This Week’s Forum Threads (August 30th)

Aave’s Shiny New Vendor Process

Aave has proposed a new process that should streamline and increase the quality of their service provider agreements. I will admit that I have recently been disappointed in Aave after the discovery that Aave was potentially carrying a lot of bad debt from CRV-collateralized loans. Aave had provided the founder of Curve with a $63M loan collateralized by $185M of CRV. The problem was that CRV lacked sufficient liquidity to liquidate the amount of collateral used for the position, which would leave Aave and AAVE stakers having to cover the bad debt if the price of CRV fell. Unfortunately, due to an exploit, the price of CRV started to decline, and it looked like Aave would have to liquidate the position. The ensuing liquidation could’ve crashed the price of CRV even further, which would’ve drastically affected the function of Curve itself as it relies on CRV incentives to pay LPs. It looked like the CRV collateral in Aave would spread a contagion that negatively affected the entire ecosystem. To the credit of Gauntlet, a service provider for Aave, they recognized the CRV risk in June. Unfortunately, Aave did not adopt Gaunlet’s recommendations, and the vote was defeated. Six weeks later, CRV crashed, and the position was at liquidation risk.

I was frustrated with Aave’s performance regarding this situation. Aave is a super interesting protocol and has been impressive in many areas. I was dismayed when vendors found the issue, and no action occurred. I know decentralized governance is hugely challenging, and I don’t want to disparage the teams – Curve was probably not seen as a massive issue as Curve was battle-tested and probably seemed low risk. But, Aave pays out millions per year to service providers to watch and mitigate issues precisely like this – in 2022, Aave paid out more than $40M for service agreements. A large part of that was for the development of V3, but $40M is still a ton of money. If I were a token holder, I would be frustrated that this issue still emerged. Hence, I think this forum proposal is important to follow. The proposal outlines a more in-depth and structured process for selecting service providers. These providers must submit competitive bids on pre-determined major budget items rather than more loosely structured proposals. In my opinion, this proposal is the right step for Aave to improve its process around selecting vendors and to spend its treasury funds better.

The Graph Tea Party

The Graph proposes to remove the tax levy on subgraph owners when they publish new versions of their subgraph. Initially, the Graph included a small owner tax to prevent griefing attacks from subgraph owners. Griefing attacks on the Graph would occur if an owner repeatedly publishes new versions of their subgraph – draining curator funds due to the curator tax. Unfortunately, the owner tax has only caused subgraph owners significant friction in updating their subgraphs – they would need to ensure they had sufficient GRT and ETH in their wallets when updating. If the curation level were high, the tax would be onerous, which disincentivizes newer versions of the subgraph. Additionally, the proposal points out that, in general, owners tend to curate their own subgraphs, so griefing attacks are unlikely.

I recommend that readers always watch changes to protocol mechanics, especially when they change incentivized behavior. Removing the owner tax is probably a good move as it allows owners to keep their subgraphs updated better, but it does open the door to potential griefing attacks. As such, readers should be aware of this change, especially if they use the Graph.

Honorable Mentions

  • Aave continues to deepen its involvement with the Balancer ecosystem through a collection of proposals. In particular, Aave is thinking about acquiring AURA for GHO gauges on Balancer.
  • Balancer proposes launching a USDT/USDC/GHO gauge.
  • GMX updates their community on how they have been spending contributor tokens as well as asking for additional funding for another two years. 
  • Mantle, BitDAO’2 L2, has received a proposal to collaborate with [REDACTED] and instantiate a new ecosystem fund and treasury strategy. Interestingly, the treasury strategy highlights using funds to seed liquidity for RWA-yield-backed stablecoins.
  • Venus proposes launching their protocol on Arbitrum.
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