[TEMP CHECK] Supporting Ethereum Withdrawal NFTs as Collateral in E-Mode

Governance New Asset
1

[TEMP CHECK] Supporting Ethereum Withdrawal NFTs as Collateral in E-Mode

Author: one Aave and Ethereum user
Date: 2025-08-28

Summary

This TEMP CHECK proposes exploring support for Ethereum withdrawal NFTs (e.g., from Lido stETH, EtherFi eETH, or other LSD/LRT protocols) as collateral within Aave, specifically in E-Mode.
These NFTs represent ETH already queued for withdrawal and can be redeemed for ETH after the validator exit delay.

Supporting withdrawal NFTs could:

  • Provide users with an efficient alternative to secondary market selling during periods of depeg.

  • Create a new market for these NFTs, which can be naturally treated as short-term bond–like instruments.

  • Strengthen Aave’s position as the most flexible venue for leveraging ETH staking and restaking assets.

Motivation

Currently, Aave accepts several LSDs and LRTs (e.g., wstETH, weETH) as collateral. Usually the oracle pricing for these tokens uses the official unwrap/redeem rate, not the secondary market rate.
This means leveraged positions remain safe from forced liquidation, even when secondary markets show persistent discounts.

However, for users, the problem is liquidity:

  • To close a position, they often must sell LRTs at a discount in secondary markets.

  • With withdrawal NFTs already available, users could instead post them as collateral directly, avoiding losses from the depeg.

By enabling withdrawal NFTs in E-Mode, Aave would:

  • Allow seamless 1-tx replacement of LRT collateral with the corresponding withdrawal NFT.

  • Let users later redeem matured NFTs to close positions in ETH.

  • Encourage a liquid secondary market for withdrawal NFTs, giving users an earlier exit option if needed.

Specification (High Level)

  • Assets considered: Withdrawal NFTs from major LSD/LRT protocols (e.g., Lido, EtherFi, etc.).

  • Use case: Eligible as collateral in ETH E-Mode.

  • Oracle: Underlying ETH redemption value (as per protocol withdrawal mechanics).

  • Risk parameters: To be defined, but starting point aligned with existing LRTs.

  • User flow:

    1. Replace LRT collateral with withdrawal NFT in one transaction.

    2. Hold NFT as collateral until maturity, then redeem ETH to close position.

    3. Optionally sell NFT in secondary markets, similar to short-term bond trading.

Benefits

  • For users:

    • Avoid losses from selling discounted LRTs on secondary markets.

    • More flexibility in managing leveraged ETH positions.

  • For Aave:

    • Expanded product scope: support for a new class of collateral.

    • Deepens role in ETH staking ecosystem.

    • Stimulates innovation and liquidity in withdrawal NFT markets.

Next Steps

  • Gather community feedback and refine design.

  • Confirm technical feasibility (NFT collateral adapter, redemption oracle, integration path).

  • Aave Labs (or an aligned contributor team) evaluates and, if feasible, leads implementation, since this is a new feature beyond standard asset onboarding.

  • If sentiment is favorable, progress to ARFC with technical specs and risk parameters.

Copyright

This post is released under CC0 — feel free to reference or adapt.

2

I strongly support this initiative. Enabling Ethereum withdrawal NFTs as collateral in E-Mode is a natural extension of Aave’s role as the leading liquidity layer for ETH staking and restaking.

Withdrawal NFTs represent fully backed, redeemable ETH, yet users today face inefficiencies and discounts in secondary markets when they need liquidity. By integrating them as collateral, Aave can unlock new efficiencies for leveraged stakers, improve capital flexibility, and provide users with a streamlined workflow for managing their positions.

This proposal also positions Aave at the forefront of innovation in LSD/LRT infrastructure, catalyzing a new layer of liquidity around withdrawal NFTs while reinforcing ETH E-Mode as the premier venue for staking-related collateral.

Looking forward to seeing the feasibility checks and technical specification in the ARFC stage. This feels like a high-impact upgrade with strong alignment to Aave’s long-term strategy.

1 Like
3

Interesting idea but sounds like there would be a lot more overhead which probably isn’t worth it for such a small market.

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4

Thanks for the feedback! I just checked, and regarding weETH + wstETH, there is already a market size of over $14B on Aave v3 Ethereum — so it doesn’t seem small to me.

With some speculation, I also think that an established market for withdrawal NFTs could actually boost adoption of LRTs and even make these assets and native staking more attractive for regulated ETFs and institutional staking flows.

I fully agree that this feature would require meaningful effort, but perhaps this, or a similar approach toward the same goal, could be worth exploring.