@srs-parafi appreciate the support and the kind words!
@Zer0dot really appreciate all your feedback here - very helpful stuff. To share with the broader community, the problem you pointed out with the segregated pool design is that insuring a single asset is equivalent to taking on the risks of any other asset that can be used as collateral. To see this let’s imagine a user deposits a risky asset and borrows a safe asset (quite common as users want to unlock liquidity from longer tail assets and borrow stablecoins). Now, let’s imagine the risky asset dumps such that liquidations cannot keep pace and borrowers using risky asset as collateral are now undercollateralised. Assuming these borrowers mostly borrowed safe assets, the safe asset pools are the ones that will be insolvent. As such, it’s not possible to stake to insure specific markets since the risk isn’t contained in that market.
We are brainstorming potential solutions to this but to be clear this doesn’t apply to the unified pool model which is also our near-term recommendation.
@gyoung cheers sir! To answer your questions in turn:
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Non-insurance related cashflows will be directed to the general Aave treasury but insurance related cashflows will be directed to the Safety Module (i.e. to stakers). Staker compensation will therefore depend on the demand for insurance and on the price of insurance, which itself depends on the utilisation rate of the Safety Module. We’re working on modeling out what this might look like given different levels of demand and utilisation and will post results here when we have them.
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The short answer is yes, but imo that’s the system working as intended. If there’s low demand for insurance compared to supply of underwriting capital, then yields should be low. In this case, Aave could potentially subsidize the yields with issuance while it seeks other demand sources to insure (e.g. Aavegotchi). That said, we expect the demand for insurance to be significant, especially given recent hacks and exploits facing other protocols.