Hi @MatthewGraham
We are extremely appreciative for the detailed feedback on our proposal and would like to clarify a few things to the Aave and Polygon community:
The intention of this proposal was to build an initiative to unlock the power of liquid staked $MATIC via LIDO and Stader Labs by working together with Aave. These suggestions go hand in hand and would result in a win-win for both Aave and Polygon’s DeFi ecosystem as agreed by several members of the forum. I would like to thank the Aave community for their positive feedback for our proposal.
Although the proposal seems to ask for a lot, the scope is much narrower since we have not requested to alter the risk parameters like maximum LTV and liquidation threshold. The two major asks are:
- Optimisation of the interest rate curve for wMATIC
- Increasing the supply cap to 15M for both MATICx and stMATIC.
Regarding the migration of liquidity from Aave v3, by simply changing the parameters of wMATIC, it would create a positive feedback loop as mentioned by @Racoon that would see liquidity flow into the Aave v3 markets:
Below is an special Aave french chart which explains the entire positive feedback loop in a fun and easy way:
Regarding the current size of the stMATIC and MATICx markets on Aave v3 being small, @Racoon has pointed out very clearly as to why such is the case. With the current rate curve the borrow APR is ~6% which is greater than the staking APR for both stMATIC and MATICx. Since one can only borrow wMATIC against both assets using Aave’s e-mode, the size of the market remains at $600k. With the implementation of the new rate curve, products like Instadapp’s leverage strategy will definitely pave the way for a lot of new capital to flow in and will increase the utilization of e-mode which means more protocol revenue for Aave.
We are also confident that the Stader Labs and LIDO team should be able to address all the concerns raised about the calculated price feed and also liquidation risks in an extremely satisfactory manner as sAVAX operates on a similar calculated price feed from Chainlink and has a supply limit of 1M sAVAX or ~17.5 Mn $. Considering the ability to redeem liquid staked Matic combined with the fact that the proposed 15M liquid staked Matic supply cap is still within the supply cap limits for the likes of sAVAX which operates with a similar calculated price feed, a calculated price is well within the scope of the ask to increase the supply cap. We would like to further mention that due to the recursive nature of borrowing activity, the chances of insolvency are low from a market risk perspective.
This is a win-win situation for both parties as it helps unlock the power of liquid staking for the Polygon Defi ecosystem and ensures higher utilization of e-mode and migration of liquidity from Aave v2 → Aave v3.