Title: [Risk Stewards] Reduce wETH Slope1
Author: @TokenLogic
Created: 2026-04-18
Summary
This publication proposes reducing the wETH Slope1 from 2.35% to 2.20%. The adjustment aims to preserve utilization near Uoptimal, defend DAO revenue against a demand decay scenario, and keep leveraged ETH strategies on the book as LST source yields have compressed.
Motivation
Overview
LST source yields have compressed materially over recent weeks, with wstETH (Lido) at 2.40%, weETH (EtherFi) at 2.64%, and rsETH (Kelp) at 2.50% on protocol frontends. Against this backdrop, the Aave V3 wETH variable borrow rate has held firm at around 2.27%, with 88.5% utilization, while Uoptimal is at 92% and Slope1 at 2.35%.
Multiple funds and retail users running levered LST carry through Aave V3 have flagged that current economics are at or below their cost of capital threshold. Without action, these users are likely to partially deleverage. The resulting utilization decay would compress the borrow rate, drop supplier APR, and trigger a self-reinforcing outflow of passive supply. The proposed 15bps Slope1 reduction pre-empts this path by restoring 40 to 170bps of levered net APR across realistic health factor bands, keeping utilization anchored near Uoptimal.
Rationale for the 15bps Cut
Current wETH reserve state (Ethereum V3):
| Parameter | Value |
|---|---|
| Total supply | ~3.0M WETH (~$7.1B) |
| Utilization | 88.50% |
| Borrow APR | 2.27% |
| Supply APR | 1.71% |
| Reserve Factor | 15% |
| Base Rate | 0.00% |
| Slope1 | 2.35% |
| Slope2 | 6.00% |
| Uoptimal | 92.00% |
LST market context (source APRs, protocol frontends):
| Asset | Staking APR | E-Mode LT vs wETH |
|---|---|---|
| wstETH (Lido) | 2.40% | 95% |
| weETH (EtherFi) | 2.64% | 95% |
| rsETH (Kelp) | 2.50% | 95% |
Methodology:
- Leverage formula: L = 1 / (1 − LT / HF), with LT = 95% (E-Mode).
- Net APR: yield × L − BR × (L − 1).
- Borrow rate model: BR = Slope1 × (U / Uoptimal) when U ≤ Uoptimal.
- Scenarios for levered net APR: Current (U = 88.5%, Slope1 = 2.35%, BR = 2.26%); Same U post-cut (U = 88.5%, Slope1 = 2.20%, BR = 2.12%); Uoptimal post-cut (U = 92%, Slope1 = 2.20%, BR = 2.20%).
Leverage levels used:
| HF | Implied Leverage |
|---|---|
| 1.03 | 12.88x |
| 1.05 | 10.50x |
| 1.10 | 7.33x |
Sensitivity: levered net APR by LST and Health Factor.
Each table compares today’s levered net APR (Current) against two post-cut scenarios: utilization stays flat at 88.5% (the immediate borrower effect), and utilization recovers to Uoptimal at 92% (the equilibrium effect).
wstETH (2.40% source APR):
| HF | Current (U=88.5%, BR=2.26%) | Same U post-cut (BR=2.12%) | Uoptimal post-cut (BR=2.20%) | Δ same U | Δ Uoptimal |
|---|---|---|---|---|---|
| 1.03 | 4.05% | 5.77% | 4.77% | +1.71% | +0.72% |
| 1.05 | 3.72% | 5.10% | 4.30% | +1.37% | +0.58% |
| 1.10 | 3.28% | 4.20% | 3.67% | +0.91% | +0.38% |
weETH (2.64% source APR):
| HF | Current (U=88.5%, BR=2.26%) | Same U post-cut (BR=2.12%) | Uoptimal post-cut (BR=2.20%) | Δ same U | Δ Uoptimal |
|---|---|---|---|---|---|
| 1.03 | 7.15% | 8.86% | 7.87% | +1.71% | +0.72% |
| 1.05 | 6.24% | 7.62% | 6.82% | +1.37% | +0.58% |
| 1.10 | 5.04% | 5.96% | 5.43% | +0.91% | +0.38% |
rsETH (2.50% source APR):
| HF | Current (U=88.5%, BR=2.26%) | Same U post-cut (BR=2.12%) | Uoptimal post-cut (BR=2.20%) | Δ same U | Δ Uoptimal |
|---|---|---|---|---|---|
| 1.03 | 5.34% | 7.06% | 6.06% | +1.71% | +0.72% |
| 1.05 | 4.77% | 6.15% | 5.35% | +1.37% | +0.58% |
| 1.10 | 4.02% | 4.93% | 4.40% | +0.91% | +0.38% |
Both deltas are identical across LSTs at a given HF because they depend only on changes in the borrow rate and the leverage multiplier. The same-U delta isolates the immediate effect of the cut on existing loopers; the Uoptimal delta shows the equilibrium uplift retained once utilization recovers to the kink.
Revenue impact (DAO):
Revenue = Debt × Borrow Rate × Reserve Factor. ETH reference price: $2,350.
| Scenario | Utilization | Borrow APR | DAO Revenue (WETH/yr) | USD/yr | Δ vs Current |
|---|---|---|---|---|---|
| Current | 88.5% | 2.26% | ~9,003 | ~$21.16M | baseline |
| Decay to 85% | 85.0% | 2.17% | ~8,305 | ~$19.52M | -$1.64M |
| Decay to 82.5% | 82.5% | 2.11% | ~7,823 | ~$18.38M | -$2.78M |
| Post-cut Equilibrium | 92.0% | 2.20% | ~9,108 | ~$21.40M | +$0.24M |
Two takeaways: the post-cut equilibrium is revenue-neutral to mildly positive (the utilization rise to Uoptimal offsets the 15bps rate reduction), while doing nothing has a negative expected value of $1.6M to $2.8M/yr depending on how far utilization decays.
Supplier APR:
Supplier APR = Utilization × Borrow APR × (1 − Reserve Factor).
| Scenario | Supplier APR | Δ vs Current |
|---|---|---|
| Current (U=88.5%, BR=2.26%) | 1.70% | baseline |
| Decay to 85% (BR=2.17%) | 1.57% | -13 bps |
| Decay to 82.5% (BR=2.11%) | 1.48% | -22 bps |
| Post-cut Eq (U=92%, BR=2.20%) | 1.72% | +2 bps |
Suppliers are held flat to marginally positive at the post-cut equilibrium. The real risk to suppliers is the unwind path, where LR compresses by 13 to 22bps. The proposed cut protects supplier yield by keeping utilization anchored near Uoptimal.
Feedback loop:
The path without action is self-reinforcing:
- LST source yields compress while Aave BR holds firm.
- Users see the net APR approach or cross their cost of capital.
- Users partially deleverage, cutting borrow demand.
- Utilization falls below Uoptimal, BR drops, supplier APR drops.
- Passive suppliers rotate to higher-yielding venues, supply shrinks.
- The reserve becomes less productive and less resilient to future demand spikes.
The proposed 15 bps cut pre-empts step 2 by restoring 40 to 170 bps of levered net APR, depending on HF. From an individual supplier’s perspective, the LR is a secondary output of utilization; most passive suppliers do not track basis-point moves in Slope1 day to day. The practical effect of the cut is therefore felt first by borrowers (who stay levered), then by utilization (which recovers to Uoptimal), and only indirectly by suppliers (who see a marginally higher LR than under the decay path).
Specification
The following Slope1 change is proposed on the wETH reserve across every Aave V3 instance where wETH is listed alongside LST/LRT collateral:
| Instance | Current Slope1 | Proposed Slope1 |
|---|---|---|
| Ethereum v3 Core | 2.35% | 2.20% |
| Ethereum v4 Core | 2.35% | 2.20% |
| Arbitrum | 2.50% | 2.20% |
| Base | 2.50% | 2.20% |
| Linea | 2.50% | 2.20% |
| Optimism | 2.50% | 2.20% |
| Avalanche | 2.50% | 2.20% |
| Polygon | 2.70% | 2.50% |
| Mantle | 2.50% | 2.20% |
| megaETH | 2.50% | 2.20% |
Disclaimer
TokenLogic is an active service provider to the Aave DAO, the beneficiary of stream 100072 and the KPI as outlined in this publication. The scope of this engagement is available via this forum proposal. TokenLogic is contributing this proposal as part of its approved scope of work in support of DAO operations.
TokenLogic supports and maintains an independent delegate voting platform within the Aave community.
TokenLogic and associated entities have no undisclosed material conflicts of interest at the time of submission.
Next Steps
- Gather feedback from the community.
- If consensus is reached on this ARFC, escalate this proposal to the Snapshot stage.
- If Snapshot outcome is YAE, escalate this proposal to the AIP stage.
Copyright
Copyright and related rights waived via CC0.