[ARFC] Deploy an Etherfi/Stablecoin Aave v3 Instance

[ARFC] Deploy an Etherfi/Stablecoin Aave v3 Instance

Author: ACI

Date: 2024-07-29

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Risk Parameters have been updated after Risk Service Providers feedback - 2024-08-01 ARFC has been updated to add pyUSD and FRAX as non-collateral assets - 2024-08-07 Risk Params updated with pyUSD and FRAX - 2024-08-14 Due to some technical difficulties with GHO facilitator implementation at this stage, references to GHO and GHO facilitators have been removed. - 2024-08-19

Summary

This proposal suggests deploying an Aave v3 instance focused on providing liquidity for weETH holders to borrow stablecoins.

Motivation

The demand for borrowing wETH on Aave using weETH as collateral is extremely high, with caps being filled within minutes each week.

While this $2B growth is welcomed and responsible for ~$12.5M yearly revenue (at current ETH prices) for the DAO, it has created some frustration for significant users looking to borrow stablecoins using their weETH as collateral.

With this asset being constantly at cap, users are wary of leveraging Aave for this use case as they have legitimate concerns about their ability to add more collateral/debt to (de)leverage following market conditions.

To provide weETH holders with more suitable options, we propose creating a dedicated weETH/stablecoin Aave v3 Instance.

This market also lays the groundwork for future integrations & synergies with EtherFi’s Cash product.

Specification

Risk Parameters have been provided by Risk Service Providers and the current ARFC has been updated accordingly 2024-08-01 Updated ARFC to include pyUSD and FRAX as non collateral assets Due to some technical difficulties with GHO facilitator implementation at this stage, references to GHO and GHO facilitators have been removed.

	weETH	USDC	pyUSD	FRAX
Isolation Mode	No	No	No	No
Enable Borrow	No	Yes	Yes	Yes
Enable Collateral	Yes	No	No	No
E-Mode Category	N/A	N/A	N/A	N/A
Loan To Value	78%	-	-	-
Liquidation Threshold	81%	-	-	-
Liquidation Bonus	6%	-	-	-
Reserve Factor	-	10%	20%	20%
Liquidation Protocol Fee	10%	-	10%	10%
Supply Cap	50,000	140,000,000	60M	54M
Borrow Cap	0	135,000,000	15M	12M
Debt Ceiling	N/A	N/A	N/A	N/A
uOptimal	-	90%	90%	90%
Base	-	0%	0%	0%
Slope1	-	6.5%	5.5%	5.5%
Slope2	-	60%	80%	80%
Stable Borrowing	Disabled	Disabled	Disabled	Disabled
Flashloanable	Yes	Yes	Yes	Yes
Siloed Borrowing	No	No	No	No
Borrowable in Isolation	No	No	No	No

The proposed weETH/Stablecoin Aave v3 instance will implement the following:

• The market will include weETH, USDC, pyUSD, FRAX.

• This market will not have E-Mode, but due to its focused nature and limitation of cross-collaterals, it’s proposed to have a higher LTV/LT status for weETH than for the main instance.

The risk steward will dynamically adjust weETH supply caps based on stablecoin liquidity to ensure stablecoin borrowing remains viable.

In addition, we propose that the Aave DAO consider the following:

• Introduce a stablecoin deposit incentive program to kickstart stablecoin liquidity in this new instance using Merit or other initiatives to be discussed.

The deployment will be handled by Catapulta on behalf of the Aave DAO.

Useful Links

[TEMP CHECK] Deploy an Etherfi/Stablecoin Aave v3 Instance

TEMP CHECK Snapshot

Disclaimer

The ACI has not been compensated by Etherfi for the publication of this proposal.

The ACI and several ACI team members are both weETH and ETHFI holders.

Next Steps

1. Publish a standard ARFC and collect community & service provider feedback before an ARFC snapshot.
2. If the ARFC snapshot passes, publish an AIP vote for final confirmation and enforcement.
3. Work with service providers and Etherfi to release and promote the new Aave V3 instance.

Copyright

Copyright and related rights waived under CC0