Aave Considers Joining Lido Alliance
Overview of Lido Alliance and Its Purpose
Aave’s decentralized autonomous organization (DAO) is currently evaluating a proposal to join the Lido Alliance. This alliance is dedicated to promoting infrastructure development around the staked Ethereum (stETH) token, particularly focusing on restaking use cases. It emerged in response to the growing influence of EigenLayer, an innovative Ethereum restaking protocol that has significantly impacted the industry since its launch last year.
Reasons for Aave’s Interest
Enhancing User Experience and Market Position
The Aave Chan Initiative outlines several reasons why joining the Lido Alliance is advantageous. One key benefit is the potential to establish a dedicated market for wstETH holders, thereby enhancing their user experience. Additionally, it aims to solidify Aave’s position as the primary platform for Lido users.
Economic Advantages and Inflow Potential
Furthermore, the initiative suggests that creating this market could allow Aave to take a more proactive approach on its main Aave v3 instance. This would enable borrowers to offer higher rates for WETH without adversely affecting long-term users. Moreover, it anticipates attracting new WETH inflows due to incentives from the Lido Alliance and potential Merit incentives.
Implementation Details
Market Structure and Risk Management
The proposal details that the borrowing capacity of WETH on V3 will be set at 90% of the supplied WETH. Updates will be managed by the risk steward to ensure consistent profitability for both stETH and WETH loops. The initiative also highlights the High-Efficiency Mode (E-Mode), which aims to be highly efficient within the industry, targeting approximately 50 basis points.
Community Support and Future Outlook
Community Approval and Vision
Support for the initiative within the Aave community is strong, as evidenced by a recent preliminary temperature check to launch the market. Following this positive response, Aave founder Stani Kulechov expressed optimism about the tailored Aave market for Lido, emphasizing the flexibility of Aave V3 to accommodate various risk configurations based on specific needs.
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