Thanks to the ACI, BGDLabs, and all contributors for this well-structured and thoughtful proposal. We are aligned with the proposed changes to Tokenomics and the Aave safety module.
Here, we would suggest implementing an “Insurance factor” to markets in addition to the existing reserve factor. Insurance factor revenue would go directly to the respective aToken safety module holders. The reasons we prefer this over utilizing the RF for rewards are as follows:
- As Aave begins distributing profits, it is crucial to maintain a focus on profitability. By utilizing an additional insurance factor to pay Umbrella stakers, Aave ensures the RF revenue is not diluted.
- While suppliers earn slightly less APY, this is justified given the increased security provided also reduces their risk. For example, adding a 5% insurance factor on USDC markets would decrease supply APY from 5.31% to 5.02%.
- Users that are utilizing Aave to earn yields on their assets still have the ability to stake in the respective umbrella aToken market and earn higher APY than previously possible.
Below are estimations of Umbrella aUSDC APY with the addition of a 5% Insurance Fund. If these were funded through the RF, it would cost the DAO 50% of its USDC RF revenue ($4.7m per year).
