In an effort to improve the capital efficiency of the wAVAX reserve and increase Aave’s wAVAX revenue, Llamaxyz proposed an amendment to the wAVAX interest rate parameters on the Aave Avalanche v3 Liquidity Pool. The proposal is designed to support the adoption of the recursive yield strategy sAVAX/wAVAX on Avalanche v3, which is currently generating around 23.9% with a low wAVAX utilisation. The proposal suggests that if the SupplyCap for sAVAX is doubled, the current wAVAX interest rate curve becomes the limiting factor on the strategy's profitability. To mitigate this, a Base of 1% is introduced, generating a Slope1 of 4.72%, and the Uoptimal parameter is proposed to be adjusted from 45% to 65% to improve the capital efficiency of the AVAX reserve.

The proposal also includes a reduction in the Slope2 parameter from 300% to 144.28% to generate a borrow rate of 150% at 100% utilisation, aimed at reducing volatility when utilisation is in the Uoptimal < Utilisation <100% range. Several other interest rate parameters are also under review, including Variable Base, Uoptimal, Variable Slope1, Stable Borrowing, Stable Slope1, Stable Slope2, Base Stable Rate Offset, Stable Rate Excess Offset, and Optimal Stable To Total Debt Ratio. Pauljlei recommended a higher base stable rate offset of 4%, as a 1% offset is low given the added risks that stable borrowing poses for the protocol.

The proposal has received support from Team_BENQI and MarcZeller, with the latter seeking feedback from risk teams. The sAVAX continues to have robust demand on Avalanche, with close to 32,000 AVAX stakers and about 180 nodes participating within the protocol. The community awaits further analysis and feedback on the proposal, particularly regarding the potential risks and benefits of enabling stable borrowing.