To spark some extra discussion in the community, we would like to propose an extra mechanism on the stkAAVE and stkABPT side, indirectly related with Umbrella.
Slashing hooks
As both this post and Umbrella’s highlight, the current stkAAVE and stkABPT are not very valuable in regards to coverage of bad debt. However, it is quite clear that they are valuable for the DAO: stakers are factually risking their capital (more than $400m) to protect the Aave protocol. We propose the following as an optional mechanism for the community to consider on the new AAVEnomics.
A slashing hook is an additional slashing action happening in parallel or after the “primary” slashing (staked aToken on Umbrella), for a percentage of the primary slashed value. In the context of stkAAVE/stkABPT, the idea would be to, after an slashing event occurs in the aToken/stkGHO modules of Umbrella, extra slashing would happen in also in stkAAVE/stkABPT for a percentage of the principal, but not to sell AAVE/stkABPT and cover bad debt, but to refill the AAVE Ecosystem Reserve, creating a feedback loop of rewards sustainability.
A practical example would be the following:
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Some USDC bad debt is accrued in Aave, for value of 20’000 USDC.
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stkaUSDC is slashed on Umbrella for 20’000.
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As stkaUSDC on Ethereum has configured a slashing hook with stkAAVE and stkABPT of 10%, 2’000 USDC value in stkAAVE and stkABPT will be slashed and send to the AAVE Ecosystem Reserve.
Advantages of this idea compared with both the existing Safety Module and the non-slashable AAVE/stkABPT on this proposal are the following:
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No sell pressure is created on AAVE if any slash happens, with the funds just getting transferred to the DAO, while the aTokens/GHO from Umbrella are the only assets used to cover the bad debt.
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As long as the slashed AAVE/stkABPT are not needed for incentives, this mechanism is similar to the “buy back” proposed.
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As on the current Safety Module, by having risk associated with stkAAVE and stkABPT, stakers (applicable for stkAAVE, but potentially for stkABPT in the future) have more incentive to participate responsibly in governance, leading Aave to the safest possible direction.
To be transparent with the community, this mechanism would be introduced after the activation of the main Umbrella, given that technically it is a completely different system built on top of it. But we think it is a potentially valuable direction to discuss over.