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

Governance General
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