The discussion revolves around a proposal by Llamaxyz to amend the wETH and wstETH interest rate parameters on the v2 and v3 deployments. The proposal aims to implement learnings from the v2 Ethereum deployment into the initial v3 Interest Rate curves, while also updating the v2 deployment wETH interest rate to be the same across both deployments¹. The proposal is motivated by the observation that the amount of wETH borrowed by users who deposited stETH as collateral has reduced since AIP 131 was implemented. The proposal suggests reducing both the Slope1 parameters on the v2 market to 3.8% and introducing a Base of 1%¹.

For the wstETH Reserve Aave v3, the proposal suggests deploying the wstETH Reserve with a fairly flat Interest Rate curve. The parameters suggested are Base: 0.25%, Slope1: 4.5%, Slope2: 80%, Optimal: 45%, and Reserve Factor (RF): 15%. The proposal argues that a lower Slope1 parameter of 4.5% encourages users to borrow wstETH without generating a high deposit wstETH yield¹. Llamaxyz explains that a Reserve Factor (RF) of 15% reduces the yield to wstETH deposits, but still provides a meaningful yield to depositors. The Slope2 parameter is set at 80% to prevent rapid spikes in wstETH deposit rates¹.

MarcZeller confirms that the proposal has ACI support². Bgdlabs supports the proposed rate strategies for WETH and wstETH for the upcoming activation of Aave v3 Ethereum³. Pauljlei provides a detailed analysis of the proposed strategies, pointing out that the parameters outlined by Llama in the smart contracts for V3 wETH Interest Rate Strategy are incorrect and do not align with the intent of their post⁴. They recommend leaving the WETH curves as they are on V2 and setting the WETH curves on V3 to match what is currently live on V2⁴.

Llamaxyz announced that the forum post has been updated, correcting the Slope1 parameter to 3.8% from 4.8% for wETH⁵. Bgdlabs agreed with Llamaxyz's correction on Slope 1 and stated that they will proceed with these parameters for the initial Aave v3 Ethereum configuration⁶. Llamaxyz also shared the current and proposed wETH interest rate curve for the Ethereum v2 and v3 deployment, as well as the proposed wstETH interest rate curve for the Ethereum v3 deployment⁶.

The discussion concluded with Llamaxyz announcing that a Snapshot vote has been created to start on 30th January for upgrading the Ethereum v2 wETH Interest Rate curve. The vote is specific to Ethereum v2 and is in line with the original proposal⁷.