In this video we walk through our recent Aave governance proposal. The first 12 minutes provide a high-level summary of our proposal whereas the next 23 minutes dive into more of the detail and specifics.
We believe this proposal is important because it moves Aave from being a credit facility to becoming a true credit protocol where users can permissionlessly come together to launch, govern and manage money markets.
It does this by eliminating the system-wide safety pool and replacing it with sharded safety pools in the form of aaveDAOs (aDAOs). Each aDAO governs its own money markets and underwrites the specific risks associated with those money markets. Crucially, while the aDAOs govern and backstop risk for their own money-markets, the user always interacts with the Aave front-end and smart contracts. Aave thus controls the user relationship and TVL, increasing fork-resistance and network effects.
With complexity being abstracted away from end-users, we feel this will result in a better product for users as Aave can move faster and offer a greater variety of insured money markets. Not just this, the potential costs of failed innovation are reduced as risks are siloed and contained among those who are willing to bear them and appropriately rewarded for doing so ($aDAO holders). Capital efficiency is also improved as Aave holders have access to a variety of yield opportunities based on their specific risk-reward profile.