[ARFC] Increase WETH Optimal Ratio to 90% on all Aave markets

[ACI]

[ARFC] Increase WETH Optimal Ratio to 90% on all Aave markets

Author: ACI

Date: 2024-08-06

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Summary

The current proposal seeks to increase the WETH Optimal Ratio across all Aave markets where it is below 90%. This adjustment aims to enhance capital efficiency and ensure a more effective utilization of liquidity within the Aave protocol.

Motivation

Currently, the optimal usage ratios vary across different Aave instances, reflecting a balance between liquidity utilization and risk management. By increasing the optimal usage ratio for WETH to 90%, higher returns for liquidity providers and improved borrowing conditions for users can be achieved.

Specification

The existing optimal usage ratios for WETH across different markets are as shown in the image below and can also be checked in the Aave dashboard here.

This proposal will increase WETH Optimal Usage Ratio to 90% on the following markets which are currently at 80%, in order to unify them all:

Gnosis V3

Polygon V3

Metis V3

Base V3

Avalanche V3

Scroll V3

Disclaimer

ACI is not presenting this ARFC on behalf of any third party and is not compensated for creating this ARFC.

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, publish an AIP vote for final confirmation and enforcement of the proposal.

Copyright

Copyright and related rights waived via CC0.

[ACI]

The current proposal has been escalated to ARFC Snapshot.

Vote will start tomorrow, we encourage everyone to participate.

[ChaosLabs]

Chaos Labs endorses the proposal to align WETH’s UOptimal at 90% across all deployments. This change will involve increasing UOptimal from 80% to 90% on Gnosis, Polygon, Metis, Base, Avalanche, and Scroll.

From a risk perspective, the primary reason for setting UOptimal lower than 90% is to ensure that there is a sufficient buffer between WETH supplied and WETH borrowed, allowing liquidations to be processed efficiently during extreme market events.

Gnosis

Supply on Gnosis is heavily concentrated, with a deposit-only position accounting for 77% of total supply. Large borrows are almost entirely for looping with wstETH. Given the lack of risky positions on either side, we find UOptimal can be increased.

Polygon

The Polygon market is relatively under-utilized, thus the change will have minimal impact at this point in time.

Metis

Supply on Metis is well distributed, with a variety of health scores for top suppliers. Importantly, this means that potential liquidations would not occur at a single price. The top borrowing positions are primarily WETH-WETH looping.

Base

Nearly all top suppliers in the Base market are borrowing USDC, with some maintaining deposit-only positions. However, with varying health scores these positions would be liquidated at different positions. Borrows are primarily weETH-WETH looping, and thus present limited risk of liquidations.

Avalanche

The Avalanche WETH.e market is relatively underutilized, meaning this change will have little effect on it in its current state.

Scroll

Scroll is also relatively under-utilized, though its utilization may increase as LRT and LST caps are increased.

Currently, the largest supplier maintains a deposit only position, while the others are a mix of USDC, wstETH, and weETH borrows.

[ACI]

After Snapshot monitoring, the current ARFC Snapshot recently ended, reaching out both Quorum and YAE as winning option, with 892K votes.

Therefore, the ARFC to increase WETH Optimal Ratio to 90% on all Aave Markets has passed.

Next step will be the publication of an AIP vote for final confirmation and enforcement of the proposal.

[flaviopontes]

Incredible and important victory.

[CryptoScam]

When is the AIP vote gonna be published?
It’s about time!