[ARFC] Upgrade Aave V3 ETH pool wETH parameters

Summary

A proposal to make parameter changes on Aave V3 Ethereum. For more details, see the full forum post here.

Motivation

The current yields of stETH and reth have been observed at 3.3% and 3.07% respectively. By adjusting the slope1 parameter of WETH, we aim to:

• Enhance Profitability in Leverage Loops: The proposed adjustment will make leverage loops more profitable for users.
• Align with stETH and reth Yields: The adjustment aims to set the slope1 slightly below the current yields of stETH and reth, ensuring Aave remains competitive.

Increased utilization of ETH reserve is expected to partly compensate for the slight loss of protocol revenue due to lower interest rate equilibrium.

Specification

We propose two options for the weth slope1 parameters:

• Option 1 (Conservative): Set slope1 to 3.2%. 10 bps below stETH yield but above rETH yield
• Option 2 (Aggressive): Set slope1 to 2.8%. 50 below stETH yield & 23bps below rETH yield allowing both to be profitable.

Additionally, we propose reducing the optimalRatio to 80% to mitigate liquidity risks.

Options	new_slope1	new_uopt	current_util	current_borrow_rate	new_util	new_borrow_rate	current_borrow_revenue (WETH)	new_borrow_revenue (WETH)
Option 1 (Conservative)	0.033	0.8	0.74	0.031	0.75	0.031	1363	1384
Option 2 (Aggressive)	0.028	0.8	0.74	0.031	0.8	0.028	1363	1331

Disclaimer:

The Aave-chan Initiative and Gauntlet are not presenting this ARFC on behalf of any third party and are not compensated by any LST platform for creating this ARFC.

The Aave-chan Initiative and Gauntlet reserve the right to not move forward with any parameter changes recommended in Snapshot polls, if market conditions change meaningfully.

By approving this proposal, you agree that any services provided by Gauntlet shall be governed by the terms of service available at gauntlet.network/tos.