[ARFC] Add DeFi Saver to flashBorrowers on Aave V3

Governance
1

title: [ARFC] Add DeFi Saver to flashBorrowers on Aave V3

Author: @marczeller - Aave Chan Initiative

Dated: 2023-03-22

Summary

DeFi Saver is a Dapp that allows users to actively manage and take leveraged positions on Aave and other protocols. This proposal presents Aave governance with the opportunity to whitelist DeFi Saver as part of the FlashBorrowers of Aave V3 on Ethereum, Arbitrum, and Optimism liquidity pools.

If this proposal is implemented, all flashLoan fees for DeFi Saver users using Aave would be waived. The Aave-Chan initiative believes that any incurred lost potential revenue will be compensated by the increased competitiveness of the Aave protocol and the increased borrow volume.

Abstract

this proposal presents Aave governance with the opportunity to whitelist DeFi Saver as part of FlashBorrowers of Aave V3 on Ethereum, Arbitrum & Optimism liquidity pools.

Motivation

DeFi Saver has a long-standing history of synergies with the Aave Protocol, being one of the first third-party integrations of Aave V1 in 2020.

Currently, every flashloan has a 9 bps fee that rewards liquidity providers in Aave. While flashloans were created by Aave, the ecosystem as a whole has replicated this feature, and most protocols do not implement any fees.

The ACI does not support waiving the fees for flashloans in general, as we firmly believe that users’ funds used, even in the context of a single transaction, should be rewarded.

However, some strategic use cases of V3, such as emode, are very fee-sensitive as they mobilize high leverage. Waiving the DeFi Saver flashloan fees is expected to make these strategies more convenient and profitable, leading to increased borrow volume and thus increased Aave DAO revenue.

This proposal presents Aave governance with the opportunity to whitelist DeFi Saver as a part of FlashBorrowers of Aave V3 on Ethereum, Arbitrum & Optimism liquidity pools.

Implementation

This proposal aims to implement a single AIP, utilizing three similar payloads (one for each network), which will simply call addFlashBorrower() on the ACL_MANAGER contract.

Limitation

This AIP grants permission to whitelist any DeFi Saver contract for all use cases, such as leveraged positions, EMODE, debt and collateral swaps, with one exception: no smart-contract that migrates a position outside of the Aave ecosystem is eligible for whitelisting.

Disclaimer

The Aave-Chan Initiative (ACI) is not associated with or compensated by DeFi Saver for publishing this AFRC.

Copyright

Copyright and related rights waived via CC0,

6 Likes
2

this proposal has been escalated to snapshot stage

3

This proposal is now an AIP, voting starts tomorrow

4

Thanks @MarcZeller for the proposal. We are trying to better understand flash loans and have some clarifying questions.

Could you please unpack the above sentences? For example:

  1. What would be an example of a strategy that uses flashloans and emode, and how would the elimination of fees magnify profit?
  2. This might be related to the first question, as we are not familiar with the strategies that use flashloans. How does more convenient and profitable flashloans increase borrow volume? Are flashloans used mostly by borrowers?
  3. Is it possible to quantify the volume that Aave gets from Defi Saver?
5
  1. the most popular strategy is LST/wETH leverage loops, ppl deposit a LST as collateral, activate emode, borrow wETH, buy LST with it, deposit this in Aave and repeat the loop until their reached high leverage

This has the effect to allow the looper to earn the gap between wETH borrow cost & LST yield. these strategies are a big money maker for the Aave protocol and instead of doing a dozen+ tx to implement it, ppl can do that in a click in defisaver leveraging flashLoans.
But because this strategy is very sensitive to fees (the gap between wETH borrow cost and LST yield naturally get thinner overtime), waiving the flashfee make it more profitable and incentivize more volume, thus increase Aave DAO revenue

I think 2) is answered by 1)

and 3) might be answered by DFS if they check the thread, otherwise here’s a resource

6

Thanks for the response! We have a follow up question: how are flashloans used in the leverage loop that you described above? Is it only to unwind the leveraged positions, or are there other strategies?

7

Update: AIP-196 has been successfully executed.

1 Like
8

hello, due to failed execution on Optimism crosschain bridge, AIP-196 has not been executed on the Optimism Aave market and is now expired with no way to enforce it.

As it’s a technical issue and not something related to governance, if the community agrees, a new AIP will be published to activate flashborrowers on Optimism market via a new AIP vote without the need to re-do an ARFC.

5 Likes
9

Hi @Michigan_Blockchain I know this is an older question but I wanted to respond seeing as it’s not been answered and also to provide context for anyone else that happens to view this thread.

Here’s the beauty of utilizing a flash loan in a strategy:

They allow a user to reach a terminal position in a strategy in few steps versus many.
Consider the following strategy in leveraged ETH staking, by manually looping:

Starting with 100 ETH with goal to achieve 10x staking exposure:

  • Step 1: Deposit 100 ETH into Lido, receive 100 stETH (earning yield on 100 ETH)
  • Step 2: Deposit 100 stETH as collateral on AAVE to borrow 90 ETH (paying interest on 90 ETH)
  • Step 3: Deposit 90 ETH into Lido, receive 90 stETH (earning yield on 100 + 90 ETH minus interest on 90 ETH)
  • Step 4: Deposit 90 stETH as collateral on AAVE to borrow 81 ETH
  • Step 5: Deposit 81 ETH in Lido…
  • Step i…n: Rinse repeat many many times
  • Terminal state: 10x leverage on staked ETH

So instead of stepping through all of these various states, one could take a flashloan and do something like:

  • Flash mint $x DAI
  • Use DAI as collateral to borrow 10x ETH position
  • Stake ETH in Lido and receive stETH
  • Deposit stETH as collateral and withdraw $x DAI to pay back flashloan
  • Result = reaching same terminal strategic state in less steps with less complex transaction and less gas.
1 Like
11

proposal was executed with AIP-235.

Closing thread now.