In this piece I will share my thoughts on the recent ARC posted on the Aave governance forum that touches on some important upgrades to the Safety Module.
Introduction to the Safety Module
But first, a short introduction to the Aave Safety Module, from the Aavenomics paper: “The primary mechanism for securing the Aave Protocol is the incentivization of AAVE holders to lock tokens into a Smart Contract-based component called the Safety Module (SM). The locked AAVE will be used as a mitigation tool in case of a Shortfall Event within the money markets that belong to the Aave ecosystem. A Shortfall Event occurs when there is a deficit. The interpretation for the occurrence of a Shortfall Event is subject to the Protocol Governance vote, detailed in Governance.”
This ARC proposes two main changes to the current Safety Module (limited) functionality:
1. It introduces slashing for