Thanks for the analysis @Llamaxyz !
Some aspects to take into account and guide the discussion of the community:
- The “tranches” model is something that has been discussed in the past, and definitely has potential. From the technical side, important to clarify that the current system is not really adapted to define a specific % of “APR”, as it is based on the concept of “emission per second”, the equivalent to what @Llamaxyz points out of 550 AAVE per day currently.
So a model like this, would be more about defining a total of emissions per second (one/multiple reward tokens, e.g. AAVE, GHO, etc) and then static percentages for different tranches: for example, the 60% slash tranche would get 60% of rewards, 45% the 30% of rewards and 30% would get 10% of rewards.
This model is more optimal because the market itself will define the appetite of risk profiles and self-arbitrate. Additionally, almost no extra development would be needed.
- Depending on the underlying facility (Curve, Convex, Aura, etc), potentially is possible to not do any extra development for re-usage of capital on the SM, it mainly depends if those platforms allow tokenization & transferability (that SM can just use them without any problem as it is), or not.
Generally, we encourage to focus on platforms with tokenization, as it makes things simpler development/security-wise. - Given the first GHO facilitator was chosen to be Aave v3 Ethereum by the community, having GHO as a reward type for the Safety Module seems natural from a high-level perspective. That being said, we recommend being cautious with ideas of using GHO or LPs including it as asset to deposit into the SM. If properly defined could potentially work, but initially it creates some type of circular dependency that should be studied in depth for the following reasons:
- GHO is minted exclusively from Aave v3 Ethereum to start with, and on that model, used to backstop precisely the debt of that pool, including GHO debt.
- The Aave v3 Ethereum GHO facilitator has at its core a discount mechanism based on the SM holdings. Most probably this is not an issue, but definitely, the impact should be considered.
- GHO is exposed to all assets listed and to-be-listed in non-isolation in the Aave v3 Ethereum pool. It means the risk profile changes with every new asset listed (not straightforward to state if its risk profile gets better or worse, depends on multiple factors), so again, having it backing the same pool and acting as a reward is somehow interdependent == should be really studied.
- As announced in our engagement, we have been working on an update of the Safety Module smart contracts, purely improving the technical aspects of it. We will be publishing all the details of this new version (addressed as SM v1.5) in the following days, but we can already confirm that the extension of the cooldown period is part of the development, initially proposing 20 days cooldown.
- We have this pending in our pipeline for this upgrade to migrate to Balancer v2, and will be finished just after the SM v1.5 update. All the Aave smart contract components are quite interdependent, and liquidity on the existing AAVE/WETH is quite important for the ecosystem, which is why it made more sense to first “settle” aspects like first the Level 2 voting thresholds or the aforementioned SM v1.5.
- It is important to not forget that the SM has a core role in the Aave governance, and the numbers provided seem to support that, with an important percentage of the current AAVE rewards coming back to the ecosystem in one way or another.
We suggest analyzing from the governance point of view too because one of AAVE’s main utilities is its governance power.
Needless to say, not in the conceptual field (as @Llamaxyz is diligently leading the conversation), but we will tackle any extra development if required, once the final model is defined