Karpatkey Delegate Platform

Delegate Address: governance.karpatkey.eth (0x8787FC2De4De95c53e5E3a4e5459247D9773ea52)
Email: governance@karpatkey.com
Website: https://karpatkey.com
Twitter: https://twitter.com/karpatkey

Introduction

Hello Aave Community! We’re excited to announce the karpatkey Delegate Platform and begin supporting Aave at our fullest capacity.

karpatkey is a DeFi-native organisation specialising in professional DAO finance through industry-leading research and tooling since 2020. We’ve been working with GnosisDAO, Balancer, ENS, CoW Protocol, and Lido on financial planning, operations, and strategy, diversifying their treasuries into sustainable portfolios of DeFi investments designed to support DAOs in executing their missions.

Motivation

It’s been more than three years since the implementation of a detailed financial/governance framework to formalise the path to the decentralisation and autonomy of the Aave Protocol, later being added voting and proposal power delegation through Governance v2.

We’ve been advocates of delegated voting in DAO governance as a viable solution to improve the legitimacy, inclusivity, and effectiveness of decision-making processes. However, the efficacy of this system is highly dependent on having domain experts actively involved as delegates. It fosters a symbiotic relationship between all stakeholders, optimising the quality of collective decisions and reinforcing the democratic underpinnings of DAOs.

Our past work has led us to develop internal infrastructure for automatic on-chain treasury execution and risk management, which ultimately generated objective knowledge across DeFi protocols and hands-on user experience.

We’ve contributed to the development of an Aave fork project and historically deployed, borrowed, and staked a combined $26.51M worth of LP positions in both Aave V2 and V3:

We now believe we can meaningfully contribute to solidifying Aave’s position as the leading DeFi lending protocol, not only through domain expertise but mostly through pushing positive-sum initiatives with the DAOs we work with.

Why us

karpatkey’s governance team taps our network of engineers, DeFi strategists, data/financial/quant analysts, and accountants for subject matter expertise. As DAO treasury developers and contributors to some of the most reputable DeFi protocols in our industry, we believe that our team has the knowledge, trust, and alignment to meaningfully contribute to Aave’s growth moving forward. Check out our values to understand a bit more about our guiding and decision-making principles.

We differentiate ourselves by being a hands-on delegate, actively leveraging our unique position in assembling a DeFi block of DAOs with similar values.

Here are some ideas for potential contributions to the Aave DAO:

  • Explore opportunities for new business, integrations, promoting the overall growth of Aave markets and revenue;
  • GHO adoption on Gnosis Pay and GHO Liquidity on Gnosis Chain;
  • Increase Aave TVL from other DAO treasuries like Gnosis, ENS, Balancer, and Lido;
  • Commit our existing resources from our Balancer Finance Core Unit to support Aave adoption and increased TVL including operations, gauges, and boosting pools on Balancer/Aura;
  • Collaborate on pushing partnerships with the DAOs we contribute to, particularly Lido-Aave and Balancer-Aave, which have a lot of shared ground;
  • Explore ideas on Lido v2:
    • Gnosis module bonded collateral deposited in Aave GC until liquidated;
    • A new staking module acting as a priority lane for Aave in case (w)stETH needs to be liquidated;
    • GHO as a bonding asset for new permissionless nodes;
    • Lido minting GHO with stETH in treasury reassurance of not being liquidated and providing liquidity.

Main Focus Areas

We’re seeking to focus our efforts on the three topics we can contribute the most, both with our experience and influence. There’s been extensive research on these subjects, and karpatkey wants to actively join the community discussions.

1. Aave DAO Treasury

There’s an opportunity cost and a large potential risk in having Aave DAO’s assets idle without active risk management. Deploying a portion of the DAO’s funds across a diversified risk-adjusted portfolio can earn additional yield while guaranteeing sufficient runway and optimised risk exposure.

2. GHO

GHO is a significant strategic move for Aave. It has the potential to increase the utility of the protocol, generate revenue for the DAO, expand the ecosystem, and support decentralised stablecoins’ diversity to provide alternatives, making the ecosystem both more resilient and attractive.

3. Aave Safety Module

Aave’s recent exposure to the CRV markets’ volatility in light of the Vyper zero-day exploit was a reminder of the importance of increasing asset diversity and capital efficiency of the funds deposited in the Safety Module. This initiative will reduce the insurance cost and AAVE’s dependence in case of a shortfall event, and increase the cover value as well as the yield for depositors.

Conflicts of Interest

We’re active delegates in GnosisDAO, Uniswap DAO, and Safe DAO (Boardroom), and hold multiple crypto assets in our treasury. Please check our treasury reports for more information.

We commit to abide by the Aave’s Delegate Code of Conduct.

14 Likes

Voting Actions - August 7–11th

Proposal: [TEMP CHECK] Aave V3 Deployment on Celo
Vote: Yae
Reasoning: We voted in favor of this temp check. We believe that the deployment of Celo would benefit Aave for the following reasons:

  • Celo is incentivising liquidity on Aave (with 0.5% of CELO supply), which increases the possibility of bootstrapping liquidity;
  • With this deployment, AAVE can become a leading lending protocol on Celo while also contributing to the diversity of protocols available on this chain; and
  • This deployment could be a stepping stone for a future GHO launch on Celo, as this chain has few choices for stablecoins.
1 Like

Voting Actions - August 14–18th

Proposal: [ARFC] Chaos Labs Risk Parameter Updates - Aave V2 Ethereum
Vote: Yae - Aggressive
Reasoning: We align with Chaos Labs’ recommendation to use the aggressive set of parameters. The difference in value on the possible liquidations between suggestions is not a concern and may incentivise the users to close their positions and move to v3.


Proposal: Gauntlet Recommendation to Freeze CRV on Aave v2 Ethereum
Vote: Yae
Reasoning: We support this proposal. We’ve been witnessing a Health Factor arbitrage, where debt positions rebalance between lending markets, and risk flows to the most tolerant protocol. In essence, this implementation will have two main consequences:

  1. Increase the probability of a liquidation event: freezing any further CRV supply leaves just one option for the borrowers to increase the Health Factor, which is to repay the debt; and
  2. Limit Aave’s potential loss amount on a bad debt situation: despite having the potential to originate a spike in CRV supply before governance approval, as pointed out by @ChaosLabs, CRV emissions increase (almost) linearly until August 2024. One can assume that the amount potentially supplied until the execution of this proposal would always be inferior to the amount supplied in the future, and this would limit asset-loss exposure through an indirect ceiling to the borrowed amount.

In our opinion—the end justifies the means—it’s time for Aave to stop being the lender of last resort.


Proposal: [ARFC] CRV V2 Ethereum Deprecation Plan
Vote: Yae
Reasoning: We support this proposal. In light of recent events and considering the concurrently active discussion around the freezing of CRV on v2, this deprecation plan is a metered approach that will slowly push the migration of users onto v3 while also addressing the concentration risks on v2.


Proposal: [ARFC] - Chaos Labs Scope and Compensation Amendment
Vote: Yae
Reasoning: We agree with this expansion in the scope of work from V3 to include V2 and GHO. The feedback on Chaos Labs’ performance thus far has been positive. We also agree that the diversification of risk management service providers is an added benefit.


Proposal: [ARFC] Sigma Prime audit budget extension
Vote: For
Reasoning: We agree with this budget extension. The work is necessary, and the performance record of Sigma Prime raises no concerns.

1 Like

Voting Actions - August 14–18th

Proposal: [ARFC] wGHO Aave V3 Onboarding
Vote: Abstain
Reasoning: Although we acknowledge the potential of allowing wGHO as collateral to enable arbitrage and leveraged positions in under-pegged GHO scenarios, it may also open the door for unintended consequences.

As @Gauntlet clearly demonstrated, including wGHO could heighten the risk of liquidity-based attacks and amplify recursive borrowing dangers—without significantly enhancing GHO peg stability—particularly in the presence of the soon-to-be-launched GSM.


Proposal: [ARFC] sDAI Aave V3 Onboarding
Vote: Yae
Reasoning: This proposal opens an avenue for strategic initiatives with the MakerDAO community by increasing sDAI’s utility. Listing sDAI as collateral in the Aave V3 Ethereum pool allows users to earn DSR interest while using their assets as collateral for composable strategies.

For GHO, this means having a productive stablecoin with a higher yield than the GHO borrowing rate, which might put pressure on the GHO peg due to short positions capturing the spread. However, it should improve in the future with the decrease of Maker’s EDSR rate, the launch of the GSM, and better secondary market liquidity…


Proposal: stataToken operational update
Vote: Yae
Reasoning: We agree with this transfer of ownership to the Balancer governance as they are the primary user of the stataTokens.


Proposal: Aave v3 Base Activation
Vote: Yae
Reasoning: We support the deployment of Aave v3 to Base. As a product of Coinbase, there is potential for significant exposure for Aave on this chain. Additionally, we agree that the conservative supply and borrow caps are appropriate now.


Proposal: Supply Cap Update - stMATIC Polygon v3
Vote: Yae
Reasoning: We support this proposal to raise the supply cap. stMATIC is an LST that can be redeemed for the underlying asset in a 3-day window. The risk of increasing the Supply Cap is low, and this aligns with the community preference as previously discussed and voted on.


Proposal: [ARFC] Increase MaticX supply cap
Vote: Yae
Reasoning: We support this proposal to raise the supply cap of MaticX. Our rationale for support parallels the concurrently active stMATIC proposal.


Proposal: Swap assets to aUSDC
Vote: Yae
Reasoning: We agree with swapping these long-tail assets into aUSDC. This further executes the plan established with AIP 282 and helps to sustain a DAO runway in stables.

2 Likes

Voting Actions - August 21–26th

Proposal: [TEMP CHECK] Aave Treasury Proposal for RWA Allocation
Vote: Nae
Reasoning: While RWA is a topic the AAVE treasury should be interested in, some other steps need to be taken into account before we delve into it. The legal framework should be the first focus, as it is from it that several constraints arise. Another point we agree on in the discussion is that Aave should use its stablecoin holdings to support runway and that GHO is the ideal candidate for the RWA initiative.

However, the main point here is that this doesn’t seem to be the lowest-hanging fruit when thinking about treasury management strategy—we should start with the lowest risk profiles and then ramp up to more complex strategies. For example, other established DAO treasuries, like ENS, are only beginning to think about RWAs.


Proposal: [ARFC] Aave <> Bored Ghosts Developing (BGD) Phase 2
Vote: Yae
Reasoning: BGD is a valued partner of Aave, and they have been a consistent contributor throughout their Phase 1 commitment. As technical reviewers for all parameter change proposals, they helped sustain the protocol’s stability. The proposal is sound, and the deliverables are reasonable for the six months.


Proposal: Treasury Management - Polygon v2 to v3 Migration
Vote: Yae
Reasoning: We support this migration. The effort to consolidate and migrate treasury assets on Polygon will result in better productivity for the treasury, and we recognise that this effort has been ongoing since March.


Proposal: Chaos Labs Scope and Compensation Amendment
Vote: Yae
Reasoning: We support increasing Chaos Lab’s compensation by $400k for the remaining period of their service contract. The work they have performed has been well-received, and it is essential. However, the community should migrate to a more structured RFP model for new service agreements to better assess the DAO’s needs. Our position on this is explained, here.


Proposal: CRV Aave V2 Ethereum - LT Reduction
Vote: Yae
Reasoning: This follows the Curve v2 deprecation plan which received significant community support. Both risk management providers agreed to follow a more conservative approach, targeting a 2% reduction.


Proposal: sDAI Onboarding
Vote: Yae
Reasoning: We have previously supported this proposal in the ARFC stage and have no change of opinion. Our initial reasoning for support can be found here.


Proposal: [TEMP CHECK] Aave V3 “MVP” Deployment on GnosisChain
Vote: Yae
Reasoning: AAVE on the Gnosis Chain is a strategic movement to set the foundation for deeper synergies. It will strengthen the GC DeFi ecosystem, as it is an important addition to Balancer, Backed, Aura, and many other protocols. We agree that the current parameters are aligned with this “MVP,” and we look forward to an expedited GHO deployment at Gnosis Chain.


Proposal: [ARFC] Chaos Labs Risk Parameter Updates - Aave V3 Optimism - 2023.08.13
Vote: Yae
Reasoning: We trust Chaos Labs’ risk simulation, and the proposal is for potential changes that improve capital efficiency without any substantial risk associated.

2 Likes

Voting Actions - August 28th–September 1st

Proposal: GHO update on Aave V3 Ethereum Pool
Vote: Yae
Reasoning: As we have previously approved the action put forward by Aave Companies for the GHO pause and Unfreezing, we also support this fix. We recognise the support and quick response provided by BGD Labs on the vGHO improvement payload to correct this technical issue. The introduction of a borrowing limit is also reasonable as it is coupled with closer monitoring.


Proposal: [ARFC] Treasury Management - Avalanche v2 to v3 Migration
Vote: Yae
Reasoning: We support these v3 migrations unless an underlying, chain-specific issue needs addressing. We have no concerns about migrating from Aave v2 to v3 on Avalanche.


Proposal: [ARFC] Return OP to Aave Grants DAO Safe
Vote: Yae
Reasoning: This proposal corrects an erroneous transaction that should not have happened. We support moving the OP back to the Aave Grants DAO Safe.


Proposal: [ARFC] Increase GHO Borrow Rate
Vote: Yae
Reasoning: We have voted “yae,” but would like to recognise that this is a short-term action to incentivise borrowers to repay their position (improving the peg). There is no guarantee that it will succeed. Whilst it doesn’t add any operational risk, as @gauntlet_xyz mentioned, LPing minters will likely not change their position. This dune dashboard shows 36.7% of the current supply is on DEXes as LP.


Proposal: Chaos Labs Risk Parameter Updates - Aave V3 Optimism
Vote: Yae
Reasoning: We continue supporting this proposal as expressed in the ARFC phase. See our prior reasoning here.


Proposal: Funding Aave Robot for Governance V2 Automation
Vote: Yae
Reasoning: Following the recent testing led by BGD labs, we agree that the Robots should be topped up with LINK to pay gas expenses and remain operational. We also agree that BGD labs should be reimbursed for their LINK expenses on the Aave Robot.


Proposal: Aave BGD Phase 2
Vote: Yae
Reasoning: BGD is a valued partner of Aave, and they have been a consistent contributor throughout their Phase 1 commitment. We continue to support this in the executable phase. See our prior reasoning See our prior reasoning here.


Proposal: [ARFC] Enabling USDT as collateral on Aave v3 AVAX Market
Vote: Yae
Reasoning: We support this proposal to enable USDT as normal collateral. The parameters are fine, and it is a good practice to be conservative and have a lower supply to check the change and update it if there is demand.


Proposal: [ARFC] - Chaos Labs Risk Parameter Updates - Aave V3 Ethereum - 2023.08.25
Vote: Yae
Reasoning: We support these changes, and they increase the capital available for borrowing without increasing the risk significantly, as the major changes will align LSTs parameters with WETH.

1 Like