Optimize rate curve for ETH & improve revenue generation

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The discussion focused on the surge in ETH borrowings on Aave due to the addition of stETH, and the proposal to optimize ETH interest rates to attract more capital and increase protocol revenue. The proposal, which also aims to target a 70% utilization rate and create arbitrage opportunities, received broad support and is expected to enhance returns for lenders and draw more ETH into the Aave protocol.

The discussion primarily revolved around the significant increase in ETH borrowings on Aave following the addition of stETH. Samyak noted that this addition allows users to earn approximately 4% returns on their staked ETH while it's used as collateral in Aave, leading to a 4-6x increase in the utilization of ETH from 3-4% to 18%. However, he also pointed out that the current rate curve for ETH is not optimized for the protocol to receive the best revenue. He proposed optimizing the interest rates for ETH, which could potentially attract billions of dollars worth of ETH into the Aave protocol1.

Samyak further provided a comparison of the staking amount vs staking rates, and the problems with the current ETH rates on Aave before and after the stETH addition. He suggested a borrowing rate of around 3% for leveragers to benefit and recommended a refactoring of the ETH borrowings rate as the borrowing demand and market conditions of ETH have changed1. This proposal received support from Emilio and Eboado, who agreed that it would drive capital efficiency up and bring more protocol revenue 2,3.

The discussion also touched on the potential for arbitrage opportunities if the price slippage of stETH is 1%, allowing users to earn significant returns. Samyak suggested targeting a 70% utilization rate, which would leave enough liquidity for ETH withdrawals and incentivize new ETH holders4. Stani agreed with the proposal, stating that it would increase the supply of ETH for the Aave Protocol and potentially attract new users5. Eboado suggested proceeding with the proposed configuration and the deployment of the new interest rate strategy6.

In conclusion, the discussion centered around the optimization of the ETH borrowings rate and the potential benefits it could bring to the Aave protocol. The proposal received widespread support, with suggestions for further improvements and considerations. The community seems to be in favor of implementing the proposed changes, which could potentially lead to increased revenue for the protocol, better returns for lenders, and attract more ETH into the Aave protocol.

Posted 2 years ago

Last reply 2 years ago

Summary updated 2 months ago

Last updated 08/12 04:39