If DPI was added on Aave V2, then Index Coop has the ability to create DPI2x-FLI. A product like this could generate substantial TVL for Aave. ETH2x-FLI is a $46M product during a quiet period in the market and was a $130M product during mid May 2021. This is a sizeable amount of TVL upside for Aave to miss out on. There is a first mover advantage for capturing future opportunities here and we would love for Aave to grab that opportunity with both hands
We have an active snapshot poll happening today, finishing midnight 23/07/2021.
Thanks @MatthewGraham, why wouldn’t the DPI2x be possible on the AMM market? Afaik to do that you would need to borrow stablecoins and marketbuy the underlying index assets to mint more DPI for additional leverage. The AMM market has decent liquidity and will for sure grow substantially as more demand is generated (it had a total of > 50M in stablecoins when its TVL was 500M). I personally don’t feel comfortable adding more collaterals to the Aave main market right now, because borrowing power on additional assets greatly increases the systemic risk and i would prefer until the next protocol iteration is out to expand on collateral types for the main market (next protocol iteration will have a lot of risk management features).
With that said, i see the AMM market as the perfect place to bootstrap liquidity (btw, there is a proposal up to add the DPI/ETH/WBTC balancer V2 shares on the AMM market, here Renew the AMM Market assets)
Introducing DPI as collateral on the Aave AMM is great
But, looking at the stable coin liquidity on the AMM platform, it is a lot less than V2 and I don’t believe there is sufficient liquidity to support a FLI product. It might be that we need to wait for the next iteration to be released for the main market.
I believe Index Coop will also need to rework the AIP to reflect the changes from V2 to the AMM and there is not a lot of documentation out there on that. Please do lets us know if this is the direction to move forward and we’ll amend our AIP.
@MatthewGraham please understand i’m not trying to gatekeep here - i actually invite the community to speak out loud on the matter. I think the AMM market will grow pretty quickly as demand grows, right now demand is drained up because all the assets went obsolete but if we list DPI + the LP shares that i proposed and soon also curve and sushi shares, i’m willing to bet this can become a multibillion dollar market in TVL.
If the technicalities are a concern, the process to list on the AMM market is exactly the same as listing on the main market, if that possibility is of your interest i can point out to the changes needed to do that, changes are pretty minimal (just different addresses)
Also, how do the permissions around minting DPI look like? What does the minting process for creation of new DPI tokens work? Is there an arbitrage process where you can mint DPI by supplying the underlying components?
Anyone can mint DPI by supplying the underlying components using the BasicIssuanceModule contract. Additionally, anyone can redeem DPI using this same contract to receive the underlying components. There is a great deal of competition for these arbitrage opportunities by flashbots searchers, which keeps all our products trading very close to the NAV value on secondary exchanges.
As for your concern related to the multi-sig, @monet-supply is correct that a malicious rebalance can be used to drain funds. This would require collusion between Set Labs and the Index Coop. While I agree that this is a concern that should be discussed, it seems to be no worse than assets like YFI which have yet to burn the minting functionality of their token.
@MatthewGraham could you elaborate on exactly which permission sole parties have over the DPI token? As more and more assets are listed, it is fundamental for the community to really understand the risk of the listing.
Specially on this case, having multiple layers of control:
From a smart contract perspective, all potentially malicious controls are owned by the Index Coop multi-sig. This multi-sig has the ability to initiate rebalances and add new modules to the DPI. While the DPI contract itself is not upgradable, modules can introduce new behavior such as minting tokens. Fortunately, adding new modules requires both the Index Coop and the Set Labs multi-sigs approval.
In short, there are two possible ways a malicious attack can occur: malicious rebalances and malicious modules. The former requires the consent of the Index Coop multi-sig and the ladder requires the consent of the Index Coop and Set Labs multi-sigs
We thank everyone for all their ongoing support and all the great discussions that have taken place around this proposal. The Index Coop community is absolutely over the moon for DPI to be listed on V2 and we will most definitely be celebrating the AIP going live via twitter @indexcoop.
@ncitron I think it is quite important for the community to understand which is exactly the security levels and procedures around those 2 multi-signature wallets.
Currently without a supply cap, all details related with that are important for the community to understand the risk of listing as collateral.
In this case both entities behind the multi-signature wallets are reputable ones, but still full clarity is needed in my opinion
Thanks for the detailed questions. I won’t bore you with the exact details of our process for executing transactions from our multi-sig, but it involves the creation of a detailed execution document, multiple people (even ones who are not signers) reviewing for correctness, and the help of gnosis apps to reduce the chance of human error. Multi-sig execution is not a task that we take lightly.
Long term, there are many strategies we can use to further decentralize the protocol and reduce the risk imposed by the multi-sig.