[Proposal] Increase AAVE capTier from cap5 to Uncapped ($100M -> Uncapped)

This is a proposal to raise the liquidity mining cap from $100M to uncapped for $AAVE

The Proposal

After the activation of the Balancer Based Safety Module 20 Days ago, the liquidity for $AAVE quickly grew to be the Largest Balancer protocol Liquidity Pool as new LPs join the AAVE/BAL incentivized Safety Module.

Current APY by staking in the Safety Module is 29.34%, only considering the AAVE rewards, The Pool is still growing and Balancer is now the best protocol to swap AAVE onchain.

As BAL is a collateral option in Aave, aBPT stakers can use their BAL rewards to unlock more borrowing power in the Aave Protocol.

Uncapping the BAL rewards for the AAVE/ETH pool will allows even further incentive to bring more liquidity onchain and increase the synergies between the Aave & Balancer protocols.

What is The Safety Module?

The Aave Safety Module acts as a collateral for the whole Aave ecosystem. AAVE holders, and now - with the new Balancer Based Stake - AAVE/ETH holders benefit from long term rewards for securing the protocol from insolvency, while at the same time bearing the risk of being slashed in case of shortfall events.
Having a very liquid onchain market and a consistent capital allocated in the Safety Module greatly increases the safety of the Aave ecosystem and the Aave protocol liquidity providers.

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Thank you, Marc! We will put this to a vote at the end of the week during our usual Thursday-Sunday Snapshot slot.

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I would love to know what was the community concern regarding this proposal, given the contribution that the Aave safety module is giving to the Balancer protocol in terms of TVL and fees and the ongoing collaboration between the two communities

I personally voted to approve the increase, but I’m willing to bet that most BAL holders were uncomfortable distributing such a large percentage of our fixed token budget to AAVE pools. I think most prefer to spread the token distribution a bit wider for decentralization of governance power and to boost their own personal liquidity mining returns.

Remember, this proposal benefits AAVE pools at the expense of all other Balancer pools; it’s a zero-sum game. Of course, that’s an over-simplification; it doesn’t just benefit AAVE LPs. It also brings liquidity and volume to Balancer which can benefit all BAL holders. But that’s more of a second-order effect which is harder to gauge and doesn’t feel as immediately satisfying as liquidity mining APY. Probably, the psychology for most BAL holders favors the tangible APY over the intangible second-order effects.

But the rest of the community should feel free to chime in with their own opinions; I do not speak for them!

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I voted against. I am in the AAVE/WETH pool, but more heavily in BAL/WETH and BAL/WETH/WBTC.

I really like AAVE and I think that incorporating Balancer into the safety module is a fantastic idea, I also think it’s great that the two projects are learning to integrate each other’s services into their own respective models. However, I am not willing to make the short term sacrifice of reducing my APY just yet. I believe BAL has a lot more upside and I think it is wise for those of us that really believe in Balancer and actively partake in Governance votes to protect our APY at least until we collectively believe BAL has found a more “fair value”.

I would also note (this is not an accusation) that it could be interpreted that AAVE is attempting to supplement it’s stakers’ falling APY at the expense of BAL LPs, instead of at the expense of it’s existing token holders / token model, especially considering that this is something of an insurance fund. So I would advise caution on the optics here.

Further to this point; for all I know higher cap AAVE LPs might have no interest in BAL governance and sell their tokens frequently to lock in gains, potentially causing downwards price pressure. If AAVE is uncapped and those LPs begin pulling in more BAL and selling them regularly, this would be at my expense. So, I would consider Balancer (as a community) to have acted against its own interests and begin to reconsider my position.

Like I say, when BAL achieves a price that I consider to be more reflective of it’s “real” value, I will consider voting in favour of an increase to the capTier, but I would also suggest that AAVE may need to reconsider the proposed concessions to Balancer / BAL LPs if they wish to move to uncapped in the near future.

  • Could the Balancer and AAVE dev teams perhaps collaborate to implement some kind of option to stake BAL/WETH BPT against the AAVE Safety module? (just putting my thoughts into text)

Again, big AAVE fan, but just protecting my own neck.

Edit: Also, I would note that aBPT stakers aren’t afforded Governance voting power as it stands. Will this be addressed?

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This is an interesting perspective and thanks for this comment.
Regarding the following

```I would also note (this is not an accusation) that it could be interpreted that AAVE is attempting to supplement it’s stakers’ falling APY at the expense of BAL LPs, instead of at the expense of it’s existing token holders / token model, especially considering that this is something of an insurance fund. So I would advise caution on the optics here.````

It’s true that the AAVE APY is falling, mostly because the pool is becoming huge. You would agree with me that a bigger pool produces many advantages for Balancer, in terms of pure TVL, volume generated and revenue, which all contribute to put in better perspective Balancer as a protocol and BAL as a governance token. By implementing proof of liquidity, the Safety module could become the most important entry point to trade AAVE, which would be amazing given its trustless and decentralized nature and give huge exposure to balancer. AAVE has a trading volume of > 500M a day.
This doesn’t mean i don’t understand your point - being a zero sum game, there are different forces in place.

Further to this point; for all I know higher cap AAVE LPs might have no interest in BAL governance and sell their tokens frequently to lock in gains, potentially causing downwards price pressure. If AAVE is uncapped and those LPs begin pulling in more BAL and selling them regularly, this would be at my expense. So, I would consider Balancer (as a community) to have acted against its own interests and begin to reconsider my position.

Fair point, but i don’t understand why this reasoning would be different for AAVE than any ETH or WBTC holder. Actually given the ongoing collaboration between the two communities, the exact opposite can be true as well.

but I would also suggest that AAVE may need to reconsider the proposed concessions to Balancer / BAL LPs if they wish to move to uncapped in the near future.

    Could the Balancer and AAVE dev teams perhaps collaborate to implement some kind of option to stake BAL/WETH BPT against the AAVE Safety module? (just putting my thoughts into text)

The AAVE/ETH step was part of the Aavenomics proposed in Q3 last year by the genesis team and voted by the community. This has now been executed, and how to proceed from here is up to the community. Technically speaking, the safety module has the capability of supporting any asset/LP share, including BAL/ETH - and there was discussion in the governance forum regarding derisking AAVE in the safety module by adding other assets. Would be great if you could start brainstorming about this in our governance forum!

Edit: Also, I would note that aBPT stakers aren’t afforded Governance voting power as it stands. Will this be addressed?

Yes, the last step from here is giving back gov power to stkaBPT holders by submitting a proposal to the aave governance.

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