A Discussion on a GHO Real World Asset Facilitator

Thanks @Khan for this. I am happy to see that Aave is taking this next step in its growth, and am positive that it will result in Aave increasing its revenues and ensuring that it can survive any future crypto regulatory ambiguity and secondary market recession.

TLDR - Aave RWA investment needs to account for sovereign risk diversification just as much as financial diversification to avoid over-reliance on U.S. market during a period of high inflation and de-dollarization.

My main concerns regarding RWA collateralization is to ensure that the basket of RWAs Aave chooses to invest in are just as geographically diverse as they are financially diverse (in terms of different asset types, yield ratios, and risk profiles). More specifically, we need to make sure that we don’t only on-board American and European-based RWAs - particularly given the continued global recession and the likely re-emergence of emerging market bonds due to increasing, international de-dollarization and hiking U.S. fed rates.

If we look at MakerDAO, which has already collateralized over $700 million in real-world assets - 100% of their portfolio is U.S. economy-based (American bank loans & U.S. Treasury Bonds). This somewhat makes sense, given that the world’s largest stablecoins (including DAI) are pegged to the U.S. Dollar, however, unlike the U.S. Dollar, stablecoins like DAI and GHO have the ability to strengthen their status as a reliable, store of value by diversified collateralization (even better than USD on the gold standard in my opinion).

We cannot transform GHO into a widely adopted, reliably collateralized stablecoin if its underlying RWA investments are centralized to one sovereign territory - one that’s regulatory regime hasn’t been particularly ideal for Web3 growth.

My suggestion would be the following:

  1. Ask the community (and seek financial strategist advice) what they think our collateral portfolio should look like to hedge the most risk in the near-term between off-chain RWA investments (e.g. U.S. Treasury Bonds) and on-chain RWA investments (e.g., provide debt investment to a real-world defi lending protocol).

  2. Ensure that all collateral on-boarding frameworks (for application and governance voting) have a conflict of interest clause to highlight if any Aave core contributors have vested interests in oncoming RWA deals. MakerDAO had issues with this on their now $1.25 billion DAI Debt Ceiling RWA Vault (Monetalis Clydesdale).

  3. Ensure that we leave at least a minority portion of the portfolio to support liquidity for up and coming projects (that have undergone validated audits, etc.)