[TEMP CHECK] AAVE Treasury Proposal for RWA Allocation with Maple Finance

Governance General
1

Title: Aave Treasury Proposal: Onboard with Maple Finance to Diversify Existing RWA Holdings

Author: @Maple_Direct

Date: 2023-11-20

Summary:

Maple Finance would like to propose that Aave’s Treasury allocates stablecoins into Maple Finance’s cash management pool to earn the risk-free rate on-chain, further diversifying their existing and future RWA holdings.

The main results of this proposal will be:

  1. Aave will onboard with Maple Finance to enable the treasury to allocate to RWA strategies on the platform.
  2. Aave Treasury to allocate to Maple’s Cash Management pool, with an initial investment of 1M USDC, with the goal to increase this allocation over the course of time.
  3. As the Aave community gains comfort in the Maple platform, the treasury will explore investment opportunities into other Maple RWA pools, pending approval from Aave’s governance.

Motivation:

Shifting away from an exclusive focus on crypto assets, Aave is now exploring off-chain markets, particularly Real World Assets (RWA). This strategic move holds the promise of diversified treasury management, achieved through a thoughtful percentage allocation of Aave’s current USDC balance. This forward-thinking approach positions Aave to leverage RWA collateral for long-term growth, whether by enhancing liquidity, diversifying revenue streams, or capitalizing on earnings from dormant stablecoin assets.

Maple Direct is excited to introduce the Cash Management Pool (MPLcashUSDC) to the Aave community. Since launching in May 2023, Maple’s Cash Management Pool has attracted >60M USDC in total deposits and generated >500k USDC in accrued interest for lenders. The Pool is permissioned and available to accredited investors who complete a KYC and AML onboarding process with Maple, with more than 50% of current lenders either DAOs or web3 corporate treasuries. Backed by short-term US Treasury bills and overnight repos, the Pool targets a net APY of the current Secured Overnight Financing Rate as reported by the Federal Reserve Bank of New York, less 50bps of annualized fees and expenses. At current rates, the spot net APY of MPLcashUSDC is approximately 4.8%.

Maple’s Cash Management pool is highly differentiated from competitors, including the following benefits:

  • Direct Asset Security: Actively managed and directly backed by US Treasury bills held in a standalone SPV.
  • Daily Liquidity: Withdrawal function offering daily liquidity on US banking days, automated through smart contracts to ensure limited reliance on third parties.
  • Short Duration: Weighted average maturity of the Pool’s assets is capped at 30 days – this restriction materially mitigates interest rate risk and ensures reliable access to daily liquidity for lenders.
  • Yield Efficiency: Upon a new deposit, an LP token (MPLcashUSDC) is atomically transferred to the lender’s wallet and yield starts accruing immediately. Lenders continue earning interest up until the moment their LP tokens are redeemed from the pool for USDC. Fees and expenses total 0.5% annualized and there are no upfront subscription or redemption costs.
  • On-Chain, Verifiable Position: Maple’s smart contract infrastructure has been built out over the last 3 years and one of the major benefits it provides is a constant, verifiable Net Asset Value (NAV) for lenders. Using the ERC-4626 standard each lender can verify the value of their holdings directly on-chain and the yield that they have earned to date. Importantly, this value is generated block by block through the smart contracts and is not subject to any manual manipulation or input.
  • Regulated Counterparties: Custodial risks are minimized by partnering with established and regulated counterparties. The Pool’s prime broker is StoneX, a SEC and FINRA regulated broker dealer. BNP Paribas, the fifth-largest global custodian with over $10 trillion in assets under custody, is the underlying custodian for the StoneX account.
  • Fully Ringfenced: As with all pools on Maple, the Cash Management Pool represents a distinct smart contract and Lenders are ringfenced from credit risk in other pools on the Maple platform. Lender deposits in the Pool are held in a non-custodial smart contract and Maple never takes possession.

Specification:

If the proposal is approved, Maple Direct is prepared to work hand in hand with the Aave DAO to engage counsel and determine the appropriate legal structure for the DAO to access KYC permissioned defi, including the Cash Management pool (and other alternatives on the platform). Maple would be responsible for onboarding the eventual legal entity associated with the Aave DAO, and would draw upon experience working with other DAOs in the space to complete KYC in a compliant manner.

The investment process will be gradual and thoughtful, with community approval sought for each stage after the endorsement of this proposal. Initially we propose a 1M USDC deployment in the Maple’s Cash Management Pool. In subsequent stage, we believe the Aave DAO should consider higher yielding opportunities, including the various offerings on Maple as well as other defi platforms.

Maple Direct stands ready to assist the Aave DAO in allocating across various credit opportunities, fostering flexibility and strategic decision-making.

Pool Collateral Target Return
Cash Management Secured lending backed by U.S. Treasury bills with daily liquidity. SOFR less 50bps (~5%)
Secured Financing Secured lending to institutions overcollateralized by digital assets. SOFR+300-400bps (~8-9%)
Web3 Opportunistic Other high yield lending strategies to institutional web3 borrowers. ~10%+
Real World Assets Secured lending to off-chain originators and corporates. ~12%+

We believe it is in the best interest of the community to start with an initial investment and gain familiarity with the Maple Platform. As the relationship strengthens after initial deployment, we will seek investment into other Maple pools. A timeline of events can be seen below:

Phase
Legal Setup/Onboarding Maple Direct team to work with the DAO to finalize appropriate legal structure and onboard an entity to the Maple Platform 1 Month
Initial Deployment DAO deposits $1M in USDC into the Maple Cash Management Pool. Interest accrual is immediate and block by block 1 Month
Subsequent Deployment Maple will submit a proposal to deploy further capital into Cash Management or other RWA asset pools on the platform, pending governance approval After 3 Months

The fee structure for the Cash Management pool is 0.5% annualized.

Additional information covering the Cash Management Pool, including lending, withdrawing, and risks is detailed on GitBook as well as the other materials linked in Key Documents below.

Disclaimer:

The data, statements and information presented in this post are for informational purposes only, and do not constitute financial or investment advice. This post does not constitute advice for any purpose whatsoever. The financial statements presented have not undergone a audit from a third-party professional accounting firm. As such, there may exist errors or inaccuracies that materially misstate the financial statements. We are not responsible for any financial losses or adverse outcomes that may result from making financial or investment decisions based on the data presented in this post. Further, by viewing this post you agree that the statements in this report do not constitute a representation, warranty or guaranty regarding any matter, and you are not relying thereon, and will not make any financial or investment decision based on the statements, but will conduct your own due diligence. You hereby release, waive and relinquish any and all claims, causes of action and disputes against Protocol Pool Operations Pty Ltd, Maple Labs Pty Ltd, Maple DAO or its contributors, and the creators of this post.

The forward-looking statements in this proposal are subject to numerous assumptions, risks and uncertainties which are subject to change over time. There are many risk factors, including those relating to blockchain technology generally; the development of decentralization; the uncertain regulatory environment; and Maple specifically, that could cause actual results or developments anticipated by us not to be realized or, even if substantially realized, to fail to achieve the benefits that could be expected therefrom. We reserve the right to modify our plans and intentions without prior public notice.

Next Steps:

This proposal will move to an off-chain snapshot vote in 7-14 days, and if successful, to an on-chain AIP immediately after. The Maple Finance team is available for a community call to discuss this proposal, our platform, and other topics in further detail as requested by the Aave community.

Copyright:

Copyright and related rights waived via CC0.

3 Likes
2

Diversification of the AAVE treasury is important for long term sustainability, and exposure to lower risk RWA yields like that offered by Maple Finance seem week-suited for this purpose. I think in particular the Maple Finance offerings have a well-thought out legal recourse structure to ensure ownership rights by the AAVE DAO of any particular RWA whether it be short duration US Treasuries or alternative strategies like tax receivables.

I strongly support this proposal.

3

GM,

thank you for this proposal.
A few questions regarding it.

Maple Finance would like to propose that Aave’s Treasury allocates stablecoins into Maple Finance’s cash management pool to earn the risk-free rate on-chain

Nothing is risk free, so whats the drawdown here?
Defaults like Goldfinch recently had?
What is going to happen when interest rates are going to be lowered.
Any estimations on how the yield will change?
Whas the strategy behind it, are you mainly using shortterm treasuries (t-bills) or longtermn treasuries?

Assuming the DAO would buy with it stablecoin holdings assets like ETH and stake them. The projected yield would be higher and imo less risky. So whats your top argument against that?

4

Hello, the Aave DAO is redepositing its own revenue into the Aave V2 protocol via the collector contract on Ethereum, and similarly into itself on V3 in Layer 2s.

Currently, the average yields on DAI, USDC, and USDT stand at 4.57%, 5.69%, and 5.58%, respectively. These rates are the ‘base rate revenue’ we need to beat to deem any ‘opportunity’ profitable.

The ACI views this risk as virtually non-existent, considering these are deposits in our own protocol. If our protocol fails, we’re out of the game anyway, so the inherent risk of Aave is irrelevant to us.

This analysis renders the Maple cash management product (the only ‘risk-free’ option) as underperforming compared to status quo.

The other options are beyond our comfort zone.

So, the ACI is planning to cast a NAY vote on this TEMP CHECK.

NAY
NAY2949×2780 1020 KB

5 Likes
5

Hi @maple_direct,

Thanks for this proposal.

Maybe something you’re not aware of but the DAO is already in the process of establishing an entity for RWA allocation: Aave - Aave treasury RWA Allocation Part I.

Additionally, 50bps for this type of product offering is too much in our opinion. The proposal from Centrifuge would charge 35bps.

At this point in time, we’re against this proposal as the fees + rates offered here are not competitive compared to Aave V2 rates.

2 Likes
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Hey @MarcZeller

Thank you for the candid feedback on our proposal. We value the time and effort the Aave DAO invests in thoroughly reviewing potential opportunities, and we appreciate your focus on yield maximization.

We recognize that the current USDC yield on Aave is above what Maple’s Cash Management provides. However, how important is volatility and its impact on portfolio stability? Over the past six months, the USDC rate on Aave V2 has fluctuated significantly, reaching as low as 2.44% and averaging around 4.30%. In contrast, the Maple Cash Management Pool has consistently delivered a rate between 4.7-4.9% during the same period.

This difference highlights a key consideration: the potential benefits of diversification through a lower-volatility component in AAVE’s treasury strategy. Including our Cash Management Pool could serve as a valuable hedge against the inherent variability of DeFi markets, adding a layer of stability to AAVE’s treasury yields.

We fully respect AAVE DAO’s decision-making process and commitment to community interests. We appreciate the consideration and are more than willing to explore ways to adapt our offerings to align more closely with Aave’s strategic objectives and risk appetite.

1 Like
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Thank you for considering our proposal and for sharing your concerns.

We understand that Aave is in the process of establishing an entity for RWA allocation, which is a significant step towards diversification. Regarding the fee structure, we appreciate your point about our 50bps fee compared to the 35bps proposed by Centrifuge.

It seems important to consider the total cost, including any upfront fees and tokens. Please let us know if there’s any errors in the calcs, but for a $10 million deposit for one year, the total cost with Centrifuge, accounting for the upfront legal fees and AAVE token payment, would be approximately $130,000 (0.35% of $10m + $50k legal + $45k AAVE rewards), compared to $50,000 with Maple.

At a larger scale the costs approach parity. At about $50m, the Centrifuge cost with setup would be $252,000 (0.35%*$45m + 50,000 legal + 45,000 tokens) and Maple would be about 225,000 flat fee so not too far apart if the program scales above $45m size.

We understand your focus on competitive rates and fee structures. Ultimately the most robust approach may be to use multiple providers.

Valid point on the rates, AAVE V2 rates are presently higher, but with higher volatility. On average over the past 6 months they were lower (4.3%) so its difficult to predict if they won’t be lower in future, and a lower volatility hedge may be attractive from that perspective.

1 Like
8

Thank you for the thoughtful questions and reviewing our proposal. Please see the answers below:

  1. Nothing is risk free, so whats the drawdown here?

    You are correct. While the pool lends against assets backed by the credit of the U.S. government, labelled ‘risk-free’ in traditional finance contexts (short dated t-bills and reverse repos secured by t-bills), there are a number of structural risks to consider. Additional information on risks and mitigants can be found on GitBook here.

  2. Defaults like Goldfinch recently had?

    The Cash Management Pool on Maple, distinct as a smart contract, assures Lenders a safeguard from credit risks in other Maple pools. Lenders bear only the risks of this specific pool, held in a non-custodial smart contract, with Maple refraining from taking custody of deposits. Counterparty risks are minimized by a dedicated SPV Borrower solely for the Cash Management Pool, separate from Room40’s core activities. Maple loans are the sole permitted debt, managed by the Maple Foundation, a Cayman entity serving as Security Agent. In case of default, the Foundation exercises step-in rights, maximizing asset recovery for Lenders.

    In contrast, this pool differs significantly from emerging market microfinance, such as the goldfinch case. The risks here include T-bills, a US counterparty, security interest in underlying assets held at a custodian with daily visibility, and a 1:1 collateralization ratio. On the other hand, emerging market microfinance involves non-US entities, uncollateralized positions, and lacks daily visibility.

  3. What is going to happen when interest rates are going to be lowered.

    The pool aims to target a net APY of SOFR minus 50bps.

  4. Any estimations on how the yield will change?

    The pool targets a net APY of SOFR less 50bps, which will fluctuate with day to day changes in SOFR. As the Fed begins to cut interest rates, SOFR will decrease in step. However, recent guidance from the Federal Reserve suggest that rates will remain ‘higher for longer’ and the path of interest rates is cyclical.

  5. Whats the strategy behind it, are you mainly using short-term treasuries (t-bills) or longtermn treasuries?

    The pool may only lend against treasury bills with an average weighted duration of 30 days or less, reverse repo and short dated Money Market Funds. This materially mitigates interest rate risk and enables quicker liquidity. This is differentiated from other providers who tend to purchase a wider range of maturities.

  6. Assuming the DAO would buy with it stablecoin holdings assets like ETH and stake them. The projected yield would be higher and imo less risky. So whats your top argument against that?

    Staking ultimately carries slashing risks and a technical burden to manage. Holding ETH and staking it is ultimately taking price risk on ETH, and movements lower in ETH price could far outstrip staking rewards. This is as compared to stablecoins, where there is no price risk (outside of tail risk of depeg). Staking withdrawal queues can also vary dramatically, and therefore the DAO would not have the benefit of reliable liquidity, if the funds were needed for any reason.

2 Likes
9

The points on yield stability and cost structure highlighted by the Maple team strongly address the concerns raised. Hard to justify not pursuing treasury diversification in a product that brings reliable rates in a cost effective manner with strong legal recourses.

2 Likes
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We believe there is a benefit to having Aave receive risk-free rate uncorrelated to DeFi that is around the same as Aave v2 stable yields. While the borrow APR for stables on Aave v2 have been high in recent months due to high utilization (consistently above 5%), we don’t think there is much risk in adding Maple’s Cash Management Pool as a source of yield given its track record. Considering a medium-term perspective, Maple as a source of yield would bring benefits and provide resilience in bear conditions of low utilization.

To further incentivize Aave’s partnership with Maple, would Maple consider decreasing the bps fee from 50bps to 35bps? Could Maple provide more details on what the costs are for setting up the legal structure to onboard Maple?

1 Like
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Well I agree with the benefit of exposure to the risk free rate as part of a diversified portfolio, I don’t think it is reasonable to request a discounted rate from Maple as it is a reasonable fee for the value add and is applied equitably across their various partnerships.

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Indeed the math is correct.
We’ve made a misjudgment here and not thoroughly checked the previous proposal. We apologise for that.

Very valid point on the volatility of rates for Aave V2. We believe there is a potential to discover here a GHO facilitator line of credit.

Additionally, as the DAO is finally getting a better vision into it’s finances and may engage with @karpatkey_TokenLogic as a financial services provider - we see this proposal as something worth considering.

4 Likes
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We are happy to evaluate alternative fee structures as part of a broader strategic initiative or partnership with Aave. We also have a number of new features rolling out that will improve the Maple Cash Management product and assist in this area. Our direct lending and advisory arm, Maple Direct, would seek to work with Karpatkey, Aave Companies, and other core partners to contribute to a wholistic treasury management strategy that prioritizes prudent financial planning in the best interest of the DAO and utilizes Maple where appropriate.

Regarding entity, if the DAO is currently in the process of setting up a Cayman Foundation, as referred to in other responses, Maple is flexible and willing to work within that framework for our collaboration, and can onboard that same entity directly - avoiding duplicating set-up costs and time.

1 Like
14

I agree with the points @MarcZeller mentioned in this discussion.

However there is an opportunity for Maple to play a role as a facilitator for GHO which could make for a more synergistical and profitable integration.

1 Like
15

This TEMP CHECK has been escalated to the TEMP CHECK snapshot stage and vote will start tomorrow.

16

We are supportive of an Aave RWA allocation with Maple Finance, but we’d prefer for this proposal to receive feedback from @Karpatkey and @TokenLogic with consideration of a much wider treasury allocation framework before proceeding to an on-chain vote.

There is also an argument to be made that the DAO can simply deposit into the DSR and earn 5% without having to go through the legal + KYC process. However, having access to Maple’s cash management pool will be beneficial in the case where the DSR is reduced as utilization increases.

2 Likes
17

It is good to see Maple contributing ideas on expanding asset diversification and gaining exposure to risk-free RWAs. We welcome proposals like this, and we provide our analysis of the proposal:

Aave DAO started its RWA diversification strategy not long ago, with 1M committed (approximately 5% of the stablecoin portfolio), and it seems premature to increase the investment allocation on this particular asset before assessing its results. Additionally, it is unclear whether this proposal is overlapping or competing with the discussions on legal entities and frameworks discussed in AIP-331. We should engage with additional RWA solutions and providers when the aforementioned legal structure is established, and the Aave DAO is in a position to evaluate every option in the market, including Maple.

Maple’s proposal focuses on the same assets, U.S. Treasury Bills, carrying similar jurisdiction risk, and using the same broker (StoneX), so it doesn’t add relevant diversification while introducing new smart contract risks and counter-party risks.

As mentioned before by @MarcZeller, Aave’s DAO stablecoins have historically been used to foster our lending markets with significant success, and the current rates should be the basis for considering moving it from there. We should remember that “risk-free” RWAs (such as T-Bills) rates may not remain as high in the long term, so Aave’s DAO must exercise caution when considering moving part of its treasury to this type of asset. Therefore, we don’t believe this is the right time to support this proposal.

2 Likes
18

The TEMP CHECK Snapshot for this proposal has ended with NAY as winning option (369K votes and quorum reached).
This TEMP CHECK Snapshot has not passed.