[ARFC] Add wstETH to Optimism Aave v3
Vote Result: YES (without e-mode)
Rationale
Lido DAO has proposed enabling wstETH as collateral on Aave v3 on Optimism. In line with the scaling of L2s, we believe the inclusion of wstETH on Optimism provides a platform for increased wETH borrowing demand while new use cases are developed. This will generate increased revenues for the protocol, as did the addition of stETH on Aave V2 on Ethereum.
The risk parameters jointly proposed by Gauntlet and Llama are conservative enough to minimise risks while the market and liquidity grow. However, regarding eMode, the price for wstETH currently cannot be composed in a similar fashion to the Ethereum pool as there is no stETH/ETH price feed on Optimism. BGD has also indicated that there is additional complexity in tracking the wstETH/wETH position from the price sync adapter. Therefore, we will vote YES for this proposal but without eMode enabled at the moment, until there is a safer way to enable e-mode for wstETH on Optimism.
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Interest Rate Curve Changes for Aave V2 ETH
Vote Result: YES
Rationale
Given that this is the on-chain vote for this Snapshot proposal that we voted YES for and that the logic for increasing the variable rate to keep the stable borrowing rates above the variable borrowing rates at all levels of utilization makes sense, we will vote YES in favour of this proposal as well.
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Add cbETH to Aave V3 Ethereum
Vote Result: YES
Rationale
We voted to onboard cbETH onto Aave Ethereum v3 in the temperature check Snapshot, and our rationale remains the same as to the merits of cbETH. With regards to risk, the parameters are very conservative and risk is capped by the borrow and supply caps as well. The analysis to reduce risk is sensible, since there is no data about how users respond to changes in interest rates for borrowing stETH and cbETH is similar to stETH.
The implementation is without e-mode enabled, which reduces risk until there is more data to analyse, as with wstETH and rETH. Moreover, the interest rate curve matches that of the more volatile assets on Aave (1INCH, CRV, ENS, LINK, MKR, UNI), and it can be argued that this is too conservative, although this is necessary since cbETH has never previously been listed as an asset on Aave.
All in all, we will vote YES for this proposal to onboard cbETH to Aave.
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Aave v3 Polygon wMATIC Interest Rate Update
Vote Result: YES
Rationale
Given that this is the on-chain vote for this Snapshot vote that we voted YES for, and post the Snapshot vote, there has been no change - Chaos Labs has reconfirmed the Supply and Borrow Caps for wMATIC and the payload has been approved by BGD Labs. Therefore, we will vote YES for this proposal as well.
[ARFC] LDO Emission_Admin for Ethereum, Arbitrum and Optimism v3
Vote Result: YES
Rationale
This proposal aims to incentivise liquidity in Aave V3 on Ethereum, Arbitrum, and Optimism, and does not bear considerable associated risks. The role has already been assigned in Nov-22 to Lido DAO for the Polygon V3 Liquidity pool, and no significant risk seems to exist since the Emission_Admin role has the specific, limited functionality of distributing rewards across specific approved addresses. Therefore, we will support this proposal with a YES vote.
BAL Interest Rate Curve Upgrades
Vote Result: ABSTAIN
Rationale
Given that we abstained in the Snapshot vote for this proposal since there was no detailed risk analysis done for this proposal, we have decided to ABSTAIN for this on-chain vote as well. Llama and Gauntlet are not aligned on the appropriate parameter for Slope1, as can be seen in the forum discussion. Since the rest of the community has voted in favour of this proposal and we were not clear about the recommendation from Aave’s risk providers, we felt it would be prudent to abstain from voting in this proposal altogether.
[ARFC] Add USDT to Ethereum V3 Market
Vote Result: YES
Rationale
USDT is one of the most prominent stablecoins across DeFi and should be listed on Aave v3 Ethereum with the appropriate risk controls in place. Given that Chaos Labs supports the addition of USDT with the proposed parameters, especially when risk is mitigated given that it is not used as collateral, and other key contributors like Llama and ACI also support adding USDT to Aave v3 Ethereum, with ACI having proposed this in the first place, it is sensible to add USDT. While there have been concerns over USDT’s solvency since it is a centralised stablecoin which has had a lot of attention on it, it has responded well to crises and demonstrated solvency when there have been a lot of withdrawals made in a short period of time.
Given the above, we will vote YES in favour of this proposal.
[ARFC] Add wstETH to Arbitrum Aave v3
Vote Result: YES - with Ethereum eMode
Rationale
As we have done with the previous proposals for adding wstETH as collateral, we will support this new one for Aave V3 on Arbitrum, since we believe it will have the same positive effect of increased borrowing demand for the protocol and will carry no major risks. This time, given BGD Labs’ proposal for adding two new Chainlink feeds, we will vote YES - with Ethereum eMode.
[ARFC] CRV Interest Rate Curve Upgrade
Vote Result: YES
Rationale
The adjustment in parameters in the proposal is a reasonable reaction in the interest of Aave in the face of an increasing amount of borrowing activities of CRV driven by veTokenomics. Since the parameter changes have been updated based on Gauntlet’s recommendations and there has been a lot of discussion in the forum post around the specific parameters to be implemented that has been answered, we are supportive of the proposed parameters and will vote YES on this proposal.
[Temp Check] Deploy Aave V3 on Neon EVM Devnet
Vote Result: NO
Rationale
Neon EVM is a new chain running on Solana, a non-native ecosystem to Aave, which would have the benefits of deploying Aave v3 on other chains and expanding Aave’s influence with minimal additional engineering work. Moreover, the oracle infrastructure is ready on Solana which supports the core functionality of Aave v3, which would aid in an easier deployment. Aave v3 also has borrow and supply caps and isolation mode enabled, which would lessen the risk of deployment on Neon.
However, the below points make deploying on Neon infeasible for Aave:
- Neon is new and untested. As a blue-chip protocol, Aave should only deploy on battle-tested chains with recurring users. Neon does not fit that criteria and can incur material risk for Aave and its reputation.
- Solana has seen a precipitous decline in TVL and DeFi activity following the uncovering of Macalinao brothers scheme + FTX collapse (and ties with Serum and other projects in that ecosystem). It currently sits at $260m TVL, which is not a large enough prize for Aave to capture at the moment.
- Solana has had issues with downtime in the past. It’s also a highly centralised chain given the high hardware requirements of running a node. Only one full archive node exists for the chain.
- The low liquidity may compromise Aave’s ability to remain solvent in the event of forced liquidations.
In conclusion, given the above, we believe Neon should be given time to develop and if there is increased usage and liquidity on the chain and no downtime on Solana over an extended period, we can revisit the proposal to deploy Aave v3 on Neon. Therefore, for the moment, our vote is NO for this proposal.
Add USDT to Aave Ethereum V3 Pool
Vote Result: YES
Rationale
This is the on-chain vote for this Snapshot proposal we voted YES for. Gauntlet has not proposed any parameter changes to the original recommendations. Therefore, we will vote YES for this proposal as well.
Add rETH to Aave Ethereum V3 Pool
Vote Result: YES
Rationale
This is the on-chain vote for this Snapshot proposal we voted YES for. There are no proposed parameter changes and the Snapshot passed with e-mode disabled, which has been reflected in this proposal. Therefore, we will vote YES for this proposal as well.
[ARFC] Increase Borrow Cap for MAI Aave Polygon V3
Vote Result: YES
Rationale
The recommendation of Chaos Labs makes more sense than what is originally proposed. The original (UOptimal+0.1)supply cap yields an aggressive borrow cap in cases the UOptimal is high (90% as suggested). 0.55supply cap is a more reasonable amount for borrow cap and is more balanced between risks and return, especially given MAI’s profile and being listed in isolation mode. Therefore, we will vote YES in favour of this proposal.
[ARC] Add LUSD to Ethereum V3
Vote Result: YES
Rationale
LUSD is a decentralised stablecoin which has shown resilience in difficult market conditions in 2022 and espouses the core values of the crypto space. Chaos Labs and Gauntlet are in agreement about the parameters, while the initial parameters are risk-averse as LUSD is not initially enabled as collateral, with conservative supply and borrow caps to minimise risk. A potential concern is that LUSD liquidity is really low with daily trading vol < $1 million. However, this is mitigated by the conservative borrow/supply cap recommendations and LUSD not being enabled as collateral.
Therefore, we will vote YES in favour of this proposal.
[ARC] Onboarding sfrxETH to Aave V3 Ethereum Market
Vote Result: NO
Rationale
FRAX is one of the more blue-chip names in DeFi, and sfrxETH is a valuable decentralised LSD that would bring revenue, diversity, and liquidity to the Aave ecosystem. This proposal also is in line with the recent proposals to onboard stETH, rETH, and cbETH onto Aave v3 Ethereum, and another positive is that Chaos Labs is in favour of the proposed risk parameters, which account for the lower supply cap. The risk is also mitigated by the ability to unstake to frxETH and the deep liquidity for frxETH on Curve, and by it not being borrowable, or listed in isolation mode or eMode.
However, a main issue is that the protocol contracts have permissions that grant administrators mint/burn capabilities. Leaving withdrawal keys, mint/burn capabilities for sfrxETH, and control of frxETH Curve LPs generated in the hands of the Frax team adds counterparty risk to Aave. sfrxETH has also not been used across other lending and borrowing protocols, and is relatively small in terms of holding with only 3,000 transactions and 858 holders. Its TVL is also almost 7x smaller than the TVL of rETH, the smallest other LSD onboarded by Aave.
Therefore, it may be better to wait for the asset to mature further, decentralise, and reduce counterparty risk from the Frax team before onboarding it to Aave, especially since an Aave v3 onboarding will put Aave in a top position of sfrxETH holding.
[ARFC] Add BAL Ethereum v3
Vote Result: YES
Rationale
Balancer is a strategic asset and partner to Aave and listing BAL on Ethereum v3 represents the strategic relationship between the two communities. The revenue earned from the pool could be used by Aave to bootstrap the adoption of GHO and/or the new aToken being developed by Aave Companies. Given that the risk parameters have been reviewed by Gauntlet, and their proposed changes have been implemented by Llama, we will vote YES in favour of this proposal.
[ARC] Add Safety Module Support for Aave V3 Ethereum Market
Vote Result: YES
Rationale
The safety module will incentivize token holders to stake their tokens and expose their staked assets to be mobilized to cover excess protocol debt, which will be a protection mechanism for Aave in the event of a shortfall. Continuing safety module coverage on V2 for another year makes sense in that it allows V2 users enough time to transfer their liquidity to V3. Therefore, we will vote YES in favour of this proposal.
[ARFC] Add CRV to Ethereum v3
Vote Result: YES
Rationale
Listing CRV has both short-term and long-term benefits to Aave. In the short run, Aave can earn revenue from the increased borrowing activities involving CRV, due to the veTokenomics and the extrinsic use cases created by Convex Finance and projects built on top of veCRV. There is also a demand for extra liquidity pools besides Polygon v3 to avoid extreme deposit rates volatility. In the long run, Aave can use the CRV interest on hand to generate veCRV, which will enable Aave to vote on any combination of pools, potentially bootstrap the adoption of GHO and incentivize the Safety Module. Lastly, Gauntlet has reviewed the recommended parameters and their suggested changes have been implemented by Llama. Therefore, we will vote YES in approval of this proposal.
Add LUSD to Aave Ethereum V3 Pool
Vote Result: YES
Rationale
This is the on-chain vote for this Snapshot proposal we voted YES for. Therefore, we will vote YES for this proposal as well.
[ARC] Community Risk Preference on Aave V3 Borrow & Supply Cap
Vote Result: CONSERVATIVE ASSUMPTION ONLY FOR SMALLER MARKETS
Rationale
A completely conservative or aggressive assumption has too many trade-offs in terms of risk and revenue on both sides of the scale. It is important to balance risk and revenue on a more bespoke basis for assets, since each asset or type of asset has different considerations that may drive more risk or revenue to Aave, and hence need to be judged on an individual level.
In choosing the ‘Conservative Assumption for Smaller Markets’ option, we have considered that the top ‘X’ assets in terms of market cap etc., which would have a more aggressive assumption applied, should have ample liquidity and protection against manipulation attacks or other attacks of the sort mentioned by Gauntlet in the forum post. Moreso, focusing on assets that generate revenue today and allowing them room for organic growth would be beneficial for Aave’s overall growth while minimising risk from the smaller assets that are more prone to price manipulation.
It is important to note that there needs to be a clear discussion, analysis, and subsequent methodology for deciding which markets are ‘smaller’ and which are ‘major’. We expect this discussion to commence post this Snapshot vote.
In conclusion, we will be voting for the CONSERVATIVE ASSUMPTION ONLY FOR SMALLER MARKETS option with an expectation to clearly decide upon a methodology to determine ‘smaller’ and ‘major’ markets following this Snapshot.