Add wstETH to Arbitrum Aave v3
01Summary
Proposal to add wstETH to Arbitrum V3 Liquidity Pool as collateral with borrowing enabled, configured with specific risk parameters including 70% LTV and 1,200 wstETH supply cap. This aims to enable the rewards-maximizing stETH/ETH strategy on Arbitrum similar to the successful implementation on Aave v2 Ethereum, which generated $281k in wETH fee revenue in January 2023.
- Type
- protocol addition
Key changes
- Add wstETH as collateral asset to Arbitrum V3 with collateral enabled and borrowing enabled(high)
- Set wstETH supply cap at 1,200 and borrow cap at 190 to manage market exposure(high)
- Configure LTV at 70% and liquidation threshold at 79% for risk management(high)
- Set variable interest rate parameters with base rate of 0.25%, slope1 of 4.5%, and slope2 of 80%(medium)
- Configure liquidation bonus at 7.2% and protocol fee at 10%(medium)
Notable concerns
- Stable borrowing is disabled for wstETH
- Requires sufficient wETH liquidity on Arbitrum to support borrowing demand
- Implementation reviewed by Bored Ghost Developing but concentrated risk profile similar to v2 Ethereum implementation
Generated by Kvorum
02Description
Summary
This ARFC presents the community with the opportunity to add wstETH to the Arbitrum V3 Liquidity Pool.
Abstract
Across the Aave Liquidity Pools, stETH is listed on Aave v2 Ethereum and wstETH is listed on Aave v3 Ethereum and recently Optimism. This proposal seeks to list wstETH on the Arbitrum Liquidity Pool as Collateral, with Borrowing enabled and an Ethereum eMode.
The stETH/wETH rewards-maximising loop on Aave v2 is the main source of borrowing demand for wETH and the wETH reserve generates a material portion of Aave’s revenue, more than $281k in January 2023. By listing wstETH on Arbitrum users will be able to enter the same recursive strategy creating borrowing demand for wETH and revenue for Aave.
The risk parameters have been provided by Gauntlet, Chaos Labs and Llama, with this post using the parameters agreed between the two service providers.
Motivation
The stETH reserve on Aave v2 is the largest reserve across all Aave deployments with $1.65B in deposits, exceeding USDC ($0.86B) and ETH ($1.47B). This is partially due to several communities having built products that deposit stETH and borrow ETH as part of a rewards-maximising strategy.
Demand for borrowing wETH on Aave v2 Ethereum increased significantly when stETH was listed as collateral. InstaDapp, Index Coop, Galleon DAO, CIAN and others have all built products on top of Aave v2 that utilise the rewards-maximising stETH/ETH strategy. By adding wstETH to the Arbitrum Liquidity Pool, Aave moves closer towards enabling developers to deploy similar products on Arbitrum. This is expected to create borrowing demand for wETH and boost Aave’s revenue.
The charts below show the effect of stETH has had on the Aave v2 Ethereum liquidity pool. stETH drives most of the wETH borrowing demand and resulting wETH fee-revenue. The wETH reserve generated approximately $217k in revenue during December and generated $281k by late January.
Listing of stETH by Aave has enabled Aave to offer the best return on wETH, in wETH terms, across major lending markets, continually outperforming Compound. By listing wstETH on Arbitrum, the Aave community is helping create an environment capable of replicating the success of the Aave v2 Ethereum Liquidity Pool.
Specification
This section presents the risk parameters and interest rates parameters as discussed on the governance forum. The parameters shown below are a combination of Gauntlet’s and Llama’s work.
Gauntlet’s and Chaos Lab's Risk Assessment can be found here.
Risk Parameters
| Parameter | Value |
|---|---|
| Isolation Mode | No |
| Borrowable | Yes |
| Collateral Enabled | Yes |
| Supply Cap (wstETH) | 1,200 |
| Borrow Cap (wstETH) | 190 |
| Debt Ceiling | 0 |
| LTV | 70.00% |
| LT | 79.00% |
| Liquidation Bonus | 7.20% |
| Liquidation Protocol Fee | 10.00% |
| Variable Base | 0.25% |
| Variable Slope1 | 4.50% |
| Variable Slope2 | 80.00% |
| Uoptimal | 45.00 |
| Reserve Factor | 15.00% |
| Stable Borrowing | Disabled |
| Stable Slope1 | 4.50% |
| Stable Slope2 | 80.00% |
| Base Stable Rate Offset | 1.00% |
| Stable Rate Excess Offset | 8.00% |
| Optimal Stable To Total Debt Ratio | 20.00% |
Implementation
Test cases can be found here
Payload Implementation can be found here
New Interest Rate Strategy deployment script can be found here
Proposal Payload deployed address can be found here
Interest Rate Strategy deployed address can be found here
Security Considerations
The proposal Payload was reviewed by Bored Ghost Developing.
Governance Considerations
Aave governance forum discussion, Snapshot vote and Risk Service Provider feedback.
Copyright
Copyright and related rights waived via CC0.
03Mismatch analysis
The proposal follows Aave's standard governance pattern where a single on-chain action executes a pre-deployed payload contract that contains the detailed listing logic (asset configuration, risk parameters, interest rate strategy, etc.). The decoded calldata shows exactly one action: execute(address) targeting 0x80cb7e9E015C5331bF34e06de62443d070FD6654, which matches precisely the 'Proposal Payload deployed address' explicitly stated in the description's Implementation section. Since the actual parameter-setting logic (LTV, LT, caps, interest rate curve, eMode assignment) lives inside this payload contract's bytecode and is not separately decoded in the provided calldata, we cannot line-by-line verify each numeric risk parameter against the on-chain payload from this data alone. However, the target address matches exactly what the description claims will be executed, and this pattern (governance -> payload execute) is routine and expected for Aave listing proposals. There is no evidence of a different or unexpected target, no unexplained value transfer, and no extra or omitted top-level action. Given the address match and lack of any visible inconsistency, and acknowledging we cannot fully audit the payload's internal parameter-setting without decompiling that contract, I assess this as consistent with medium confidence.
Generated by Kvorum
04Actions
- Target
- 0x2e2b…05f1
- Value
- 0 wei
- Function
- execute(address)
- Arguments
{ "0": "0x80cb7e9E015C5331bF34e06de62443d070FD6654" }- Calldata
05Tally
Summed from votes
06Voters
No votes recorded yet.
07Forum
- [ARC] Add support for wstETH on Arbitrum Aave V3 ↗discourse · high confidence
Arguments for
- Listing wstETH on Arbitrum extends access to ETH staking yield to users who cannot afford 32 ETH or L1 transaction fees, furthering decentralization/democratization goals.— MarcZeller
- stETH's success as the largest reserve on Aave v2 Ethereum (driving WETH borrow demand and fee revenue) suggests wstETH could replicate this growth on Arbitrum.— jbeezy
- WETH utilization on Arbitrum (32%) is well below Ethereum v2 (49%), so listing wstETH could boost WETH borrowing demand and overall TVL growth for Aave.— jbeezy
- Offchain Labs (the company behind Arbitrum) strongly supports the proposal and has had a positive collaborative experience with the Lido team on the bridge integration.— phaymond
- Listing wstETH would enable DeFi protocols and products (e.g., recursive stETH/ETH leverage strategies) to be built on Arbitrum similarly to how they exist on Ethereum mainnet.— jbeezy
- Broad community and delegate support for extending Aave's LSD reach to cheaper L2 venues, consistent with prior support for wstETH on Optimism.— WintermuteGovernance, sickvisionz
- Risk teams provided conservative initial parameters and a workable oracle solution, mitigating concerns and supporting a safe listing.— ChaosLabs, bgdlabs
Arguments against
None surfaced.
Unresolved concerns
- Pricing wstETH with a high-LT eMode (93%) increases exposure to oracle price de-synchronization risk, which is only partially mitigated pending deployment of a new wstETH/ETH Chainlink feed.— bgdlabs
- wstETH on Arbitrum has significantly lower on-chain liquidity than on Ethereum or Optimism, causing much higher slippage in whale liquidation scenarios, requiring markedly lower supply/borrow caps than other deployments.— ChaosLabs
- Whether to enable eMode at listing (versus without, as was done on Optimism) was left as an open choice for token holders to decide via Snapshot rather than resolved in discussion.— Llamaxyz
Notable participants
- jbeezyProposer and Lido DAO contributor who authored the original ARFC with rationale, token background, and specification.
- MarcZellerAave Chan Initiative representative expressing general support pending risk parameter recommendations and coordinating proposal ownership with Llama.
- phaymondOffchain Labs (Arbitrum) representative endorsing the proposal and offering collaboration.
- ChaosLabsRisk provider that, alongside Gauntlet, delivered detailed parameter analyses and a joint recommendation on caps, LTV/LT, and interest rate curves.
- bgdlabsTechnical contributor clarifying oracle composition options and de-sync risks for eMode pricing, and coordinating a fix with Lido and Chainlink.
- LlamaxyzShepherded the proposal through Snapshot voting and finalized the on-chain AIP-163 submission.
- WintermuteGovernanceDelegate voicing support for extending LSD assets to Arbitrum, contingent on risk team recommendations.
- sickvisionzCommunity member expressing general support and suggesting future expansion to Optimism.
Generated by Kvorum
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