this is my very first proposal here. It is strictly focused on the utility of deposited $AAVE into the protocol.
What about to use AAVE tokens and make them aAAVE which could bear an interest? In the background it could be done in a way that aAAVE would be deposited to a staking contract which could earn a nice profit from staking.
I don’t know if this could work well however, i think we should focus on the utility of AAVE. If we could do this, then it will be like 0% borrow money cause profit from staking will cover all borrow costs.
I disagree. Staking AAVE has a different risk profile VS depositing it and borrowing against it.
Staking involved depositing AAVE into the Aave Safety Module (SM), this will soon enable a mechanism called “slashing.” What this implies is that, in a shortfall event, up to 30% of the current staked AAVE (stkAAVE) can be autonomously sold on the open market to cover depositors’ balances.
In other words, if deposited AAVE is staked, we need to re-evaluate its risk profile and take a significantly more conservative approach. Although I’m not a fan of this, there are ideas floating around about just implementing stkAAVE itself as collateral. Overall, thanks for starting a discussion about this!
StkAAVE could be used as a collateral but due to the circular risk it should be in another separate money market within the Aave Protocol but also not just that but some additional measures needs to taken into consideration depending on the slashing max percentage. For example, if it’s 30% that means that this extra cushion should be reflected in the risk parameters. Most importantly, SM could not cover that money. market since it would defeat its purpose.
Cant earn interest on something that isn’t capable of being loaned out
Cant loan out the asset registering minimum security
Hell, even allowing it as collateral has potential downside
Correct me if i’m wrong but i assume that if StkAAVE are used as a collateral, it would be for something like 15-30% LTV right ?
If there is only 70% of the value that can be taken into account because of slashing, and if there is a 50% LTV on that, that would actually liquidate if 35% of value is borrowed.
So in order to maintain a good HF, users could borrow something like 15 to 30% right ?
Which is already very good considering the collateral is growing over time.