[aAAVE] MIP6 Collateral Onboarding Application for aAAVE

Hello MakerDao community, Happy to share today this aAAVE collateral onboarding application, Let’s build more bridges and find new synergies between DeFi protocols!

1. Who is the interested party for this collateral application?

@Marczeller

2. Provide a brief high-level overview of the project, with a focus on the applying collateral token.

The Aave Protocol users can participate as depositors or borrowers. Depositors provide liquidity to the market to earn a passive income, while borrowers are able to borrow in an overcollateralized (perpetually) or undercollateralized (Flash Loans) fashion.

The AAVE token is a governance token and the center of gravity of the Aave protocol, with the ARC/AIP process, Aave token holders are in direct control of their Aave protocol : Assets onboarding, risk parameters updates, rewards schedules among others.

The Aave protocol is protected by the Aave Safety Module, a ~2B$ protection fund, managed by the AAVE stakers accepting the risk of slashing to protect the Liquidity providers of Aave and act as a layer of defense if case of a shortfall event.

The aAAVE asset is a 1:1 ratio IOU token representing an AAVE deposit into AAVE.

The AAVE protocol currently holds ~1.1B$ of AAVE and thus there’s a ~1.1B$ circulating supply of aAAVE.

As AAVE is already a MCD collateral, onboarding aAAVE will allow more composability and synergies between MakerDAO and Aave.

There’s a good probability that the AAVE liquidity providers would be interested in having an “additional credit line” with MakerDAO and would be keen to arbitrage the premium between DAI SF and DAI Supply/Borrow rates on Aave.

This proposal is also part of a larger project with StakeDAO to create a Dedicated vault to arbitrage the returns on the Curve Aave pool and the Makedao SF on ETH, AAVE and potentially aETH & aAAVE.

This passive strategy Vault has the purpose to stimulate minting demand for DAI and increase liquidity in both Curve and Aave protocols.

3. Provide a brief history of the project.

Aave is the upgraded revamp of the fixed-term lending platform ETHLend launched in 2017.

Aave deployed a decentralized Liquidity Protocol based on pooled liquidity and open-end variable and stable rates loans.

Aave democratized the concept of single-transaction loans (Flash Loans) leveraging on transaction atomicity enabled by the EVM.

Aave launched in early Jan 2020 and reached the 2nd position of the DeFi ecosystem at ~5B$ market size.

4. Link the whitepaper, documentation portals, and source code for the system(s) that interact with the proposed collateral, and all relevant Ethereum addresses. If the system is complex, schematic(s) are especially appreciated.

7. How is the applying collateral type currently used?

aAAVE currently allows users to use them as collateral at a 50% LTV (65% liquidation threshold) to borrow Assets on Aave.

8. Does one organization bear legal responsibility for the collateral? What jurisdiction does that organization reside in?

aAAVE tokens are permissionless assets, with no legal issuer or freeze/blacklisting functionality.

9. Where does exchange for the asset occur?

aAAVE can be exchanged for AAVE at a 1:1 ratio without slippage at anytime permissionlessly via the withdraw()method of the Aave LendingPool contract and front end UI. AAVE assets are traded on a wide variety of decentralized and centralized exchange venues.

12. (Optional) List any possible oracle data sources for the proposed Collateral type.

aAAVE being a liquid 1:1 IOU for AAVE, AAVE MakerDAO oracle can be used for this purpose

Disclosure:

I hold AAVE, aAAVE tokens and am a participant in Aave governance and member of the Aave Genesis Team.
I Hold CRV and veCRV tokens and am a participant in Curve governance
I hold SDT tokens and am a participant in StakeDAO governance.

This collateral application is for informational purposes only, and does not constitute advice of any kind.

Copyright and related rights waived via CC0.

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For context, adding the proposal made on StakeDAO side :

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Thanks for sharing this here. Is it possible to get a visual of the mechanics of the wind-down? I know Yearn had some issues with potentially trying to pull liquidity from Curve when it wasn’t available for one of their Vault strategies. It would be good to see where potential liquidity traps are in the process, if there are any (I imagine some of the new stablecoin facilities added to Maker can help with this).

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