Add wstETH to Polygon Aave v3
01Summary
This proposal adds wstETH (wrapped staked ETH) to Aave's Polygon v3 Liquidity Pool as a collateral asset with borrowing enabled. It also adds wETH to an Ethereum correlated eMode category. This mirrors successful yield-maximizing strategies already running on Aave v2 Ethereum, expected to generate additional wETH borrowing demand and protocol revenue on Polygon.
- Type
- protocol addition
Key changes
- Add wstETH to Polygon v3 Liquidity Pool with collateral enabled and borrowing enabled(high)
- Set wstETH supply cap at 1,800 and borrow cap at 285 on Polygon(high)
- Configure wstETH risk parameters: LTV 70%, LT 79%, Liquidation Bonus 7.2%(high)
- Add wETH to Ethereum correlated eMode category with LTV 90% and LT 93%(high)
- Enable rewards-maximizing stETH/wETH loop strategy on Polygon similar to existing Aave v2 Ethereum deployment(high)
Notable concerns
- wstETH introduces liquid staking derivative risk to Polygon deployment
- High LTV/LT parameters in eMode (90%/93%) create liquidation risk during market volatility
- Reliance on continued stETH/wETH yield loop demand to justify economics
Generated by Kvorum
02Description
Summary
This AIP presents the community with the opportunity to add wstETH to the Polygon v3 Liquidity Pool.
Abstract
Across the Aave v3 Liquidity Pools, wstETH is listed on Ethereum, Arbitrum and Optimism. This proposal seeks to list wstETH on the Polygon Liquidity Pool as Collateral, with Borrowing enabled and an Ethereum correlated eMode. wETH will also be added to this Ethereum correlated eMode. The parameters are listed below.
The stETH/wETH rewards-maximising loop on Aave v2 Ethereum is the main source of borrowing demand for wETH. The wETH reserve generates a material portion of Aave’s revenue, more than $294k during March 2023.
By listing wstETH on Polygon users will be able to enter the same yield maximising strategy creating borrowing demand for wETH and revenue for Aave.
Motivation
The stETH reserve on Aave v2 is the largest reserve across all Aave deployments with $1.90B in deposits, exceeding USDC ($0.62B) and ETH ($1.41B). 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 Polygon Liquidity Pool, Aave moves closer towards enabling developers to deploy similar products on Polygon. 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 $244k and $294k during Fabruary and March respectively.
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 Polygon, 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 presented by Gauntlet and Chaos Labs on the governance forum.
| Parameter | Value |
|---|---|
| Isolation Mode | No |
| Borrowable | Yes |
| Collateral Enabled | Yes |
| Supply Cap (wstETH) | 1,800 |
| Borrow Cap (wstETH) | 285 |
| 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% |
eMode category: ETH Correlated Strategy
| Parameter | Value |
|---|---|
| LT | 93% |
| LTV | 90% |
| LB | 1% |
Implementation
A list of relevant links like for this proposal:
The proposal Payload was reviewed by Bored Ghost Developing.
Aave governance forum discussionand Snapshot vote.
Copyright
Copyright and related rights waived via CC0.
03Mismatch analysis
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Generated by Kvorum
04Actions
- Target
- 0x158a…d45b
- Value
- 0 wei
- Function
- execute(address)
- Arguments
{ "0": "0xE11c89144259Af51385f30B699cDb334d1e1DdDC" }- Calldata
05Tally
Summed from votes
06Voters
No votes recorded yet.
07Forum
- ARC: Add support for wstETH on Polygon V3 ↗discourse · high confidence
Arguments for
- wstETH listing would drive TVL growth and increased wETH borrowing demand on Polygon, replicating the revenue success seen from stETH/wstETH listings on Ethereum, Optimism and Arbitrum.— jbeezy
- Adding wstETH would make Polygon v3 the first Aave deployment offering multiple rewards-maximizing LST strategies (wstETH/ETH and stMATIC/wMATIC), attracting strategists and liquidity.— Llamaxyz
- Risk teams provided conservative initial risk parameters (caps, LTV, LT, IR curves) based on Optimism/Arbitrum precedents and on-chain liquidity data, making a safe initial listing feasible.— Pauljlei
- Current on-chain liquidity for wstETH on Polygon is sufficient to support proposed conservative supply/borrow caps with minimal slippage risk.— Pauljlei
Arguments against
- Bundling new asset onboarding (wstETH listing) together with unrelated risk parameter changes (stMATIC cap increase, LDO listing) undermines governance granularity and token holder voice, and sets a bad precedent.— MarcZeller, sakulstra
Unresolved concerns
- Whether and how to increase the wstETH supply cap on Polygon after listing, since it remained capped for an extended period post-launch.— Annapurna
- Lack of an existing Chainlink price feed for wstETH on Polygon at the time of the risk recommendations, making parameters conditional on its deployment.— Pauljlei
- Discrepancy between Gauntlet's and Chaos Labs' recommended supply caps (1800 vs 5600 wstETH) was not fully reconciled in the thread.— Pauljlei
- No clear resolution on how to handle future asset-onboarding proposals versus bundled risk-parameter updates going forward.— MatthewGraham, MarcZeller, sakulstra
Notable participants
- jbeezyOriginal proposer from Lido DAO who authored the ARFC and provided the asset/project overview.
- LlamaxyzGovernance facilitator supporting the proposal and later engaging with risk teams to move it toward a Snapshot/AIP.
- PauljleiPresented consolidated risk parameter recommendations combining Gauntlet and Chaos Labs analyses.
- MatthewGrahamCoordinated next governance steps, proposed bundling multiple listings into one AIP, then reversed course after pushback.
- MarcZellerRepresented the ACI in strongly opposing bundling of asset onboarding proposals, citing governance integrity concerns.
- sakulstraSupported MarcZeller's position, distinguishing acceptable batched risk updates from sensitive new asset listings.
- AnnapurnaLater community member asking for status update on the long-capped wstETH supply.
Generated by Kvorum
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