In the light of the recent acquisition by Aave of a EMI license in UK, I would like to kick-start an early discussion aimed at brainstorming ideas for the use of this capability for the Aave ecosystem and the entire DeFi ecosystem as a whole.
It occurred to me that Aave TradFi entity could serve as an efficient fiat on-ramp not only to the Aave lending protocol but for the entire crypto market. Thus it would make sense if it would launch a USDC-like stablecoin, pegged to the fiat deposits from different regions in which it would operate.
The stablecoin smart contracts could be developed and integrated from the start with the most prominent wallets such as Argent, and more importantly the upcoming Loopring wallet which is L2 by default. In fact the whole architecture of the said stablecoin should be focused on L2 primarily which would bring a lot more users to L2 just by sheer convenience of it.
Now the really fun part is of course its characteristics as a tool for a decentralized savings account. The Aave protocol can generate a healthy amount of fees especially after it achieves critical mass in terms of TVL and loan volumes. These fees or a part of them can be distributed as interest (on top of standard deposit and liquidity rewards) to the stablecoin holders, provided of course that they deposit the stablecoin in the Aave protocol. Once it gets borrowed, it will find its way across all of DeFi.
This reward mechanism would make it the most desirable stablecoin to hold throughout the ecosystem, even more so when one takes into account the security of the Aave protocol insured by the Safety Module and the backstop mechanism.
wow, very interesting proposition here.
@depressedape this would be HUGE to get a stablecoin AAVE, love the idea !
The only point i’m concerned about would be the interets to stablecoin holders, it’s really complicated to juge if possible without all numbers on the table. (fees amount geneated per day, repartition of thoses fees, amount of users on L2…)
However, i believe L2 will solve a lot of issues for Defi, and if a stablecoin backed by the safety module is available, everyone will be interested !
I’m not sure how Aave has a natural advantage in the fiat stablecoin space vs all of the existing offerings. Seems like Aave could benefit more by concentrating its efforts where it has the most advantage (smart contracts, creating money markets, etc) instead of branching into new areas. Between TrustToken, Centre, Paxos, Gemini, and others, there are already a bunch of good stablecoin issuers out there.
Love the L2 @depressedape. When taking deposits in Fiat it makes plenty of sense to to issue either stablecoins or aTokens in the L2 as that would bring some easy on scalability.
Interestingly, once depos from users are taken in fiat and stablecoins are issued there is of course the yields from Aave protocol that could be directed to the stablecoin holders. Taking the idea further, I could imagine that the underlying fiat can be deposited so something liquid and low volatility products in TradFi and those depos tokenized as well and bringing more liquidity and yields for the Aave protocol. It’s a bit early idea but something that should be explored. The more TVL AAVE token is providing safety, the wider the protocol can scale.
I think moving towards L2 solutions would be an incredible improvement for Aave. Issuing a stablecoin would be aavesome, but we have to find a way to solve the points of failure present in the other major stablecoins.
I wonder if there’s a solution we can think of… 
I agree with your points Stani, especially the idea about leveraging yields from TradFi alongside DeFi, which would make for a very attractive savings account on AAVE as well as opportunities for the Aave and crypto community at large to direct a part of the yields to a DAO responsible for contributions to solutions to socially relevant issues (climate change, poverty eradication, education and others). I’ve seen plenty of rhetoric about banking the unbanked, but really so far crypto has only enabled those with capital to spare to play at a better casino than the stock market, where information asymmetry gives them significant advantages.
In this sense one cannot help but think that a stablecoin design that relies on both CBDCs (coming I believe in the next 5 years) and a Maker-like system could potentially be more resilient than USDC or DAI are on their own for example, while providing an opportunity for the community to invest in the future of many other people around the globe. This is the real and tangible purpose that is not nearly enough spoken about in the crypto world and maybe we as Aavengers can change that.
This for sure. Fiat → AaveUSD stablecoin could be huge. If we wanted more AaveUSD volume, we can even consider current, existing collateral.
I’d imagine we can create “vaults” with any existing collateral to mint AaveUSD… e.g. mint with wBTC. There’s also the potential to integrate something like RenJS to create functionality for users to mint AaveUSD with BTC in 1 tx. Just brainstorming since this is early discussion, but the flow could be BTC → RenVM → renBTC → Curve swap → wBTC → Aave → AaveUSD. If the pending proposal to add support for renBTC is added, then the Curve → wBTC part could also be skipped. If the AaveUSD step is too far off, this SDK/process could still be used now to build up that collateral pool for future AaveUSD minting.
Not sure if what I described would be interesting to folks here, but I personally think having a UX like that would:
- significantly lower the barriers to entry for newcomers/bitcoiners,
- lead to greater adoption, and
- increased deposited collateral.
So it seems that in this sense the hurdle is mainly the technological development, as the feature would be surely popular among users and Aave stakeholders. It is interesting to consider how we can reward potential teams beside Aave that can build additional protocol functionality.