The discussion revolves around the proposal by Jbeezy to include the Lido DAO token (LDO) in the Ethereum v3 Liquidity Pool. LDO is a governance token used to vote on the use of the DAO treasury associated with the Lido protocols. The proposal suggests that Aave would benefit from being the first major lending market to list LDO, allowing users to express various trading views on LDO’s price outlook. The proposal also suggests using a Chainlink Synchronicity Price Adapter if an LDO/USD oracle is required for v3¹.

The Lido Protocol, launched in December 2020, has seen significant growth with 5,013,290.96 ETH staked in Lido Protocol’s stETH Contract, accounting for approximately 29.15% of all of the staked Ether on Ethereum at the time of drafting. The LDO token has a significant market capitalisation and is available on various decentralized exchange liquidity pools¹.

However, the proposal has sparked a debate on the use case for LDO on Aave, with MarcZeller questioning its utility as it is primarily a governance token. In response, Jbeezy suggested the possibility of using LDO as collateral in a staking module and allowing aLDO to vote in governance^2,3.

Gauntlet's risk analysis, shared by Pauljlei, indicates that the LDO token is heavily influenced by the Shanghai upgrade and any unforeseen issues with the stETH redemption process could negatively impact public perception of the LDO token. Gauntlet recommends a supply cap of 6M, a borrow cap of 6M, and a debt ceiling of $7.5M among other parameters⁴.

ChaosLabs supports listing LDO in Isolation Mode as part of a strategy to increase the offering of AAVE protocol with more volatile assets. They suggest adopting conservative parameters at launch, which can be optimized and updated later. They also recommend an initial debt ceiling of $10M, a supply cap of 5.5M LDO, and a borrow cap of 3M LDO⁵.

The proposal has moved forward with a Snapshot vote, with a majority YAE vote. The risk parameters being considered include Isolation Mode, Borrowable, Collateral Enabled, Supply Cap (LDO), Borrow Cap (LDO), Debt Ceiling, LTV, LT, Liquidation Bonus, Liquidation Protocol Fee, Variable Base, Variable Slope1, and Variable Slope2. The proposal is scheduled into the Llama engineering work stream and they plan to submit the AIP in the near future^7,8.