Aave Catching Up with Liquid Staking Trend to Onboard More LSDs

Liquid staking is one of the important narratives in DeFi at the beginning of 2023, as the Ethereum Shanghai upgrade is getting closer. It inspired more protocols to embrace $ETH liquid staking derivatives (LSDs), including Aave. The leader in DeFi lending is trying to add support for more LSDs after the deployment of Aave V3 on the Ethereum mainnet.

The newly deployed V3 has a High-Efficiency mode, also called E-Mode, which allows users to increase their capital efficiency when supplying and borrowing correlated assets like stablecoins and LSDs. Currently, V3 on Ethereum only supports one LSD, $wstETH. If a user uses it as collateral to borrow $ETH (or vise versa), the LTV will be increased to 90%.

Onboarding more LSDs will provide more liquidity, diversity and revenue for the Aave ecosystem, as well as give users opportunities to make use of their assets. And this is what the Aave contributors are doing. Now there're three LSDs that could potentially be supported on Aave V3 on Ethereum.

The first is $cbETH by Coinbase. A vote for an AIP regarding adding $cbETH to Aave V3 Ethereum started today on Aave Governance, and will end on February 5th at 13:59. This is the final step before the proposal is executed. The original proposal was raised last October, and it was approved by the Aave community in a Temperature Check in November.

Then comes $rETH, LSD by the second largest $ETH liquid staking protocol Rocket Pool. A vote for the ARC to onboard $rETH to Aave V3 Ethereum is currently active on snapshot. With 99.85% of the voting power choosing "Yay" and only less than two hours left, the proposal, which was first published on January 16th on the forum, is set to pass. It's worth noting, though, that should $cbETH and $rETH get approval, they will not be included in the E-Mode initially.

Lastly, on January 31st, contributors proposed to onboard $sfrxETH to Aave V3 Ethereum. $frxETH is a new LSD launched by Frax, and users can stake $frxETH on Frax to mint $sfrxETH, a reward bearing token. The proposal is being discussed on the forum, and is expected to go through a vote in the near future. From the proposal to onboard $rETH to the one about $sfrxETH, it only took half a month, showing that the contributors are speeding up adopting more LSDs.