As the Ethereum Shanghai upgrade draws closer, liquidity staking has become one of the most important narratives in the DeFi space in early 2023. More and more protocols are trying to make a fuss on $ETH Liquidity Staking Derivatives (LSD), including Aave. The DeFi lending giant is trying to add support for more LSDs after deploying V3 to the Ethereum mainnet.
The newly deployed V3 has an efficient mode, also known as E-Mode, which allows users to improve capital efficiency when providing and borrowing related assets, such as stablecoins and LSD. Currently, V3 on Ethereum only supports one LSD, $wstETH. If users use it as collateral to borrow $ETH (or vice versa), the LTV will be increased to 90%.
Supporting more LSDs will provide more liquidity, diversity, and revenue to the Aave ecosystem, and provide users with opportunities to leverage their assets. Currently, there are three LSDs that may be listed on Ethereum’s Aave V3.
The first is Coinbase's $cbETH. The AIP (Aave Improvement Proposal) vote on adding $cbETH to Ethereum Aave V3 was launched today on Aave Governance and will end at 21:59 Beijing time on February 5. This is the last step before the proposal is executed. The original proposal was proposed in October last year and received support from the Aave community in the November Temperature Check.
Then there is $rETH, the LSD of Rocket Pool, the second largest Ethereum liquidity staking protocol. Now, the vote on the ARC (Aave Request for Comments) to add $rETH to Ethereum Aave V3 is underway, with 99.85% of the votes choosing "yes" and only one hour left before the proposal is bound to pass. The proposal was first published on the forum on January 16. However, it is worth noting that even if $cbETH and $rETH are approved, they will not be included in E-Mode at first.
Finally, on January 31st, contributors proposed to add support for $sfrxETH. $frxETH is a new LSD launched by Frax. Users can stake $frxETH on Frax to mint $sfrxETH, and its value will increase as the staking rewards accumulate. The proposal is being discussed in the forum and is expected to be voted on in the near future. It took only half a month from proposing support for $rETH to proposing support for $sfrxETH, which shows that contributors are accelerating the adoption of more LSDs.
