[ARFC] Implement a Cross-Chain Borrow Optimizer for Aave v3

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[ARFC] Implement a Cross-Chain Borrow Optimizer for Aave v3

Author: @Xlend

Date: 2024-07-23

Summary

This proposal suggests implementing a Cross-Chain Borrow Optimizer for Aave v3, leveraging the Portal feature and introducing a new vault-based system to enable seamless movement of lending and borrowing positions across different chains.

Motivation

While Aave has established itself as a leader in the DeFi lending space with over $20 billion in liquidity, there’s an opportunity to enhance capital efficiency and user experience by leveraging Aave’s existing infrastructure across multiple chains. This system aims to always provide users with the best lending yields, allow access to the lowest borrowing rates across chains, and increase capital efficiency by keeping Aave’s liquidity in constant motion.

Specification

The proposed Cross-Chain Borrow Optimizer will implement the following:

  1. Lending Optimization:
  • Utilize Aave v3’s Portal feature to move deposits to the chain offering the best yield.
  1. Borrowing Optimization:
  • Introduce a new vault-based system to move borrowing positions across chains for accessing the lowest interest rates.
  1. Implementation Requirements:
  • Integration with an Aave v3 fork’s Portal feature (Deployed and maintained by Xlend)
  • Development of smart vault contracts for managing cross-chain positions
  • Partnerships with reliable bridge providers for cross-chain transfers
  • A user-friendly interface to manage and monitor positions across chains
  1. Example Scenario:
  • Detailed walkthrough of how the system would work in a real-world scenario, demonstrating potential annual savings for users.

Let’s walk through a real-world example to illustrate how this system would work:

Initial State:

User has 1 ETH (worth $2,000) deposited and 1,000 USDC borrowed on AAVE Optimism
Current lending APY on Optimism: 2%
Current borrowing APY on Optimism: 5%
Step 1: Identifying Better Rates (Xlend’s API or front-end would do this automatically)

Our aggregator detects that AAVE on Arbitrum offers:

Lending APY: 3%
Borrowing APY: 4%
Step 2: Initiating the Transfer

The user approves the transfer through our interface. The following steps occur:

For the Lending Position:

  1. The Portal feature of Xlend’s instance on a chain (Which is let’s say an AAVE v3 fork on Blast coupled with Across+) is used to move 1 ETH from Optimism to Arbitrum
  2. ETH is deposited into AAVE on Arbitrum and settled on bridge provider
    (For fork, we would like to align with AAVE DAO, but that’s for later, to figure out something similar like Sparklend)

For the Borrowing Position:

  1. User approves credit delegation to the vault contract on Arbitrum
  2. A bridge provider (e.g., Connext) repays the 1,000 USDC loan on Optimism
  3. The vault contract on Arbitrum supplies the 1 ETH and borrows 1,000 USDC using the delegated credit
  4. The borrowed 1,000 USDC is sent back to the bridge provider

Step 3: Result

  • User now has 1 ETH deposited and 1,000 USDC borrowed on AAVE Arbitrum

  • Lending APY increased from 2% to 3%

  • Borrowing APY decreased from 5% to 4%

  • Annual Savings:

  • Lending: Extra $20 earned (1% of $2,000)

  • Borrowing: $10 saved (1% of $1,000)

  • Total benefit: $30 per year

Disclaimer Xlend is a DeFi team building a lending & borrowing aggregator and optimizer. We are not currently compensated by Aave for this proposal. If there’s significant interest, we can provide more details about our project and team.

Next Steps

  1. Gather community feedback on this proposal.
  2. If consensus is reached on this [TEMP CHECK], develop a prototype for testing on testnets (pending funding for dev costs from DAO).
  3. If successful, propose a phased rollout starting with major chains (Ethereum, Arbitrum, Optimism).
  4. Publish a standard ARFC and collect community & service provider feedback before an ARFC snapshot.
  5. If the ARFC snapshot passes, publish an AIP vote for final confirmation and enforcement.

Copyright Copyright and related rights waived under CC0

2

No comments? Should I post in a different format or add more details to it? Or is it a wild wild idea? I have thought about technical feasibility, and it’s doable imo.

3

First of all it’s only 7h since you created that post. Relax and give everybody some time.
Next please consider following the TEMP Check guidelines for a proposal, so please change accordingly. And also change the topic from Aave grants to something else. If it’s not a grant it’s false.