[ARC] Add Safety module support for Aave V3 Ethereum market

Governance
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title: [ARC] Add Safety module support for Aave V3 Ethereum market

Author: @marczeller - Aave-Chan Initiative

Dated: 2023-01-31

# Simple Summary

This proposal presents Aave with the opportunity to add Aave Ethereum V3 support for the safety Module

# Abstract

The Safety Module is a set of smart contracts allowing AAVE & aBPT (representing Balancer V1 ETH/AAVE LP) token holders to stake their tokens in exchange for a share of the distribution of Safety Incentives sourced from the Aave Ecosystem Reserve.

Stakers in the safety module, lock their liquidity for a minimum of 10 days, and in the case of a shortfall event affecting the covered Aave markets, expose their stake assets to be mobilized to cover excess protocol debt up to 30% of their staked funds.

This AIP proposes to extend the coverage of the Safety module to Aave V3 Ethereum Contracts.

# Motivation

Aave V3 is the most recent implementation of the Aave protocol, allowing new features, optimizations, and mitigation of risks.

Aave V3 has been battle tested for ~10 months in several networks, and its code was deemed safe enough to be allowed deployment on the Ethereum mainnet by the Aave governance.

The ACI is supportive of extending coverage of Aave V3 by the safety module in order to offer the V3 Ethereum users the same level of coverage as V2 users.

While the current version of the safety module has room for improvement and would benefit from a re-engineering and improved implementation, it’s the currently available tool, and the deployment of V3 makes it a suitable candidate to cover Aave V3 users on Ethereum.

# Specification

It is important to note that in the current implementation of the Safety module, a potential shortfall event needs to be implemented individually by an ad hoc AIP.

This proposal is then more a community guideline that sets precedence on Aave decision to support V3 in case of a shortfall event impacting the V3 market.

For this reason, this ARC, if consensus is found, can escalate to a snapshot vote but does not require a payload execution triggered by an AIP vote.

a Snapshot outcome thus would be considered canon without requiring an AIP on-chain vote with an empty payload.

# Copyright

Copyright and related rights waived via CC0.

8 Likes
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Hi @MarcZeller would you say it makes sense to cover the v3 market and v2, but slowly decreasing the rewards for v2 coverage? This could also be a way to motivate people moving to v3.
Im not sure if this is technical easy to implement, but it would only make sense to push everything to v3 and let v2 slowly cease.

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Hey @MarcZeller,

You’ve made it very clear for the safety module to only cover the Ethereum V3 market. How about other active V3 markets? If V3 is battle-tested, then coverage should be extended to those markets as well.
Certain criteria should be added though (i.e safety module doesn’t cover bridge exploits resulting in unbacked tokens)

Regarding the V2 market, I would believe that the safety module should cover V2 for one year after the launch of V3 (27 Jan 2024).

Looking forward to the communities feedback

2 Likes
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I agree that coverage should be on all unfrozen V3 markets (Polygon, Optimism, Arbitrum, Ethereum, Avalanche)

for V2 coverage I think coverage for at least another year is minimum to allow ppl to migrate at their own pace

for V1 & AMM, it makes little sense to still support them, so stop coverage in 3 months after the snapshot vote.

What is the community’s opinion on this?

@EzR3aL the current implementation of the safety module doesn’t allow granularity in coverage of a specific market.

3 Likes
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I completely agree that the safety module should cover other active V3 markets as well, provided that certain criteria are met.

As for the V2 markets, it seems consensus is building that safety module coverage should be sunsetted, and V2 users should be given sufficient time to migrate their liquidity to V3.

One year after the launch of V3, as suggested, seems like a reasonable timeline for the sunsetting of V2 SM coverage. This will give V2 users enough time to become aware of the sunsetting and migrate their liquidity to V3, while also allowing for a gradual transition that minimizes disruption.

2 Likes