Aave DAO Considers Joining Lido Alliance to Establish Dedicated Market for Staked Ethereum (stETH) Token

Aave’s decentralized autonomous organization (DAO) is evaluating a proposal to join the Lido Alliance and establish a dedicated market for the liquid staking protocol’s staked Ethereum (stETH) token.

The decentralized autonomous organization (DAO) of Aave (CRYPTO:AAVE) is considering a proposal to join the Lido Alliance and create a dedicated market for the liquid staking protocol’s staked Ethereum (CRYPTO:ETH) token, stETH. The Lido Alliance aims to develop infrastructure around stETH, particularly restaking use cases, in response to the growing prominence of EigenLayer, a novel Ethereum restaking protocol that has made waves in the industry since launching last year.

Why Aave is considering the Lido Alliance

A dedicated market would enhance the user experience for wstETH holders and maintain Aave as the primary lending protocol for Lido users, the Aave Chan Initiatives said. It would also allow the DAO to take a more aggressive approach on the main Aave v3 instance, enabling borrowers to pay higher rates for WETH without harming long-term users.

The initiative added that a dedicated market would attract new WETH inflows, thanks to Lido and potential Merit incentives, ultimately growing Aave total value locked (TVL), market share, and revenues.

“Benefits for Aave DAO are: Solidify your position as venue of choice for wstETH loopers; improve economics of wETH borrow for our users and DAO as we can go with higher rates later; and drive inflows from Lido Alliance incentives and new assets in risk-isolated manner,” the initiative said.

The proposal suggests setting the borrowing capacity of WETH on v3 at 90% of the supplied WETH, with updates managed by the risk steward to ensure sustained profitability for both stETH and WETH loops. The High-Efficiency Mode (E-Mode) would be among the most efficient in the industry, at around 50 basis points.

The move has garnered strong support, with the Aave community approving a preliminary temperature check to launch the market last week.

“First tailored Aave market for Lido is going live,” Aave founder Stani Kulechov said after the vote. “Aave V3 is flexible enough to cater any kind of risk configuration preferences based on specific needs.”

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