In a largely festive community dial Dedicated in part to commemorating the lending protocol of Aave’s “Aaveversary” January 8 – a full year of Aave on Ethereum mainnet – there was also a look at Aave’s possible future: a proposal from Delphi Digital to fundamentally reinforce Aave’s security module. change and create a new insurance product offering.
Currently, holders of $ aave governance tokens can deploy their tokens in the Safety Module, a liquidity pool designed to help insure the protocol against a “shortage event” such as a smart contract operation. Strikers risk up to 30% of the money they put in the module, but earn a return on it (currently 4.66%). The pool of the Safety Module has been recruited nearly $ 375 million in deposits, easily the largest decentralized insurance fund of its kind.
According to Jose Maria Macedo and Jonathan Erlich, partners and analysts at Delphi Digital respectively, this current system has a number of shortcomings. For example, the security module covers the entire platform, which means that it is difficult to determine the market need for coverage; there are additional systemic risks with every new project listed on Aave; and Safety Module depositors cover all projects with different individual risk levels at the same rate.
The Delphi Digital proposal aims to overhaul the Safety Module system and create a market-based solution to these shortcomings.
“In our most recent proposal, instead of the insurance being bundled with all deposits, it is instead being offered as a separate demand-side product,” Macedo and Erlich said in an interview with Cointelegraph. “This makes it possible to accurately calculate coverage demand and capacity, and thus price risk, using market mechanisms.”
Their proposal would add an option for depositors to have a covered deposit or an unsecured deposit, with the covered deposits offering a lower interest rate to account for the cost of the insurance. This would allow the development of a more robust and complex market between Safety Module strikers operating across different risk tranches and depositors who can make their capital more efficient. decide what level of insurance they need.
“We believe [this] design is more efficient because instead of imposing a uniform insurance cost across all Aave money markets, it can independently price each asset based on the specific risks involved, ”said Macedo and Erlich.
Perhaps most excitingly, this system could become a “general insurance product” from Aave, designed to compete with projects such as Cover and Nexus Mutual.
“With existing insurance solutions, users need to purchase coverage in advance that entitles them to insurance according to a specific protocol for a specific period of time (usually a minimum of 6 months). With DeFi’s current state, most users don’t know where their capital will be next week, let alone six months from now […] With our architecture, users only pay for the insurance while using it and completely eliminates the buying / selling process. “
VCs in DAOs?
The proposal is not only notable for potentially introducing an entirely new product line to the Aave ecosystem, but also for whoever designed it: while Delphi Digital offers research and consulting services, they also have a venture capital wing.
Due to their open, consent-less nature, DAO-managed projects like Aave can accommodate all kinds of members, including VCs. However, many observers have criticized projects for this raising venture capital money before decentralizing governance, and believe that the influence of centralized entities may run counter to the vision and goals of a wider community.
In the case of Delphi, they may show how virtual currencies can help move a project forward.
“Capital is abundant in cryptocurrencies and when we invest in a project, our goal is never to invest just money, but also the intellectual capital of our team and the time to move it forward,” said Macedo and Erlich. “We are currently working on multiple proposals and are long behind on ideas for proposals and changes that we want to make to others.”
While this type of activism will undoubtedly benefit Delphi’s profits, it’s also a bigger gamble for the future of DAOs in general.
“In terms of DAOs, we see them as the next evolution in human coordination. In the long run, we think the long tail of organizations will be structured as DAOs, leveraging their internet-native, boundless nature and the efficiency / automation benefits that they provide. “