[Discussion] Safety Module

Governance
7

Super thorough response, really appreciated. Lot of good thinking here.

On Proposed Changes:

Is it fair to characterize the proposed changes into two groups?

  1. Add ETH and wstETH to the existing SM.

  2. add new BPTs and use Aave’s BAL and AURA rewards to drive rewards to smstkBPTs, thereby decreasing the cost to the DAO of those assets?

Re 1) big fan. Adding ETH and wstETH, which are super liquid, to the SM makes a ton of sense.

Goal 2 is interesting but I think the juice won’t be worth the squeeze. Using end-of-year numbers, the sim below shows at different BAL prices and SM staker yields how much value would be added to the SM. Even at the most optimistic assumptions, it is an additional $6.5mm deposited in the SM. Note that this doesn’t include AURA rewards and would acquire the necessary ETH for a veBAL position.

  • Proposals to buy BAL, convert in B-80BAL-20WETH and to lock BPT & CRV holdings bought and from the Collector contract to receive veBAL & veCRV, allowing to redirect emission on the Aave related pools

Perhaps we could solve for how much value should be locked in the SM and can back out how much initial investment that would cost.

On Design Principles:

“the main goals are increasing the asset diversity and capital efficiency of the funds deposited in the SM”

What is the justification for the first goal: increasing the asset diversity?

Just a first go at this, but I would think the primary goal of the Safety Module would be to be an effective insurance fund for depositors. Aave collects reserves in various tokens from fees, which is a nice, natural diversifier. Instead of targeting diversification, I still find myself in the “increase liquidity” camp for SM assets.

  • This is where the desire for liquidity comes from and the support/alignment on your proposal to add ETH and wsETH assets to the SM.

The secondary goal would be ensuring the insurance funds are paid for sustainably and in a cost-effective manner. I think this is aligned with your “increase capital efficiency” goal.

The tertiary goal would be creating additional utility for the AAVE token and aligning stakers with protocol governance.

Excited to see the other proposals and thinking here! Beyond recommending adding ETH/wstETH/stables to the SM, will think on ways to reduce the cost of insuring the protocol as well.

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