[Discussion] Prioritizing Cap Space for stkAAVE Holders

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The discussion led by Portkey focused on the high demand in certain Aave markets and strategies to reduce concentration in these markets, particularly after the surge in demand for collateralizing Liquid Staking Tokens (LSTs) on Aave V3 post the Shanghai upgrade. Portkey proposed solutions like limited access for stkAAVE holders to future cap space and limiting single deposit transactions, while also highlighting Chainlink's Cross-Chain Interoperability Protocol (CCIP) as a potential solution to fractionalized liquidity issues.

The discussion initiated by Portkey revolved around the increasing demand in select Aave markets and the potential strategies to alleviate concentration within these capped markets. The demand for collateralizing Liquid Staking Tokens (LSTs) on Aave V3 has surged post the Shanghai upgrade, leading to full capacity in most LST markets. The ARFC, authored by Llamaxyz, proposed an increase in the wstETH Supply Cap on both Arbitrum and Polygon markets, which was quickly filled to capacity by a few entities.

Portkey suggested strategies to balance the concentration of depositors within these markets, such as providing stkAAVE holders with limited access to a percentage of future cap space or limiting a single deposit transaction or wallet balance to a pre-determined percentage of the circulating aToken supply. This proposal was met with mixed reactions from the community. Pcx expressed interest in the latter strategy, while WintermuteGovernance raised concerns about its effectiveness and potential to price out other stkAAVE users. MarcZeller from ACI emphasized the importance of maintaining the neutral nature of the protocol and opposed gatekeeping at the protocol level.

Portkey also shared news about Chainlink's release of the Cross-Chain Interoperability Protocol (CCIP) code base and its public audit via Code4rena. This new protocol could potentially solve the issue of fractionalized liquidity, a major problem for supply cap methodologies. Aave was one of the protocols testing in Beta. The upcoming launch of GHO could provide more opportunities for value capture. The discussion concluded with Portkey acknowledging the importance of maintaining the neutrality of the protocol’s core functionality and suggesting a brief stkAAVE priority window as a possible solution.

Posted 6 months ago

Last reply 6 months ago

Summary updated 2 months ago

Last updated 03/12 08:00