[aWETH] MIP6 Collateral Onboarding Application for aETH

Hello MakerDao community, Happy to share today this aWETH 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.

Aave is a liquidity protocol where 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 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 aWETH asset is a 1:1 ratio IOU token representing an wETH deposit into Aave.

wETH is a ERC-20 wrapper contract for the native Asset of Ethereum : ETH

The AAVE protocol currently holds ~850M$ of ETH and thus there’s a ~850M$ circulating supply of aWETH.

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

There’s a good probability that the ETH 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. Also aWETH provide some passive income, allowing to gradually increase their collateral factor by having continuously more aWETH deposited in their vault.

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 aWETH & 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?

aWETH currently allows users to use them as collateral at a 80% LTV (82.5% liquidation threshold) to borrow Assets on Aave.

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

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

9. Where does exchange for the asset occur?

aWETH can be exchanged for ETH at a 1:1 ratio without slippage at anytime permissionlessly via the withdraw()method of the Aave LendingPool contract and front end UI. ETH is the native asset of Ethereum and is traded on a wide variety of decentralized and centralized exchange venues.

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

aWETH being a liquid 1:1 IOU for ETH, ETH MakerDAO oracle can be used for this purpose

Disclosure:
I hold ETH and aWETH and I’m a proud participant of the Ethereum Ecosystem.
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 :