Index Cooperative is encouraged to see the discussion of ETH staking diversification for the Aave DAO Treasury. As voters and users within the Aave protocol, INDEX holders agree that diversifying and utilizing treasury assets are important long-term considerations. Using multiple providers levels out inconsistencies in potential staking returns and also lowers risk. With that in mind, we are in alignment with the goals of this proposal, but also believe we can assist to more effectively deploy the ETH. Index Coop would like to propose that a percentage of Aave’s ETH Treasury be used to purchase the Diversified Stake ETH Index dsETH.
What Index Coop aims to do with this proposal is help Aave DAO evaluate and automate a percentage of the diversification efforts through Index Coop’s dsETH. The methodology favors decentralized liquid staking protocols as measured by the number of node operators as well as the distribution of stake across node operators. This methodology results in the following weights
Rocket Pool rETH 44.1%
Lido wstETH 29.8%
StakeWise sETH2 26.3%
If Aave is serious about the long term management of these assets, a framework should be created to evaluate the yield and risk of liquid staking tokens. This is something dsETH does particularly well in an automated fashion.
@MarcZeller and ACI mention inclusion criteria based on decentralization values. With dsETH, the Coop created a data-driven methodology that weights and ranks staking protocols so Aave can continue to safely gain ETH staking yield without any maintenance. While it is relatively low cost to stake ETH, the positions need to be monitored and over time will need to be reweighted or reallocated to new tokens. An automated product with low time commitment and a low fee (25bps) like dsETH provides Aave DAO with a long-term solution to facilitate a portion of the treasury.
The full methodology and inclusion calculations for dsETH can be found here Diversified Staked Ethereum Index and has also been evaluated by third-party Rated Network here Index Coop | Ethereum Mainnet
Index Cooperative has been operating ETH products since 2021 beginning with ETH 2XFLI then icETH built on top of Aave and most recently dsETH. Our DAO believes that long-term focused entities including DAOs like Aave have the opportunity to maintain protocols forever and must have long-term outlooks in order to grow a treasury and protocol in perpetuity.
When it comes to execution, going directly into staking pools is slippage free but with the trade size considered there is significant liquidity available for Aave to flashmint into dsETH from the underlying tokens with low price impact. For the size Aave is considering it may make sense to buy some of the ETH off of secondary liquidity AND go directly to staking pools keeping in mind any potential rETH capacity constraints. Long-term, options that lower time and maintenance costs should be considered.
As a stakeholder within many parts of Aave DAO, Index Coop is excited about any ways we can assist the DAO. With this proposal, we are hoping to spark some discussion around the Diversified Staked ETH Index and possibly move to a more detailed proposal and vote if the Aave DAO is interested. We are also happy to help in ways that don’t include our products even If it is limited to helping Aave DAO with general risk management frameworks. Long-term treasury and liquidity management within a DAO is a difficult journey that we understand intimately. From Aave V3 to GHO to treasury management there are multiple areas in which we will be building with one another and Index Coop is excited to facilitate when we can provide value to AAVE holders and in turn DPI holders.