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Delphi Digital cooperated with the Aave team to propose a new Aave token structure, which no longer has one fund pool to manage all markets, but separates capital pools to be managed by their respective markets.
Original title: “New DeFi Gameplay丨An article about Aave’s new token architecture proposal”
Written by: Porridge overnight
In the past few months, the analytics company Delphi Digital has been working closely with the Aave team to help guide the design of Aavenomics and participate in community governance. As part of this work, Delphi Digital proposed a new Aave token Architecture, in theory, it helps to improve Aave’s capital efficiency, innovation, and robustness.
So far, this proposal has been highly recognized by Aave founder Stani Kulechov.
In the field of DeFi lending, Aave, which is constantly innovating, has achieved impressive results. According to its official website, the deposits on the Aave platform have exceeded 1.5 billion U.S. dollars. What’s more impressive is that this is the absence of deployment This means that despite the more attractive yields of other defi lending applications, Aave savings users still choose to stay, which proves the quality of Aave’s products and the community.
However, we will eventually see that the lending business will become a “balance sheet as a service” business. This is a very competitive market because anyone with a balance sheet can effectively promote lending. As we have seen, other large technology companies such as Uber, Amazon, and Google have begun to provide financial services. In the cryptocurrency field, upstarts like CREAM have attracted a group of users by taking more risks. At the same time, projects like Year have also entered the lending field through stablecredit solutions.
Although large lending pools like Aave have certain network effects in terms of their interest rates, their current single, undifferentiated asset pool design also has flaws:
- Inefficient capital, bundling different risks together and providing mixed returns to attract a narrow capital base;
- Impede innovation by increasing the potential cost of failed experiments, because these failures can cause contagion and systemic risks;
- Competitors either introduce incentives to promote vampire attacks, or take greater risks to speed up their actions and add new and riskier products;
New token architecture proposal
The new proposal cancels the system-wide security pool and replaces it with a fragmented security pool in the form of aaveDAO (aDAO). Each aDAO manages its own currency markets and assumes the risks associated with these currency markets.
The aDAO token is minted in a joint curve by locking AAVE as a reserve asset. The AAVE on the joint curve acts as a safety pool and underwrites the risks in the aDAO currency market.
Although aDAO is autonomous, it does not control smart contracts in other currency markets.
Instead, any decisions made by aDAO will be sent to Aave DAO for approval and execution.
This ensures that the lock-up value (TVL) is always consistent with Aave, maximizing the network effect of the entire ecosystem.
As shown in the first figure, the new proposal no longer has a single fund pool to manage all AAVE markets, but separates the capital pools, which manage and support the risks of their respective currency markets.
Crucially, when aDAO is responsible for managing and supporting the risks of its own currency market, users are always interacting with the Aave front-end and smart contracts.
This can ensure that Aave controls user relationships and lock-up value (TVL), improving fork resistance and the network effect of the entire ecosystem.
Since the complexity has been abstracted out and the user experience has been improved, in theory, Aave can develop faster and provide more types of insurance currency markets.
Those who are willing to take risks are isolated and controlled, and are appropriately rewarded (aDAO holders).
We believe that this proposal will promote Aave to become a credit agreement rather than a credit tool. Its goal is to make Aave a platform for launching, developing and managing the currency market and benefit from Aave’s existing network effects and scale.
For the full 32-page report proposal, you can read here .