The current TEMP CHECK aims to onboard EIGEN, the native token of Eigenlayer, in Aave V3 Ethereum Market. This onboarding will allow Aave users to supply and borrow EIGEN, thereby enhancing the utility and liquidity of the Eigenlayer token within the DeFi ecosystem and more specifically, within the Aave ecosystem.
Motivation/Background:
Eigenlayer is a protocol focused on shared security and restaking, enabling Ethereum stakers to extend their security guarantees to multiple services and protocols. EIGEN is the governance and utility token for Eigenlayer, playing a critical role in the network’s operations, staking mechanisms, and protocol governance. By onboarding EIGEN to Aave V3, we aim to create new opportunities for Aave users to engage with this emerging staking ecosystem, while expanding EIGEN’s liquidity.
Benefits of listing that token:
Provide opportunities for Aave users to borrow against their EIGEN to unlock liquidity, or alternatively to borrow EIGEN against other collateral allowing them to stake it in the Eigenlayer ecosystem to earn rewards.
Market Impact:
We see no significant market impact from onboarding EIGEN except for providing new opportunities to Aave users which may cause users to switch from borrowing other tokens against their collateral. Overall we see onboarding EIGEN as net good for Aave users as it expands opportunities for them to engage in a new, important ecosystem.
Chain to be deployed/listed:
Ethereum Mainnet
Proof of Liquidity (POL) and Deposit Commitments:
POL and Deposit Commitments will be discussed at the ARFC stage.
This proposal is powered by Skywards. The Aave Chan Initiative is not directly affiliated with Eigenlayer Foundation and did not receive compensation for creation this proposal.
ACI and ACI employees may be holders of EIGEN.
Next Steps:
If consensus is reached on this TEMP CHECK, escalate this proposal to the Snapshot stage.
If the Snapshot outcome is YAE, escalate to ARFC stage.
Publication of a standard ARFC, collect community & service providers feedback before escalating proposal to ARFC snapshot stage.
If the ARFC snapshot outcome is YAE, publish an AIP vote for final confirmation and enforcement of the proposal.
There’s very little historical demand to use governance assets as collateral in DeFi. EIGEN is already used as collateral in other venues, with little to no traction observed.
Assets primarily used as collateral require increased scrutiny, as their failure can create bad debt. Each addition involves carefully balancing the added risk of a new collateral and its business potential in terms of revenue for this DAO. As shown in (1), this potential seems low at the moment, especially with no particular alignment demonstrated.
We currently feel The Eigen Foundation is more focused on checking a box and tweeting “we are on Aave” rather than building a long-lasting, successful, mutually beneficial relationship.
We are eager to be proven wrong through concrete commitments on this and are prepared to adjust our position accordingly.
This asset is very nascent, and volatility risk is to be expected. Similar governance asset price action over the past 18 months suggests that users leveraging EIGEN as collateral may face liquidation if the trend continues. This means secondary markets and liquidity need to be efficient, and this should be reflected in risk parameters at the ARFC stage.
The Eigen ecosystem has shown close proximity to non-aligned actors. At this stage of the proposal, we do not consider Eigen’s commitment to aligning with the Aave DAO and its business opportunity sufficient to warrant an exception to our Voting Alignment Doctrine.
As such, we will cast an ABSTAIN vote at this stage of the proposal.
We welcome any positive adjustments and are fully prepared to change our vote to YAE if given the opportunity.
The ACI position will not impact ACI service provider actions. This proposal has full Skyward support, and we commit, regardless of our vote, to provide the most seamless governance procedure experience to Eigen, as we do for anyone requesting our services.
This is a very interesting proposal. Currently, the EIGEN token is still very volatile and nascent having just started trading on Oct 1st. We think that if EIGEN were to be listed, it should have very conservative parameters until the price stabilizes and is utilized as planned.
In the near future, EIGEN will most likely be used to secure a wide variety of AVS, creating a sink for the token. We believe this bodes well for the future value of EIGEN and we expect that in the case that this vote passes we can revisit parameterization in the future should EIGEN indeed strengthen.
Using governance tokens as a collateral is quite an appealing use case (which I have personally used over the years while interacting with the Aave Protocol) and was also considered as one of the use-cases when the protocol was designed.
Governance tokens in overall do come with higher risk profile compared to assets that are established over the years (same compared to stable assets).
That being said, I do believe that over time asset listing within the Aave Protocol should become permissionless, and the actual supply cap / borrow caps can become a more important factor to adjust the asset’s utility within the protocol. Another strategy is to create an emerging market with governance tokens and stablecoin aTokens supply with higher RF where Proof of Liquidity can be applied to accelerate growth towards main market.
The main fundamental problem even with low caps listing currently is that the Aave Protocol V3 does not recognize borrowing costs based on the risk composition of the underlying collateral assets. This means that it’s fairly challenging to meet the risk/reward for listing governance tokens (especially in their early stage of inception). Each borrower pays the same amount of the interest on USDC regardless of their risk composition. In Aave Protocol V4 the liquidity premiums would solve this pricing issue and would ensure that the governance tokens, even if listed with low caps, borrowers would pay their fair share to the Aave DAO for the discounted liquidity of the asset. For now it makes sense that governance tokens have a higher threshold to get listed on Aave.
In regards to EIGEN specifically, I do think its too early to list the asset, but would be interested in supporting the proposal as the secondary market liquidity improves and EIGEN ecosystem matures in the upcoming months.
I do not particularly like the idea of telling third parties who they can or cannot work with to get support. DeFi is built to be an open and collaborative space and would like to embrace that vision. That being said, I do think that the closer and more attention Eigen Foundation (and Labs and their ecosystem) works with Aave DAO, the more reasons there are for treating EIGEN as first class citizen within the community as the asset is maturing.