH	WBTC	USDC	USDT
Isolation Mode	No	No	No	No	No	No	No
Enable Borrow	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Enable Collateral	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Loan To Value	80%	75%	72%	72.5%	73%	75%	75%
Liquidation Threshold	83%	79%	75%	75%	78%	78%	78%
Liquidation Bonus	6%	7%	7.5%	7.5%	7%	5%	5%
Reserve Factor	15%	5%	45%	45%	20%	10%	10%
Liquidation Protocol Fee	10%	10%	10%	10%	10%	10%	10%
Supply Cap	1,200	800	1,200	1,200	25	12,000,000	7,800,000
Borrow Cap	1,100	400	600	600	12.5	11,000,000	7,150,000
Debt Ceiling	N/A	N/A	N/A	N/A	N/A	N/A	N/A
UOptimal	90%	45%	45%	45%	45%	90%	90%
Base	0%	0%	0%	0%	0%	0%	0%
Slope1	2.7%	7%	7%	7%	7%	5.5%	5.5%
Slope2	80%	300%	300%	300%	300%	60%	60%
Stable Borrowing	No	No	No	No	No	No	No
Flashloanable	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Siloed Borrowing	No	No	No	No	No	No	No
Borrowable in Isolation	No	No	No	No	No	Yes	Yes
E-Mode Category	Ethereum Correlated	Ethereum Correlated, wstETH/WETH	Ethereum Correlated	Ethereum Correlated	N/A	N/A	N/A

ETH-Correlated E-Mode

Parameter	Value	Value	Value	Value
Asset	WETH	wstETH	weETH	ezETH
Collateral	No	Yes	Yes	Yes
Borrowable	Yes	No	No	No
Max LTV	90%	90%	90%	90%
Liquidation Threshold	93%	93%	93%	93%
Liquidation Penalty	1.00%	1.00%	1.00%	1.00%

wstETH/WETH E-Mode

Parameter	Value	Value
Asset	WETH	wstETH
Collateral	No	Yes
Borrowable	Yes	No
Max LTV	93.5%	93.5%
Liquidation Threshold	95.5%	95.5%
Liquidation Penalty	1.00%	1.00%

Useful Links

• Linea Website
• Lineascan
• Linea Docs

Next Steps

1. If consensus is reached on this ARFC, escalate this proposal to the Snapshot stage.
2. If the ARFC snapshot outcome is YAE, coordinate with BGDLabs and BGD service providers for an Aave V3 instance deployment on Linea.

Disclaimer

This proposal is powered by Skywards. The Aave Chan Initiative is not directly affiliated with Linea and did not receive compensation for creating this proposal.

Copyright

Copyright and related rights waived under CC0

[EzR3aL]

I think Linea is a pretty big name and brands like Metamask are also well known. If the market grows well and GHO could be included into the Metamask card as a payment option this could lead to good growth for GHO and the name would be spread across different groups of people.
Which kind of assets are considered to be listed on that market?

[sharpthink3]

This would be great
Linea/Consensus are looking to ramp up aggressively

Since they’re trying to build in & incentivize usage of Linea within the Metamask wallet (the most popular wallet), perhaps with a protocol as credible as AAVE on Linea, they would consider adding Lend / Withdraw / Borrow / Repay buttons into Metamask while on Linea chain (as they have done with swaps)

Linea is 7th biggest EVM chain, large market and growing

[LlamaRisk]

Summary

LlamaRisk supports deployment to Linea. This recommendation is based on a developmental Chain Qualification Framework (CQF) that we are beginning to share with ecosystem partners for feedback. While not a substitute for technical audit, our evaluation indicates the risks are high but acceptable. Significant trust assumptions in Consensys’ good faith and competence remain, but we view the network as sufficiently developed for an Aave deployment. Current lending protocol metrics on Linea indicate strong potential for Aave to capture significant market share, given its established brand equity and resources. LlamaRisk will monitor Linea’s progress, coordinate with other Service Providers to propose launch parameters, and inform Aave DAO of any changes that could impact operations. We maintain an ongoing line of communication with the Linea team and will continue clarifying various issues related to the identified governance, technical, architectural, and access control risks.

Network Fundamentals

Linea is a zkRollup L2 for Ethereum launched in August 2023. As an EVM-equivalent platform, smart contracts can be deployed without modification. The network uses ZK-proofs to reduce data storage on L1, processing transactions in 2-3 seconds on L2 with block times averaging that speed, while final L1 settlement takes 8-48 hours. Since launch, Linea has produced 12.3M blocks and confirmed 223M transactions, maintaining an average of 1.8 TPS with a gas price of 0.6 gwei (paid in ETH). The platform remains partially centralized, with a single sequencer retaining all ETH from L1 postings and no financial incentives for node operators.

Market Risks

Established infrastructure essential for Aave deployment is present on Linea, including DEXs with verifiable volume, Chainlink price feeds, and a range of reputable assets. Active liquidation activity across lending platforms on Linea demonstrates satisfactory chain health. The chain’s primary economic activity centers on leveraged Ethereum staking through leading protocols: Zerolend ($183M TVL, Aave V3 fork), Kelp ($130M, LST), and Renzo ($128M, LST). Other notable lending protocols include Mendi (Compound V2 fork deployed by the Sonne finance team) and LayerBank, which initially launched on Linea before expanding cross-chain.

Several key metrics highlight current market limitations. Chain TVL has declined from $850M to $540M since July, though future ecosystem incentives could reverse this trend, as demonstrated by the previous Surge points program, which doubled network TVL. Decentralized exchange activity remains modest, with approximately $25M daily volume (compared to ±$50M on Mantle). Limited market depth is particularly evident - only USDC.e/WETH trades on Odos maintain less than 7.5% price impact at $1M size.

The high concentration of cross-network assets presents additional risk factors. Canonically bridged tokens comprise over 80% of chain TVL, with stablecoins at ±$43M (USDC.e dominating at 73%). This dependency on cross-network assets may create liquidation routing risks depending on native network liquidity.

Technical Risks

Two significant design choices in Linea’s network architecture warrant attention. Currently, only one node implementation enables interfacing with the network. While functional, this single implementation creates a potential point of system interruption that could affect block production if implementation-specific issues occur. This setup contrasts with Ethereum’s ecosystem, which utilizes 8 node implementations for enhanced resilience. A second key consideration is that contract upgrades can be executed without timelocks, meaning users have no mandatory waiting period to exit if they disagree with proposed updates.

Despite these risks, the network has established strong foundational elements. It features comprehensive data infrastructure and developer tooling, including an Etherscan-equivalent block explorer at lineascan.build. A native Safe deployment enhances transparency and reduces development friction. The network’s EVM equivalence ensures broad compatibility with Ethereum smart contracts (with documented exceptions), and Consensys is progressing toward complete EVM equivalence.

On the security front, Linea’s framework includes extensive auditing, a $100K bug bounty, real-time transaction monitoring via Hypernative, and economic risk analysis through IntoTheBlock. Additionally, partnerships with leading infrastructure providers like LayerZero, Axelar, CCIP, and various data providers strengthen the ecosystem’s resilience.

Counterparty Risk

Currently, network control remains concentrated within Consensys through a hierarchical multisig structure: a 4/8 Safe controls core functions, while a likely Consensys-controlled 3/6 Safe maintains oversight. Unlike Optimism’s sequencer, this structure could allow Consensys to restrict fund withdrawals.

Consensys is implementing a progressive decentralization strategy, currently governed by Consensys Software Inc.'s Terms of Use. The Phase 3 roadmap introduces the independent Linea Association, with Nicolas Liochon as the only confirmed appointee. The Association’s establishment coincides with the LINEA token launch in Q1 2025. While Consensys faces SEC scrutiny over MetaMask, the planned Linea Association may provide regulatory separation. The upcoming token generation event presents market uncertainties, though strategic partnerships and the Ecosystem Investment Alliance provide stability.

Launch Assets

LlamaRisk suggests Aave onboards established and previously vetted assets only on day one, namely:

• USDC.e ($29M)0x176211869ca2b568f2a7d4ee941e073a821ee1ff
• USDT ($12M) 0xa219439258ca9da29e9cc4ce5596924745e12b93
• WETH ($43M) 0xe5d7c2a44ffddf6b295a15c148167daaaf5cf34f
• WBTC ($32M) 0x3aab2285ddcddad8edf438c1bab47e1a9d05a9b4
• ezETH ($192M) 0x2416092f143378750bb29b79ed961ab195cceea5

Parameter suggestions will be aligned at a later date with @ChaosLabs.

Disclaimer

This review was independently prepared by LlamaRisk, a community-led non-profit decentralized organization funded in part by the Aave DAO. LlamaRisk is not directly affiliated with the protocol(s) reviewed in this assessment and did not receive any compensation from the protocol(s) or their affiliated entities for this work.

The information provided should not be construed as legal, financial, tax, or professional advice.

[bgdlabs]

For reference, we have published our technical analysis of Aave on Linea HERE.

[ChaosLabs]

Overview

Chaos Labs supports the proposal to deploy a Linea Aave v3 instance to expand the Aave protocol’s user base. The following analysis focuses on the initial listing of WETH, WBTC, USDC.e, USDT, wstETH, ezETH, and weETH in the new instance, as well as an analysis of the Linea ecosystem.

Technical Architecture

Linea is a zkEVM-based Layer 2 for Ethereum, developed by ConsenSys and launched in 2023. It operates as a zkRollup that leverages Ethereum for settlement, data availability, and security. Its architecture separates execution from consensus, allowing transactions to achieve “soft finality” in about two seconds and “hard finality” on Ethereum in 8–32 hours.

Linea employs zk-SNARKs for scalability. Transactions are batched off-chain, processed by the sequencer using an optimized Geth client, and finalized on Ethereum after proof generation. While this approach ensures high throughput and low costs, the reliance on a single sequencer introduces centralization risks. Additionally, the lack of a timelock for the primary contract upgrades, such as the Bridge and the Verifier, raises additional concerns.
Linea’s EVM equivalence simplifies developer onboarding by allowing existing Ethereum smart contracts to deploy without modification.

Thanks in part to its ties with Consensys, significant dev tooling is available for the network, such as Infura and Alchemy pcs, an Etherscan-like block explorer, Safe deployment, Dune support, TheGraph, and Chainlink.

Ecosystem and Market

The TVL of Linea L2 recorded a surge to $724M following the launch of the Linea Voyage: The Surge. A point program that awarded Linea XP to bridge assets and utilize DeFi protocols within the chain. While the TVL of the network peaked in July and has since dropped to the current value of $494M, where it has held steadily over the last few months, it is yet to be seen what the reaction will be to the ending of the points program, which happened yesterday as of 25 November 2024.

The volume on the chain has averaged $22M over the last 60 days and the daily transactions has stabilized over the same time period.

DEXs

The presence of numerous DEXs with consistent liquidity is a key requirement to ensure efficient liquidation of a new Aave instance. In the case of Linea, multiple DEXs maintain sufficient liquidity to allow for the creation of the instance. The most relevant ones are:

• SyncSwap
  • TVL: $21.69m
  • 7-day Cumulative Volume:
• Lynex
  • TVL: $20.25M
  • 7-day Cumulative Volume: $123.46M
• Nile Exchange
  • TVL: $16.28m
  • 7-day Cumulative Volume: $45.4M
• iZiSwap
  • TVL: $5.96M
  • 7-day Cumulative Volume: $37.8M
• PancakeSwap
  • TVL: 7.49$
  • 7-day Cumulative Volume: $8.1M

Tokens

As initial assets within the Linea instance, we recommend a strict list of assets that were extensively covered by the Aave Risk Providers on multiple chains. The selection aims to provide basic functionality for the new instance, with any additions and successive listings being proposed and approved through standard governance procedures.

Chaos Labs proposes the following assets for the initial listing on the Linea instance:

Asset	Supply on Linea	Marketcap on Linea	Volume	Liquidity	Lineascan
WETH	22,800	$78,9M	$18.15M	$11.7M	URL
weETH	22,900	$83,3M	$2.5M	$5.1M	URL
ezETH	34,600	$124,4M	$4.9M	$12.1M	URL
wstETH	2,500	$10,2M	$85,000	$4.6M	URL
WBTC	220	$20,2M	$2.7M	$3.6M	URL
USDC.e	28,700,000	$28,7M	$4.7M	$8.8M	URL
USDT	10,400,000	$10,4M	$7.3M	$9.9M	URL

Oracles

Chainlink has integrated its Data Feeds on Linea, providing Aave access to reliable data sources. Chaos Labs ensures that a Chainlink Feed already supports all proposed asset listings. It is worth noting that all of the proposed listed assets represent the Ethereum version of the asset bridged through the official Linea Bridge. Some of these bridged assets, most notably wstETH and weETH, have received official approval from the respective teams.

However, historical precedents, such as the introduction of USDC.e through Chainlink CCIP in similar situations, have led the natively bridged version to see a drop in usage and available DEX liquidity.

Listing Parameters

Given the proposed asset’s similarity to its Ethereum counterpart but the uncertainty of future liquidity brought by the recently ended point program, we recommend adopting slightly more conservative parameters for the proposed asset, in line with Scroll.

Supply and Borrow Caps

In line with Chaos Labs’ approach to setting initial supply caps, we would suggest a Supply Cap of 2x the liquidity available under the Liquidation Penalty’s price impact. We also recommend setting the borrow caps slightly over the UOptimal of each asset to allow for a borrow rate increase to follow a surge in demand.

For assets such as stablecoins, the supply cap is determined in order to allow full utilization of the other collateral assets within the instance while maintaining it below 75% of the on-chain supply.
A further exception has been made for weETH and ezETH, given their ample liquidity exceeding that of WETH. For the two assets, we recommend limiting the supply cap to the supply cap of WETH.

As such, the Price impact and the recommended Supply and Borrow cap of each initial asset are as follows:

• WETH

  Supply Cap: 1,200 WETH

  Borrow Cap: 1,100 WETH

• wstETH

  Supply Cap: 800 wstETH

  Borrow Cap: 400 wstETH

• weETH

  Supply Cap: 1,200 weETH

  Borrow Cap: 600 weETH

• ezETH

  Supply Cap: 1200 ezETH

  Borrow Cap: 600 ezETH

• WBTC

  Supply Cap: 25 WBTC

  Borrow Cap: 12.5 WBTC

• USDC

  Supply Cap: 15,000,000 USDC

  Borrow Cap: 13,800,000 USDC

• USDT

  Supply Cap: 7,800,000 USDT

  Borrow Cap: 7,150,000 USDT

E-Modes

Thanks to the introduction of multiple ETH-correlated assets in the initial listing and given the consistent and considerable liquidity maintained by all of them, Chaos Labs recommends the creation of two Liquid E-Modes configurations. This will improve efficiency in the Linea instance and attract additional supply to WETH thanks to increased supply rates.

We recommend creating an Ethereum-Correlated E-Mode to allow users to leverage the staking yield of the LSTs and LRTs. We recommend enabling WETH as the only borrowable asset within this E-Mode configuration while setting all other assets as Collateral only.

Given the uncertainty of future liquidity given by the ending of the point program, we recommend aligning the E-Mode LTV and LT parameters to the ETH-Correlated E-Mode of Scroll using 90% and 93%, respectively.

Chaos Labs also recommends an additional E-Mode configuration limited to leveraging the wstETH yield with WETH. This is possible thanks to wstETH’s proven reliability across chains, as demonstrated in this proposal.
Again, we recommend aligning the E-Mode parameters to those on Scroll using 93.5% LTV and 95.5% LT and enabling WETH to be borrowable while setting wstETH as collateral.

Specification

Following the above analyses, we have aligned with @LlamaRisk on the following initial parameters for the creation of the Linea deployment:

	WETH	wstETH	ezETH	weETH	WBTC	USDC	USDT
Isolation Mode	No	No	No	No	No	No	No
Enable Borrow	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Enable Collateral	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Loan To Value	80%	75%	72%	72.5%	73%	75%	75%
Liquidation Threshold	83%	79%	75%	75%	78%	78%	78%
Liquidation Bonus	6%	7%	7.5%	7.5%	7%	5%	5%
Reserve Factor	15%	5%	45%	45%	20%	10%	10%
Liquidation Protocol Fee	10%	10%	10%	10%	10%	10%	10%
Supply Cap	1,200	800	1,200	1,200	25	12,000,000	7,800,000
Borrow Cap	1,100	400	600	600	12.5	11,000,000	7,150,000
Debt Ceiling	N/A	N/A	N/A	N/A	N/A	N/A	N/A
UOptimal	90%	45%	45%	45%	45%	90%	90%
Base	0%	0%	0%	0%	0%	0%	0%
Slope1	2.7%	7%	7%	7%	7%	5.5%	5.5%
Slope2	80%	300%	300%	300%	300%	60%	60%
Stable Borrowing	No	No	No	No	No	No	No
Flashloanable	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Siloed Borrowing	No	No	No	No	No	No	No
Borrowable in Isolation	No	No	No	No	No	Yes	Yes
E-Mode Category	Ethereum Correlated	Ethereum Correlated, wstETH/WETH	Ethereum Correlated	Ethereum Correlated	N/A	N/A	N/A

ETH-Correlated E-Mode

Parameter	Value	Value	Value	Value
Asset	WETH	wstETH	weETH	ezETH
Collateral	No	Yes	Yes	Yes
Borrowable	Yes	No	No	No
Max LTV	90%	90%	90%	90%
Liquidation Threshold	93%	93%	93%	93%
Liquidation Penalty	1.00%	1.00%	1.00%	1.00%

wstETH/WETH E-Mode

Parameter	Value	Value
Asset	WETH	wstETH
Collateral	No	Yes
Borrowable	Yes	No
Max LTV	93.5%	93.5%
Liquidation Threshold	95.5%	95.5%
Liquidation Penalty	1.00%	1.00%

Disclaimer

Chaos Labs has not been compensated by any third party for publishing this ARFC.

Copyright

Copyright and related rights waived via CC0