Proposal: Gradual reduction of collateralization ratio via interest payments

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governance.aave.com

TL;DR:

Seccode proposed a new loan type on Aave, allowing borrowers to reduce their collateralization ratio through interest payments, which sparked a debate about potential system gaming and increased risk. While the community sees potential in credit delegation as a risk mitigation strategy, further discussions are needed to fully assess the impact of these changes.

The discussion revolved around a proposal by Seccode for a new loan type on Aave, where a portion of the interest paid by borrowers would contribute to a reduction in their collateralization ratio. This would allow borrowers to take undercollateralized loans as they build credit. The proposal was supported by Tor_GAINS, who suggested integrating it with the Lens social graph. However, Stani raised concerns about potential system gaming through constant borrowing and repayment. He proposed the use of the Credit Delegation feature built into the Aave Protocol and the creation of permissionless Credit Delegation Vaults.

Despite the concerns, Seccode defended his proposal, explaining that the proposed system of collateralization could not be easily gamed as the lender would accumulate a net profit over the course of these efforts. He also agreed that credit delegation could be beneficial for borrowers with a good credit history. However, Eboado expressed skepticism about the proposal, arguing that under-collateralization implemented on the protocol layer would add risk to the system. He suggested that Credit Delegation could solve this issue by moving the risk to the depositor delegating "collateral power".

In conclusion, while Seccode's proposal for a new loan type was met with both support and skepticism, it sparked a productive discussion about the potential benefits and risks of under-collateralization and credit delegation in the Aave Protocol. The community seems to agree that credit delegation could be a viable solution to mitigate the risks associated with under-collateralization, but further discussions and investigations are needed to fully assess the potential impact of these proposed changes.

Posted 2 years ago

Last reply a year ago

Summary updated 2 months ago

Last updated 06/12 00:43