[Direct to AIP] Add WETH to the rsETH LST E-Mode on Aave Core Instance

[ACI]

[Direct to AIP] Add WETH to the rsETH LST E-Mode on Aave Core Instance

Author: @ACI

Date: 17/11/2025

Summary

This proposal seeks to extend utility for rsETH on the Aave V3 Core market by adding WETH debt to the current rsETH/LST E-Mode category.

Motivation

The Aave Core market has recently experienced significant ETH inflows, increasing the available supply and lowering utilization. Maintaining a healthy utilization rate on WETH is crucial for protocol revenue and lender incentives.

rsETH is a liquid staking token issued by Kelp, already proven across Aave deployments as a robust collateral asset. Currently, rsETH suppliers on the Core instance can only borrow stablecoins and access the LST E-Mode, which limits their leverage strategies.

By adding WETH to the rsETH/LST E-Mode, the protocol unlocks classical rsETH/WETH yield maximising loops, historically one of the largest sources of borrowing demand on Aave.

Given the strong demand on the sidelines and proven growth potential of Kelp’s LRT ecosystem, we expect up to $1B in rsETH inflows, absorbing idle ETH liquidity on the Core market and restoring optimal utilization.

Specification

We propose the following parameters to be confirmed by Risk Service Providers following their review.

General Parameters

Parameter	Value
Asset	rsETH
Isolation Mode	No
Borrowable	Yes
Collateral Enabled	Yes
Supply Cap	Unchanged
Borrow Cap	Unchanged
Debt Ceiling	-
LTV	0.05%
LT	0.10%
Liquidation Penalty	7.0%
Liquidation Protocol Fee	10.00%
Flashloanable	Yes
Siloed Borrowing	No
Borrowable in Isolation	No
E-Mode	New rsETH/ETH category

rsETH/LST E-Mode Parameters Update

Parameter	rsETH	WETH	LST
Collateral	Yes	No	No
Borrowable	No	Yes	Yes
Max LTV	93%	-	-
LT	95%	-	-
LB	1.0%	-	-

These parameters are aligned with the others ETH-correlated E-Mode used on Core Market.

Useful Links

[ARFC] Add rsETH to Aave V3 Ethereum

[Direct to AIP] Onboard rsETH to Aave V3 Avalanche Instance

rsETH Documentation: https://docs.kelpdao.xyz/

Disclaimer

This proposal is powered by Skywards. The Aave Chan Initiative is not directly affiliated with Kelp DAO and did not receive compensation for creation of this proposal.

Next Steps

1. Publication of the proposal (current stage) collect community & service providers feedback.
2. Publish an AIP vote for final confirmation and enforcement of the proposal.

Copyright

Copyright and related rights waived via CC0.

[LlamaRisk]

Summary

Llamarisk supports the proposal to add WETH to the rsETH LST E-Mode on the Core instance. Given the correlation between the two assets, the available borrow capacity and protocol revenue opportunity, this proposal aligns with established WETH/rsETH E-mode configurations. Minimal incremental risk has been identified; therefore, it would be sensible and beneficial for Aave to implement.

Rationale

The addition of WETH to the liquid restaking token’s LST E-mode would expand its supported assets, representing an established rsETH/WETH E-Mode configuration seen on other instances, including Arbitrum, Linea, and Plasma. rsETH, which is backed by ETHx, stETH, and ETH, currently has a supply cap utilization of ~33.7% on the Core instance (~$494M of a $1.47B supply cap). The E-mode could expand the supply of rsETH by encouraging LPs to deposit and directly engage in LRT/WETH looping, offering them another strategy on Core to generate higher yields.

WETH’s borrow cap utilization at the time of writing stands at 71% (~$2.4B), representing significant underutilized capacity that, with its addition to the rsETH LST E-Mode, would benefit the protocol by increasing revenue from the WETH pool as utilization rises. Particular risk considerations would be akin to those observed in existing rsETH E-modes on other instances.

Source: rsETH/WETH Swap Liquidity, DeFiLlama, November 21st, 2025

Approximately 3088 rsETH (~$8.9M) can be swapped for WETH within a 1% price impact.

Mainnet rsETH liquidity is concentrated in 3 pools, with 2 pools representing the majority of the available supply:

• Uniswap rsETH/wstETH: has a TVL of $9.6M (1,067 rsETH, ~$3.13M), with 4 LPs supplying the pool.
• Fluid rsETH/WETH: has a TVL of $6.1M (1,240 rsETH, ~$3.64M), with 38 LPs supplying the pool (mainly centered around 12 addresses).
• Balancer rsETH/hgETH: has a TVL of $194.4K (30 rsETH, ~$91.34K), with 2 holders accounting for the majority of the liquidity.

E-Mode Parameters

We support the proposed parameters, as they align with the existing rsETH E-Mode parameters on instances highlighted above.

Disclaimer

This review was independently prepared by LlamaRisk, a DeFi risk service provider 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.