Great post – thanks for starting the discussion on asset diversity and slashing parameters.
Two key points I’d like to raise:
1) I think we should consider the safety module not just as a mitigation tool for a shortfall event, but also as a way to optimally allocate $AAVE incentives.
Our two current choices of collateral for the safety module – single-sided AAVE and AAVE/ETH – have direct benefits to the DAO and to tokenholders. In both scenarios, they provide a direct opportunity for Aave tokenholders to generate yield. And with the latter, it also meaningfully increases liquidity for the AAVE token.
While ETH and wstETH are pristine collateral from a security perspective, incentivizing them in the safety module offers no strategic benefit to the DAO. Maybe one could argue that we really should have at least some of it for safety – if that’s the case, totally fine, but we should be thoughtful and only allocate limited incentives (i.e. the bare minimum to achieve whatever level of security we’re aiming for).
On the other hand, liquidity pool tokens that are GHO or AAVE pairs have strategic importance to the protocol. Incentivizing those should be the priority.
2. I think the max slashing should be lower on single-sided AAVE or AAVE liquidity pairs (30%) and higher on non-AAVE collateral (45%-60%).
Was there any reasoning behind the specific 30%/45%/60% tiers described above and the assets assigned to each one? If so, would be helpful to hear.
I understand that the whole reason for the 30% max slashing in the first place was to align incentives – $AAVE token holders would be the ones voting for a slashing event, and $AAVE holders within the safety module would obviously be hesitant to slash themselves. They’d never vote to slash the majority of their own holdings, so it makes some sense to offer a cap and make them more amenable to self-slashing for the benefit of the protocol.
However, ETH or wstETH depositors do not have the same conflict of interest. They are not AAVE depositors. I don’t think we need to (or should) offer the same 30% max slashing cap?
I think the max slashing for non-AAVE deposits would likely need some iteration, since the higher you set the cap, the less depositors you’ll have. This is offset by the fact that you’re potentially slashing a greater % of those fewer depositors (so overall safety dollars may still be higher). There is a point along that curve that would provide the maximum safety, and we’d need some experimentation to find it. That 45-60% range is somewhat arbitrary, but does feel right as a starting point.