This proposal suggests supporting the launch of Lido Alliance and deploying an Aave v3 instance focused on the Lido ecosystem.
Motivation
Aave and Lido have historically seen symbiotic growth, with stETH being one of the premier collaterals on Aave and leveraged staking being one of the most profitable use cases for both Aave DAO and Lido users.
Lido is in the process of launching the Lido Alliance, which will reward novel use cases of staked ETH and support further growth of the Lido ecosystem. This TEMP CHECK proposal suggests that Aave support Lido Alliance efforts by deploying a new Aave V3 ETH market for Lido. This Aave v3 instance will be designed and tuned to support stETH leverage loopers. The deployment will only include wstETH and wETH assets with E-Mode enabled.
Lido has committed incentive programs and ecosystem support for this instance in order to bootstrap liquidity and promote additional programs within the Lido Alliance.
They are invited to detail these incentives during the TEMP CHECK or ARFC stages of this proposals
Specification
The Lido Alliance’s Aave v3 instance will implement the following:
The borrow cap of wETH will be set to 90% of supplied wETH, with updates tightly controlled by the risk steward. This will ensure that stETH/wETH loops are consistently profitable and can’t go into negative territory.
E-Mode LTV & LT are set 50 bps above all other Aave implementations, making it the most efficient loop venue in the industry.
For the first 6 months of the Lido Alliance Aave v3, wETH slope1 will be set at 2.60%, ((currently 2.8% on mainnet and 3% on L2s) and wETH RF set at 10% (currently 15% on all markets). This will make it the most profitable venue to loop stETH & wETH.
In addition, the ACI proposes that Aave DAO commit to the following:
The slope1 on wETH is reduced to 2.60% (currently 2.8% on mainnet and 3% on L2s) on all markets to increase loop profitability.
Aave DAO will commit to maintaining a 25 bps discount between wETH slope1 and stETH staking yield via AIP implementation.
wstETH RF should be lowered to 5% RF on all networks.
Introduce wETH deposit Merit boost to attract wETH on both ETH, Lido Aave & ARB markets.
The deployment of the Aave V3 Lido Ecosystem Aave will be done by Catapulta on behalf of the Aave DAO.
The Aave Chan Initiative is not directly affiliated with Lido and did not receive compensation for creating this proposal. This proposal passing does not imply that Aave DAO will automatically receive Lido DAO endorsement through the Alliance process. The ACI and its employees hold stETH.
Next Steps
If consensus is reached on this [TEMP CHECK], escalate this proposal to the Snapshot stage.
If the Snapshot outcome is YAE, this proposal will be escalated to the ARFC stage.
Publication of a standard ARFC, collect community & service providers feedback before escalating the proposal to the ARFC snapshot stage.
If the ARFC snapshot outcome is YAE, publish an AIP vote for final confirmation and enforcement of the proposal.
I am not sure thats why I have to ask.
What will be the benefit of having a Lido only instance?
We already have Lido assets listed in our current markets. Won’t this just cause liquidity fragmentation?
And will this be only for mainnet or also L2s?
Appreciate the answer as again, I don’t see any benefit.
EDIT:
Can it be that by using a Lido only instance we could basically create a community/Dapp only instance that will attract especially Lido user and thus provide more liquidity than we have right now? And probably better segregated risk.
This is an interesting proposal and something we’d likely support
Aave is a general-purpose borrow/lend protocol that supports core blue-chip assets where risk is shared in most cases. So having a specific instance that can be hyper aggressive at targeting a certain market that has proven to be large and isolates risk does make sense
Even if a decent portion of wstETH migrates to the Lido instance, Aave still serves the users who want to borrow stables or other assets and are not interested in leveraged looping.
Our main questions & concerns are:
Will Aave DAO be the sole recipient of revenue generated from the Lido instance?
Assuming a significant amount of wstETH & wETH is migrated to a lower RF factor, how much of an impact will this have on DAO revenue?
Have risk stewards agreed to adding this instance to their scope of work?
Is the Safety Module expected to cover this instance?
After Snapshot monitoring, the current TEMP CHECK Snapshot recently ended, reaching both Quorum and YAE as winning option, with 662K votes.
Therefore the TEMP CHECK Snapshot has passed.
Next step will be the publication of an ARFC to keep gathering both community feedback and Service Providers before escalating to ARFC Snapshot.
As a Lido DAO contributor, we are very grateful for the continued collaboration from the Aave community. Much of the success of stETH can be attributed to the quality of the marketplace that Aave has built. In fact, Aave has single handedly contributed more to the utility and adoption of stETH than any other protocol.
This proposal to form a Lido Aave v3 instance has the potential to bootstrap the next phase of stETH growth. The staking (and re-staking) industry is evolving faster than ever and many contributors to Lido DAO believe this proposal can help provide the market with some maturity and provide users with time-tested stability. The Lido Aave v3 instance is not only an opportunity to isolate risks, but a mechanism to provide dedicated incentives for stETH users and the growth of Lido Alliance around it.
To address a few of the questions that have been raised:
Aave DAO will be the sole recipient of revenue generated from the Lido instance. The instance is to support stETH and the Lido Alliance not to generate revenue directly from it.
While a lower RF may optically have an impact on Aave DAO revenue, through growth we believe it will accelerate value accrual to the DAO. It is our opinion that this instance can be the foundation for a new phase of growth in collaboration with Lido Alliance members, more than offsetting the lower RF.
In effect, there is an opportunity to uniquely support as well as mitigate the risk from the growth of stETH. The proposal marks the beginning of more explicit support from Lido DAO as it promises to cultivate the stETH ecosystem. With that in mind, the reWards committee has pre-committed 225 stETH as a first step to incentivize the adoption of this instance.
In parallel, contributors at Lido DAO are working to coordinate additional forms of support to ensure the success of the new instance.