Hi all,
Having taken our time to digest this proposal in its entirety and its impact on the future of Aave, we are of the firm belief that v4 is a huge step forward for the Aave protocol and DAO. Below, we will dive into aspects of the proposal we think have the potential to further cement Aave’s position as market leader.
In general, we think it is crucial for Aave to have a multi-year roadmap, especially in an industry that moves as fast as crypto. Having a North Star to build towards ensures that the direction of travel does not begin to drift and does not mean that the DAO does not possess the flexibility to continuously evaluate the roadmap, take stock of new innovations in the space, and incorporate them into the roadmap. Without having a multi-year plan, even though it may be more conceptual and higher-level at this point, the DAO risks losing ground to competitors that are either more nimble or have already established a long-term vision.
The features proposed can be bucketed into two camps:
(1) Long-term: Value levers creating value in the long-term, acting as the North Star and strengthening Aave’s competitive advantage.
(2) Short-term: Immediate benefits and improvements of the Aave protocol with short-term profit potential.
(1) Longer-Term Features & Vision
First, we will provide feedback on the North Star features that we think will be the cornerstone of Aave going forward in the longer-term:
- At this point, it is clear that the future is not limited to a singular chain, and with the rise of L2s and various other L1s, it is even more important to build for a future where liquidity is not fragmented and moves seamlessly across venues. To establish itself as the market leader in the face of growing competition in the space, we think a move like the Unified Liquidity Layer and the Aave Network will allow Aave to simplify UX, onboard many more users who can instantaneously access liquidity across chains, and scale faster to become a network-agnostic hub of liquidity across crypto. This is what Aave’s end-goal should be: the premier source of liquidity across crypto, across all networks. A move like this will allow Aave v4 to act as a base of liquidity that a variety of applications can draw from and utilise, and has the potential to act as a significant revenue source in the long run.
- The focus on GHO is great to see. GHO has the potential to print money for the DAO if executed correctly, and we’re happy to see that GHO’s progress is back on track with the efforts of the GLC and the Merit program after a somewhat shaky start last year. The emphasis on creating use cases for GHO (stablecoin interest paid in GHO, emergency redemption mechanism, the opt-in GHO soft liquidations, etc.) are a great sign of GHO powering the heart of Aave over the long-term.
- In our opinion, focusing on RWAs over the mid-to-long term is absolutely critical for a protocol like Aave. RWAs have long been perceived as one of the most important use cases of crypto and have only recently started to mature, beginning with more vanilla products like tokenised t-bills and potentially evolving into the financialisation and tokenisation of any kind of asset. For these tokenised assets to derive maximum capital efficiency, integrating with lending and borrowing protocols like Aave is of utmost importance so that users (both retail and institutional) can get the most value out of their assets; for example, look at the use cases proposed by @0xkeyrock.eth in their response. We are still in the early innings of the tokenisation of assets, with institutions only just starting to properly enter the space, and it is key for Aave to position itself as the premier venue for all kinds of users to gain capital efficiency from their tokenised assets. Chainlink, through CCIP and its various other efforts, is one of the leading players in the RWA space, and Aave is in a privileged position to be able to be one of the primary beneficiaries of Chainlink’s effort to open up and mature the RWA market. Therefore, indicating Aave’s keenness to onboard RWAs is a positive sign for more RWA providers to integrate with the protocol, and opens up numerous BD/partnership opportunities for the DAO while simultaneously being significantly value accretive for GHO in the long-term.
In summary, we believe the above 3 elements of the proposal will enable Aave to become more user-friendly and attractive for all types of users, position it as the premier liquidity hub across crypto, and as an effect, bolster and make crystal clear the protocol’s long-term value.
(2) Short-Term Features & Improvements
Secondly, we think the below aspects will bring more immediate value to the protocol in the near-term by improving risk management, UX, and reducing governance burden.
- The Aave liquidation engine is the cornerstone of the protocol and has allowed it to weather moments of great turbulence in this very volatile market. Further iterating on the liquidation engine by providing variable liquidation factors and liquidation bonuses will allow the DAO to capture more revenue from liquidations while keeping the protocol safe. Moreover, using different liquidation engines for different assets maximises user flexibility and accounts for the varied risk of crypto assets.
- Fuzzy-interest rates to automate slopes and kink points will make the protocol more efficient and reduce governance burden.
- The liquidity premiums, excess debt protection, and dynamic risk configuration make risk management much simpler and alleviate key issues that v1-3 have seen. The latter especially improves governance as well.
- Smart accounts will make the UX much better in the short-term.
- The automated assets offboarding feature also improves a process that has been ‘stitched together’ up to this point (albeit very well by the likes of Chaos Labs) and will reduce governance burden again.
We do not think the short and long-term feature development will happen consecutively - rather, it should happen in parallel, and we hope Aave Labs looks at it in the same way as well.
Budget
We appreciate the scrutiny and questions around the budget from the rest of the community - this is what decentralised governance and decision-making should look like! The breakdown in terms of team size and profiles from @AaveLabs is a good explanation of the resources needed for the first year, and stage-gating the budget is definitely a good idea given the relative unpredictability with DAO revenues and the general market. We are happy with the breakdown by type of team profiles and number of personnel, and the only remaining point of discussion would be around the size of the budget.
We also think @MarcZeller makes some good points around room for some optimisation of the budget and from a wider perspective, avoiding compensation inflation across the board.
However, given the financial position of the DAO at this point, plus the innovative new features brought to the table by v4, along with the need to continuously innovate and improve the protocol to fend off any competition, we think a good middle ground is to approve a budget for the first year with defined milestones in terms of what will be built over the course of the year and judge and consequently approve the budget for the following phase. We also think it may be beneficial to build in some ‘risk management’ aspects to the budget, i.e., if the market goes south and the DAO revenues reduce, there is no compromise on critical aspects like AAVE emissions or draining the treasury.
Closing Thoughts
All in all, we are in favour of Aave v4 and the roadmap outlined by @AaveLabs and are excited to have a longer-term vision for the protocol, which demonstrates the value it can potentially bring with GHO, RWAs, and the Aave Network as the North Stars that the DAO can continuously build towards.