ARC: Governance process for RWA Market

RWA Market’s road to decentralisation

Hello Aave Community,

I’m Mike, an active contributor who helped design the RWA Market. I am also the Founder of DeFi Capital Markets, an entity focused on building the decentralized future of capital markets through bringing institutional investors, assets and infrastructure to the DeFi ecosystem. Previously, I was a core member of the Centrifuge team. We at DeFi Capital Markets are currently contributing to the Centrifuge, RWA Market (Aave) and MakerDAO ecosystems. I have been working on creating a governance process for the RWA Market that I wanted to share below.

After a successful launch at the start of the year, the RWA Market continues to grow. At the time of writing this the total market size has now topped 19M USDC! As we enter the post-launch phase we believe it’s important to implement a robust governance process for adding new collateral so the RWA Market can continue to grow in a safe manner.

We propose to start the process of decentralizing the RWA Market by giving Aave community members direct control through off-chain snapshot voting for any prospective changes to the market or ecosystem. These include but are not limited to; adding new collateral, future integrations, and governance parameters.

Governance on L1 can be expensive and the goal is to enable as many people as possible to vote by keeping the costs low. Another goal is to be able to vote without locking any Aave tokens, just by having them in the wallet address when the proposal vote starts is enough. Ideally, it will also unify the point of interaction with proposals via Snapshot, compared with the current fragmentation between Snapshot (off-chain) and on-chain votes. The transition could happen in phases.

In the second phase, the RWA Market is planning to add more members to the RWA Multisig, preferably long-term Aave community members and token holders, RWA Market enthusiasts and Real-World Asset specialists.

In the first phase, governance of the RWA Market could be coordinated off-chain. New collateral could give an intro to the Aave community through the Aave forum followed by a risk assessment by Centrifuge Credit Group.

Followed by Q&A in the comments a yes/no vote could be used. When the proposal has passed the first vote (>51% of yes votes), a snapshot voting can happen.The snapshot vote will pass if the majority (>51%) of the token holders vote in favour of the proposal. The RWA Market multisig executes the proposed changes onchain.

Governance process proposal

  1. New collateral intro followed by a post a risk assessment in the Aave Forum. Each voter may select a yes or no to give his total voting power to.

  2. Yes/No voting in the forum

  3. Submit proposal via Snapshot

  4. Each voter may select a yes or no to give his total voting power to.

  5. Aave token holders vote via the Snapshot user interface, wallets with valid voting assets on Ethereum can submit their votes by sending the proposal id, vote type (YES/NO), voting balance (e.g. 10 AAVE) and a storage proof that will allow to verify that the signing wallet effectively held that voting balance at the moment when the vote started.

  6. When there is a majority yes vote, the proposal will be forwarded.

  7. Vote ends

  8. Sign transaction to add new pool to the RWA Market

  9. 3 out of 5 people confirm the transaction. Proposal will be executed.

The final phase could be the transition to the on-chain Aave governance process and the introduction of a DAO functionality by providing the community direct control over extended governance mechanisms. The end-goal of this stage is for the RWA Market to be completely decentralized, owned and governed by the DAO. In the long run the market admin will be given to AAVE holders.

In summary, I would like to gauge support for this governance proposal from the community.

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Hi Mike, I would personally prefer a solution where the governance is given directly to the on-chain Aave governance since part of the process there is already snapshot voting that establishes the sentiment and on top of that its more of a reaching the quorum question with on-chain voting (which is reached in most cases - and in Aave governance you don’t need to lock the tokens). This is how currently the Institutional Aave ARC market is working.

If the community still wants to keep the process Snapshots only, then this process could be quite applicable as well:

The RWA market has been quite exciting to follow and definitely an amazing milestone in the DeFi ecosystem :raised_hands:


Thanks for the transparency and incredible to see the RWA ecosystem growing @thespacecatjr !

Initially, I agree with @stani on this. At least technically there doesn’t seem to be an obstacle for the Aave on-chain governance to control decisions over the market. Also, ideally, the RWA market would benefit from any improvement applied to the governance framework and smart contracts.
Is there anything else that should be considered? For example, how frequent are the proposals planned to be? Because I assume that due to the nature of the assets, the timing is quite different compared with Aave v2/v3.


Irrespective of on- or off-chain voting, I would also support the idea for the AAVE community to contribute to the RAW market not only by adding collateral, but also supporting the governance process with expertise.

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Hey @stani, thanks for the comment. Agreed, we can swtich to directly on-chain. Will publish an update shortly!

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@eboado thanks for the comment. On the frequency of the proposals I assume because it’s a new market likely 1-2 proposals every 4-8 weeks. Once the market grows the frequency will likely increase.

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@lianefiligrane thanks for the comment. We propose to start the process of decentralizing the RWA Market by giving Aave community members direct control through on-chain Aave Governance V2 for any prospective changes to the market. These could include: adding new collateral, future integrations and governance process.

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The securitisation of RWA assets and debts is quite a risky and complex process, that has led to one of the most significant financial crisis of recent decades in 2008. I’m wondering if the Aave DAO members will have the technical background to assess and understand the risks of these assets (both current and future collaterals).

What would the risk assessment cover? Would it provide full transparency on the underlying portfolio? In case of default what is the legal framework to redeem underlying assets? How can we ensure the Centrifuge Credit Group is not biased?