Proposal: Make deposited $AAVE -> $aAAVE to earn interest (staking $AAVE in the backround)

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The discussion revolved around the proposal of using AAVE tokens to create aAAVE for earning interest through staking, but concerns were raised about the risks, especially with the upcoming "slashing" mechanism in the Aave Safety Module. The consensus leaned towards a conservative approach in using StkAAVE as collateral, considering the potential risks, and the need for it to be in a separate money market within the Aave Protocol to avoid circular risk.

The discussion was initiated by PaulPrec who proposed the concept of using AAVE tokens to create aAAVE, which could earn interest through a staking contract, effectively nullifying borrowing costs1. However, Zer0dot highlighted the different risk profile associated with staking AAVE, particularly with the upcoming introduction of the "slashing" mechanism in the Aave Safety Module (SM). This mechanism could potentially lead to up to 30% of the staked AAVE being sold on the open market in a shortfall event2.

Stani concurred with the idea of using StkAAVE as collateral, but emphasized the need for it to be in a separate money market within the Aave Protocol due to the circular risk. He also stressed that the Safety Module should not cover this money market as it would undermine its purpose3. Chevis added that earning interest on an asset that cannot be loaned out presents potential risks4.

Dydymoon proposed a solution to the risk issue, suggesting that if StkAAVE is used as collateral, it should be for something like 15-30% LTV. He reasoned that this would maintain a good Health Factor (HF) as the collateral is growing over time5. The discussion concluded with a general consensus on the need for a more conservative approach when dealing with StkAAVE as collateral, taking into account the potential risks associated with the "slashing" mechanism.

Posted 3 years ago

Last reply 3 years ago

Summary updated 2 months ago

Last updated 03/12 08:01