Summary
This proposal aims to enable sUSDe as an eligible collateral asset for World Liberty Financial’s (WLFI) Aave v3 instance. Introducing sUSDe to the instance will allow the instance to benefit from the TVL and user base of Ethena, alongside the utility of facilitating an increase in utilization for stablecoin deposits. The Ethena Foundation has agreed to co-incentivize deposits of sUSDe should the proposal pass, allowing for additional market growth.
This proposal is subject to the World Liberty Financial Aave instance being fully approved and going live, as dictated by Aave governance.
Background
sUSDe has seen strong growth in Aave since its onboarding to Aave E-Mode on both the Aave Core and Lido instances in mid November, reaching ~$1.2 billion in supplied assets in under a month. The integration also simultaneously increased stablecoin deposits into both instances due to sUSDe’s popularity as a collateral asset to borrow stablecoins like USDC, USDT, and USDS.
Upon sUSDe’s onboarding, Aave Core’s and Lido’s supply rate for USDC, USDT, and USDS saw an immediate and marked increase, facilitating additional deposits due to a considerable increase in demand. Because of sUSDe’s relative reward rate compared to historical Aave stablecoin borrow rates, users appear to be depositing sUSDe as collateral, then subsequently borrowing stablecoins–capturing a spread.
sUSDe has had an effective multiplier effect on rates across Aave markets: currently, $1B of sUSDe onboarded to Aave Core have almost doubled the supply rates on over $5 billion of USDC, USDT, and USDS liquidity.
USDC supply rate, inflection point was when Aave governance introduced sUSDe as collateral.
This same dynamic can benefit the World Liberty Financial market and ensure that the rates are in line with broader DeFi market rates. If the World Liberty Financial instance rates are poor relative to the broader market, then the instance may struggle to attract deposits.
As World Liberty Financial’s Aave instance comes to market as and when approved here, sUSDe being onboarded as collateral presents a growth lever for this market and World Liberty Financial stakeholders to benefit from. With sUSDe, the platform can capture a broader range of users seeking higher on-chain reward rates, diversifying its user base but also solidifying World Liberty Financial’s position as a premier destination for stablecoin lending and borrowing while growing core metrics like TVL.
Implementation Proposed
We propose the implementation of sUSDe as the first new collateral asset to the World Liberty Financial market. sUSDe has already passed risk analysis on the Aave Core and Lido instances. However implementation market configurations will be determined by Risk Service Providers, also supporting the World Liberty Financial Aave instance.
Should this proposal pass and be implemented, the Ethena Foundation is willing to co-incentivize supply of sUSDe to come to the instance via its points program, making World Liberty Financial users eligible for additional Ethena Rewards on top of sUSDe native reward APY.
This also helps set the stage for a world where Aave E-Mode can be activated on the World Liberty Financial Aave instance, as introducing sUSDe should facilitate the onboarding of additional market liquidity. This proposal also seeks to pre-approve sUSDe’s eligibility for liquid E-Mode on the World Liberty Financial instance.
This proposal also requests WLF token rewards to users for sUSDe deposits in the instance, similar to the rewards being provided to users with other collateral on the platform. WLF token rewards, combined with Ethena rewards, should create a compelling reason and competitive advantage for users to use World Liberty Financial.
Benefits for World Liberty Financial & Aave
To summarize:
- World Liberty Financial users will enjoy improved rates on their stablecoin collateral
- The World Liberty Financial instance will see increased capital flows and ability to attract stablecoin deposits
- Increased utilization will lead to increased reserve factor accrual for World Liberty Financial and Aave DAO
- World Liberty Financial will be able to tap into Ethena’s growth funnel and connections across DeFi, aligning with liquidity providers, power users, and the wider retail audience
Specification
- WLFI will utilize the same reserve factor system in this Aave v3 instance as is maintained in the main Aave instance.
- The Aave risk managers will set and dynamically adjust sUSDe supply caps and other parameters based on stablecoin liquidity and other market needs
About Ethena
Ethena is a synthetic dollar protocol built on Ethereum, providing a crypto-native dollar-denominated form of money, USDe. The supply of USDe has grown to nearly $6 billion in TVL, making it the third-largest dollar-denominated crypto asset globally, behind just USDT and USDC.
Launched in early 2024, Ethena has rapidly grown to become one of the most well-integrated protocols across DeFi. Today, Ethena works closely with Aave, EigenLayer, EtherFi, Sky, Pendle, Morpho and Curve.
Ethena Labs has been backed by Dragonfly, Binance Labs, Bybit, OKX Ventures, Fidelity Ventures, and Franklin Templeton.
Website: ethena.fi
Documentation: https://docs.ethena.fi/
Ethena Labs Twitter: x.com
