KVORUM
aaveSource: Aave governance v3 · #311

LRT and wstETH Unification

executedMay 18, 2025, 09:12 AM UTCby570x57ab…2922

01Summary

AISummary by Kvorumclaude-haiku-4-5

Update LRT (Liquid Restaking Token) and LST (Liquid Staking Token) risk parameters across Aave v3 instances on Ethereum, Prime, Arbitrum, and Base by adjusting LTV/LT values for assets like rsETH, wstETH, weETH, and cbETH, and creating new isolated eModes for enhanced capital efficiency.

Type
parameter change

Key changes

  • Update wstETH/WETH eMode on Prime instance with LTV 95% and LT 96.5% to enhance capital efficiency for wstETH/WETH yield strategy(high)
  • Align rsETH LTV and LT parameters across Core, Prime, and Base instances (LTV 93%, LT 95%) to level playing field with other LRTs(high)
  • Create new rsETH/Stablecoins eModes on Prime and Arbitrum (LTV 72%, LT 75%) to enable stablecoin borrowing against rsETH collateral(medium)
  • Create isolated eModes on Base for rsETH/USDC, weETH/wETH, wstETH/wETH, and cbETH/WETH with LTV 93% and LT 95% to enhance capital efficiency(high)
  • Update rsETH/wstETH eMode parameters on Core and Arbitrum instances (LTV 93%, LT 95%, Liquidation Penalty 1%)(medium)

Notable concerns

  • High liquidation thresholds (96.5% for wstETH/WETH on Prime, 95% for most LRT pairs) create significant liquidation risk if asset values decline
  • Introduction of multiple new eModes increases protocol complexity and potential risk exposure
  • Capital efficiency gains from higher LTV/LT parameters may increase systemic risk during market volatility
ContractsAaveV3EthereumAaveV3EthereumLidoAaveV3ArbitrumAaveV3Base
Generated by Kvorum
model: claude-haiku-4-5
provider: anthropic
profile: anthropic-fast-v1
prompt: v1.0
generated: 2mo ago
Read the description ↗

02Description

839 words

Simple Summary

This publication presents a comprehensive overview of proposed LRT and LST risk parameters updates across Ethereum, Prime, Base and Arbitrum instances of Aave v3.

Motivation

This publication incorporates the feedback and recent discussions into a single holistic publication. For ease of reference, those publications are referenced below:

Each of the following sub-sections presents insights into how each parameter is to be adjusted.

Prime Instance - wstETH and WETH eMode

The Prime instance, previously Lido instance, presents a tailored wstETH eMode configuration that offers enhanced capital efficiency relative to other instances of Aave v3. With a Liquidation Threshold (LT) of 96.50% for wstETH on Prime relative to 95.00% elsewhere, a position with a Health Factor of 1.01 can support a leverage ratio of 22.44 on Prime relative to 16.83 on other instances of Aave Protocol.

With all other variables held constant, a small difference in the wstETH deposit yield on Prime relative to the Core instance, has a meaningful impact on the overall return of the wstETH/WETH yield strategy. With a strong focus on sustaining a wstETH deposit yield derived from LRT/wstETH leverage, the wstETH/WETH yield strategy is expected to outperform on Prime relative to other venues supporting the same wstETH/WETH strategy.

rsETH LTV & LT Update

To promote a level playing field between LRTs, a proposal was submitted and approved by Risk Service Providers to align the LTV and LT parameters of rsETH with other LRTs, ezETH and weETH.

The following is proposed for rsETH Core, Prime and Base instances:

  • Update rsETH/wstETH eMode: LTV 93%, LT 95% and Liquidation Penalty 1%.

EModes

The introduction of Liquid eModes in Aave v3.2 enables more granular and targeted risk configurations between correlated assets such as LSTs and LRTs. Creating isolated eModes for each pair enhances capital efficiency relative to the current ETH-correlated eModes on the Base instance.

Specification

The following adjustments are to be implemented on all instances within the same AIP.

Prime - Ethereum

Update the current wstETH/wETH eMode

ParameterValue
Max LTV95.0
Liquidation Threshold96.5
Liquidation Penalty1.00%
CollateralswstETH
BorrowableWETH

Create new rsETH/Stablecoins eMode

ParameterValue
Max LTV72.00%
Liquidation Threshold75.00%
Liquidation Penalty7.50%
CollateralsrsETH
BorrowableUSDS, USDC, GHO

Core - Ethereum

Update the current rsETH/wstETH

ParameterValue
Max LTV93.00%
Liquidation Threshold95.00%
Liquidation Penalty1.00%
CollateralsrsETH
BorrowablewstETH, ETHx

Arbitrum

Update the current rsETH/wstETH

ParameterValue
Max LTV93.00%
Liquidation Threshold95.00%
Liquidation Penalty1.00%
CollateralsrsETH
BorrowablewstETH

Create new rsETH/Stablecoins eMode

ParameterValue
Max LTV72.00%
Liquidation Threshold75.00%
Liquidation Penalty7.50%
CollateralsrsETH
BorrowableUSDC, USDT

Base

Update the current rsETH/wstETH eMode

ParameterValue
Max LTV93.00%
Liquidation Threshold95.00%
Liquidation Penalty1.00%
CollateralsrsETH
BorrowablewstETH

Create new rsETH/USDC eMode

ParameterValue
Max LTV72.00%
Liquidation Threshold75.00%
Liquidation Penalty7.50%
CollateralsrsETH
BorrowableUSDC

Create new weETH/wETH eMode

ParameterValue
Max LTV93.00%
Liquidation Threshold95.00%
Liquidation Penalty1.25%
CollateralsweETH
BorrowablewETH

Create new wstETH/wETH eMode

ParameterValue
Max LTV93.00%
Liquidation Threshold95.00%
Liquidation Penalty1.00%
CollateralswstETH
BorrowablewETH

Create new cbETH/WETH eMode

ParameterValue
Max LTV93.00%
Liquidation Threshold95.00%
Liquidation Penalty2.00%
CollateralscbETH
BorrowablewETH

References

Copyright

Copyright and related rights waived via CC0.

03Mismatch analysis

AIMismatch analysis by Kvorum

A calldata-vs-description analysis is not generated yet. Review the decoded actions →

04Actions

2 total
#0fallback()chain 0x1
Target
0xaefd…7932
Value
0 wei
Function
fallback()
Arguments
{}
Calldata
#1fallback()chain 0x1
Target
0x27ff…462e
Value
0 wei
Function
fallback()
Arguments
{}
Calldata

05Tally

Summed from votes

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VP participating0
Outcome (current)—
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06Voters

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07Forum

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