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[AAVE] LRT and wstETH Unification

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Simple Summary

This publication presents a comprehensive overview of proposed LRT and LST risk parameters updates across Ethereum, Prime, Base and Arbitrum instances of Aave v3.

Motivation

This publication incorporates the feedback and recent discussions into a single holistic publication. For ease of reference, those publications are referenced below:

Each of the following sub-sections presents insights into how each parameter is to be adjusted.

Prime Instance - wstETH and WETH eMode

The Prime instance, previously Lido instance, presents a tailored wstETH eMode configuration that offers enhanced capital efficiency relative to other instances of Aave v3. With a Liquidation Threshold (LT) of 96.50% for wstETH on Prime relative to 95.00% elsewhere, a position with a Health Factor of 1.01 can support a leverage ratio of 22.44 on Prime relative to 16.83 on other instances of Aave Protocol.

With all other variables held constant, a small difference in the wstETH deposit yield on Prime relative to the Core instance, has a meaningful impact on the overall return of the wstETH/WETH yield strategy. With a strong focus on sustaining a wstETH deposit yield derived from LRT/wstETH leverage, the wstETH/WETH yield strategy is expected to outperform on Prime relative to other venues supporting the same wstETH/WETH strategy.

rsETH LTV & LT Update

To promote a level playing field between LRTs, a proposal was submitted and approved by Risk Service Providers to align the LTV and LT parameters of rsETH with other LRTs, ezETH and weETH.

The following is proposed for rsETH Core, Prime and Base instances:

Update rsETH/wstETH eMode: LTV 93%, LT 95% and Liquidation Penalty 1%.

EModes

The introduction of Liquid eModes in Aave v3.2 enables more granular and targeted risk configurations between correlated assets such as LSTs and LRTs. Creating isolated eModes for each pair enhances capital efficiency relative to the current ETH-correlated eModes on the Base instance.

Specification

The following adjustments are to be implemented on all instances within the same AIP.

Prime - Ethereum

Update the current wstETH/wETH eMode

Create new rsETH/Stablecoins eMode

Core - Ethereum

Update the current rsETH/wstETH

Arbitrum

Update the current rsETH/wstETH

Create new rsETH/Stablecoins eMode

Base

Update the current rsETH/wstETH eMode

Create new rsETH/USDC eMode

Create new weETH/wETH eMode

Create new wstETH/wETH eMode

Create new cbETH/WETH eMode

References

Implementation: AaveV3Ethereum, AaveV3EthereumLido, AaveV3Arbitrum, AaveV3Base
Tests: AaveV3Ethereum, AaveV3EthereumLido, AaveV3Arbitrum, AaveV3Base
Snapshot: Direct-to-AIP
Discussion

Copyright

https://app.aave.com/governance/v3/proposal/?proposalId=311

Off-Chain Vote

YAE190 HVAXVC96%

NAY8 HVAXVC4%

Quorum: 19800%

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Discussion

[AAVE] LRT and wstETH Unification

Timeline

May 14, 2025Proposal created
May 15, 2025Proposal vote started
May 17, 2025Proposal vote ended
Dec 12, 2025Proposal updated

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