Aave Community Backs Lido Alliance, Greenlighting stETH-Focused V3 Deployment

Aave’s community passed a proposal to launch a Lido-focused deployment of v3 designed to facilitate recursive stETH borrowing.

Aave, the largest web3 lending protocol, is throwing its weight behind the recently-formed Lido Alliance — an initiative to promote the adoption of the stETH liquid staking token (LST).

On June 20, the Aave community passed an initial temperature check proposal to launch an instance of Aave v3 “focused on the Lido ecosystem.”

“Aave and Lido have historically seen symbiotic growth, with stETH being one of the premier collaterals on Aave and leveraged staking being one of the most profitable use cases for both Aave DAO and Lido users,” the proposal said. “Lido has committed incentive programs and ecosystem support for this instance in order to bootstrap liquidity and promote additional programs within the Lido Alliance.”

The proposal advocates for launching a version of the Aave v3 protocol “designed and tuned to support stETH leverage loopers.” The deployment will exclusively support wETH and Lido's wstETH assets, with wETH’s borrowing cap at 90% of supplied wETH to ensure that stETH/wETH loops are "consistently profitable and can't go into negative territory.”

Aave is the third-largest DeFi protocol with a $12.3 billion TVL, according to DeFi Llama. StETH is the largest LST, accounting for 28.8% of staked Ether for a TVL of $33.6 billion, according to Dune Analytics.

The price of AAVE is down 2.3% in the past 24 hours, according to The Defiant price feeds. Lido's LDO token is up 3.2% over the same period.

Lido Alliance

Lido first unveiled plans for its Lido Alliance in mid-May.

The alliance seeks to promote the development of infrastructure built around Lido's stETH, with a focus on restaking use cases. The Alliance was created in response to the rising dominance of EigenLayer, the pioneering Ethereum restaking protocol, coinciding with a steady trend of heavy outflows from Lido — with users pulling $1.4 billion from the protocol in April.

However, the trend has recently flipped, with 349,920 ETH (nearly $1.23 billion) flowing into Lido over the past 30 days, according to Dune Analytics.

The Lido Alliance quickly gave rise to a rival restaking ecosystem leveraging the Symbiotic protocol. On June 13, Lido announced that Mellow, a Symbiotic-based liquid restaking protocol, had joined its alliance. The news coincided with Symbiotic tagging its initial TVL ceiling of roughly $245 million two days after going live.

Aave to deploy on ZkSync Era

The proposal passed on the same day as a raft of other governance measures.

On June 20, the project’s community passed a governance proposal to deploy Aave v3 on ZkSync Era, a top ten Layer 2 network by total value locked (TVL). The launch will mark Aave’s eighth deployment on an Ethereum scaling solution and only its second on a zkEVM network after Scroll.

“The current ARFC proposes deploying Aave V3 on zkSync to leverage the scalability and cost-efficiency of zk-Rollups,” the proposal said. “By integrating with zkSync, Aave can offer users faster and cheaper transactions while maintaining the security and decentralization of the Ethereum mainnet.”

ZkSync Era is the fifth-largest L2 with a $1.38 billion TVL — with the figure jumping 85% in the past week following ZkSync’s long-awaited airdrop. The ZK token is currently trading at a $686 million market cap after shedding 42% since launch day, according to CoinGecko.

For comparison, Scroll is the eighth-ranked L2 by TVL with $759 million. Aave is already live on Ethereum, Optimism, Arbitrum, Polygon, Base, BNB Chain, Gnosis, Avalanche, Fantom, Harmony, Scroll, and Metis.

Aave’s community also backed proposals to deploy its GHO stablecoin on Arbitrum, launch USDC.e pools on Gnosis Chain, and to issue a third round of funding of 600,000 GHO to the Aave Liquidity Committee over the next three months.