The discussion revolved around the proposal by Brian-set to introduce support for a new Set Protocol market in Aave 2.0, which would allow the use of SetTokens as collateral and currency. The first asset to be supported by this market is expected to be the DeFi Pulse Index (DPI), with others to be added later¹. Set Protocol is an Ethereum-based protocol that enables on-chain asset managers to create and run asset management strategies. DPI is a SetToken that represents a basket of the top DeFi projects and has significant borrow demand, low volatility, efficient sector representation, and liquidity via primary and secondary markets¹.

However, the proposal also highlighted the risks associated with Set Protocol, including smart contract risk and counterparty risk. The smart contracts have been audited by several firms and the DPI has been functioning securely since its launch. The governance over the Index Cooperative, which makes decisions regarding the index composition and the rebalancing process, is decentralized¹. Market risk is also a concern as DPI is backed by the component ERC20 assets, leading to exposure to the market risks of the underlying tokens¹.

The discussion also touched on the proposed interest rate model and DPI risk parameters, which were based on the rates of DPI's component assets on the main Aave market, with adjustments made to reflect the lower volatility of DPI¹. The proposal received support from several community members, including BigMike, Drew, and Cryptofsa^2,3,4. Brian-set also outlined the proposed governance of the Set Market, stating that AAVE will always have a role in governance of the market and all governance decisions will be delegated to AAVE. A proposed fee split of 70/30 was suggested, with AAVE receiving the majority share⁵. The discussion ended with Zer0dot asking about the intended Reserve ratio and which fee was being referred to in the fee split⁶.