A proposal was passed by Aave’s community to initiate a Lido-focused deployment of v3 that is intended to simplify recursive stETH borrowing.
Aave, the most significant web3 lending protocol, is lending its support to the Lido Alliance, a recently established initiative that aims to encourage the adoption of the stETH liquid staking token (LST).
The Aave community passed an initial temperature check proposal on June 20 to initiate an instance of Aave v3 that is “focused on the Lido ecosystem.”
According to the proposal, “Aave and Lido have historically experienced symbiotic growth,” with stETH being one of the most prominent collaterals on Aave and leveraged staking being one of the most profitable use cases for both Aave DAO and Lido users” Lido has pledged ecosystem support and incentive programs to this instance in order to stimulate liquidity and encourage the implementation of additional programs within the Lido Alliance.
The proposal promotes the implementation of a variant of the Aave v3 protocol that is “specifically engineered and optimized to accommodate stETH leverage loopers.” The deployment will exclusively support the wETH and Lido’s wstETH assets, with wETH’s borrowing limit set at 90% of the supplied wETH to ensure that stETH/wETH loops are “consistently profitable and cannot enter negative territory.”
According to DeFi Llama, Aave is the third-largest DeFi protocol, with a TVL of $12.3 billion. Dune Analytics reports that StETH is the largest LST, with a TVL of $33.6 billion and a 28.8% stake in staked Ether.
According to the Defiant pricing feeds, the price of AAVE has gone down by 2.3% in the past 24 hours. Over the same period, Lido’s LDO token has experienced a 3.2% increase.
In mid-May, Lido initially disclosed its intentions for the Lido Alliance. The alliance is dedicated to the advancement of infrastructure that is constructed around Lido’s stETH, with an emphasis on the restaking of use cases. The Alliance was established in response to the increasing dominance of EigenLayer, the pioneering Ethereum restaking protocol, which coincided with a consistent trend of significant outflows from Lido. In April, users withdrew $1.4 billion from the protocol.
