Sep 17, 2024
This is an archive of our post on Aave governance forum. Read the full thread here.
LlamaRisk endorses this proposal. The Lido Aave V3 instance aims to provide a more optimized and capital-efficient venue for leverage looping Lido-related assets. This necessitates more aggressive parameters, made possible by (1) the segregation of this instance from the main instance and (2) the use of correlated assets with a CAPO-enabled internal exchange rate. The success of LRT onboarding into the Lido instance hinges on LRT/wstETH leverage-looping profitability. The proposed changes to Slope1 and uOpt for wstETH are expected to boost demand and capital influx, enhancing the overall efficiency of the Lido instance.
Two use cases for the Lido instance:
wstETH/WETH leverage looping: Deposit wstETH, borrow WETH, leverage-loop into Lido. Current demand exceeds WETH supply: 87.21% utilization (near 90% uOptimal), 15% supply cap.
LRT/wstETH leverage looping: Not yet available (LRT yet to be onboarded). Future usage: deposit LRT, borrow wstETH, leverage-loop into LRT protocol. Current wstETH borrow utilization: 0.07%, supply at 15.34% of cap.
Foreseen effect of this change (post-LRT onboarding):
Increased LRT/wstETH leverage-looping demand (LRT deposits incentivized).
Higher wstETH borrowing demand, leading to:
a. Increased wstETH supply rate
b. Lower wstETH/WETH leverage-looping costs
c. More wstETH deposits in Lido instance