The Aave protocol is the fourth-largest decentralized finance (DeFi) platform on the market, with $5 billion in total value locked (TVL) across various lending protocols, according to DeFi Llama. Of that total, $3.6 billion in assets are on Ethereum. In this sense, to meet this growing demand, the protocol announced the launch of a new staking service.
According to the team, the earning strategy called “Lido Staked Ethereum”, or stETH, is done through Oasis.app. It is a front-end for borrowing DAI, MakerDAO’s stablecoin.
As reported by Aave, the new strategy will allow users to borrow Ether leaving stETH as collateral. It is worth noting that it was always possible to do this, depositing ETH and borrowing stETH from the Lido protocol. However, one had to go to another platform like Aave to borrow stETH in exchange for ETH again. But now Oasis will allow users with ETH to enter the strategy in a single transaction using the Aave protocol.
Staking in Aave
Aave founder and CEO Stani Kulechov said the system is virtually 100% secure. According to him, after the main Ethereum developers implement the Shanghai update, the risk will be zero.
“When you’re writing stuff, you’re always adding risk. So this is something that needs to be recognized,” Kulechov said. “And I think something that’s missing right now is how you distinguish and how you understand the songwriting risks involved.”
The Aave community was closely watching liquidity in ETH. On September 2, a proposal was passed to pause ETH lending to protect the protocol against “high utilization” of the loan pool. The authors of the proposal argue that the high demand could have caused an increase in rates. If interest rates had soared, it could have caused another liquidity crisis like the one in May.
“High utilization interferes with settlement transactions, thus increasing the chances of protocol insolvency,” says the proposal. “Furthermore, a high ETH borrowing rate can make stETH/ETH positions unprofitable, increasing the chances that users will unwind their positions and further drive stETH/ETH price drift, causing further liquidations and insolvency.”
