[1IP 27] Allocate 1M USDC stables in treasury to lending pool on AAVE V3

2.1 General Proposals
1

author: @DAOplomats.eth (@Baer, @jengajojo )

Simple-summary

This proposal suggests allocating 1M USDC of the current USDC balance into AAVE V3 to generate passive yield.

Motivation
~95% of the current 1inch DAO treasury is in USDC, earning exactly 0% interest or fees. The only source of income is the 1inch DEX. At the same time, there is ~15.5M USDC which could potentially generate income for the DAO with relatively low risk. The current average variable yield in AAVE markets is between 1-2%

Specification

What is lending and borrowing?
https://www.youtube.com/watch?v=aTp9er6S73M

**AAVE V3 **
Aave is a decentralised non-custodial liquidity protocol where users can participate as depositors or borrowers. Depositors provide liquidity to the market to earn a passive income, while borrowers can borrow in an overcollateralized (perpetually) or undercollateralized (one-block liquidity) fashion.

Expected Yield
The current average variable yield in both markets is between 1-2%, which means that the DAO can potentially earn between ~ 6000 & ~12000 USDC per month.

Why AAVE?
The AAVE team has been building since 2017 and the contracts have hosted one of the highest TVLs in DeFi at the moment. This makes depositing in AAVE V3 relatively less risky than any other lending/borrowing protocol.

Considerations

There are several ways to earn yield on idel treasury assets such as:

Yield Farming on yield aggregators such as Yearn.Finance

In this approach, tokens are deposited into contracts which run the best risk-adjusted farming strategies to earn native tokens, which are swapped back to the original token. This strategy’s upside is that yield is farmed automatically and is independent of market activity; however, this comes with slightly higher smart contract risks than the other two options. Another con here is that the Yearn.finance team is completely anonymous, which can be considered a con in some cases

Being a liquidity provider on DEXes

As highlighted in the Stablenode proposal, being a liquidity provider for the native token has several advantages and disadvantages. Since this strategy is already being proposed in another RFC we won’t dive into the details here. The only con we see here is that to provide a significant proportion of the treasury to LPing would mean taking on losses in the form of slippage on top of the risks mentioned in the proposal.

Depositing into a Lending pool

Based on the analysis provided in this proposal, we suggest that depositing in lending pools is the best risk-adjusted strategy for a large treasury allocation. In the current approach, there is no need to do any other complicated swap resulting in slippage or engaging in unnecessary smart contract risks.

Risks and Disclaimers:
AAVE Audit reports

  1. https://consensys.net/diligence/audits/2020/09/aave-protocol-v2
  2. https://docs.aave.com/developers/deployed-contracts/security-and-audits

DAOplomats will monitor the position and provide an update to the DAO regularly

6 Likes
2

Time to start a temp check?

3

Thanks for suggesting this. It fell under my radar so I’ve got around to this now.I agree that utilising our stablecoins is a great way to earn yield, especially using battle-tested protocols but there seems to be some vagueness surrounding the proposal.

  1. Could you specify why you have opted for Aave V2 over Aave V3?
  2. Would we deposit USDT or DAI as well? Why only USDC?
  3. Are there any stats on the APY for the past year or so, that you can share?
  4. What are the security risks in using Aave?
1 Like
4

Since you are now opting for v3, could you share some of the audits and any security considerations that 1inch DAO should know before depositing into Aaves’ lending pools.

Morpho-Aave is another option. An increased APY due to the P2Peer matching system on top of Aaves underlying liquidity. They aren’t as battle-tested, which can cause concern about depositing $2million there.

5

Hey everyone,
As Bobby suggested, Morpho-Aave could be an option.
At MorphoLabs we are developing the lending protocol Morpho (morpho.xyz), a peer-to-peer layer on top of lending pools like Aave.
Rates are seamlessly improved for suppliers and borrowers while preserving the same liquidity and risk parameters.
So far Morpho has +$600M worth of deposited assets.

Feel free to ask any question, we are more than happy to provide more details.

2 Likes
6

Hey @Bobby_StableLab, thanks for the reply

  1. Our original proposal is more than three mounts old, and back then, the V3 wasn’t deployed on ETH mainnet.
    We weren’t degen enough to have a multichain proposal to bridge the stables over to an L2 or sidechain from the treasury, which is deployed on the ETH main net. But since Aave V3 is deployed on the main net lately we have made a new temp check to change V2 to V3.
  1. using USDC has a good rationale 1. in our treasury USDC has the highest allocation with 15M, and we aren’t ready to market buy USDT (≈171.6K AUM now ) or DAI ( ≈104.5USD AUM now) 2. the reason USDC has the highest yield on V3 as of 05.03.23 (17:00CET), we are also ready to actively manage the allocation and rebase to the USDC or DAI in the future if the DAO wants that!

3.&4 I can’t share any Yield info from prev year due to the reason I mentioned in 1.
Aave is thoroughly audited. Attaching a security report for further reading to drive your conclusions

7

This proposal is moving to snapshot soon and the vote will start on 15.05.23 monday

8

[
{
“to”: “0xA0b86991c6218b36c1d19D4a2e9Eb0cE3606eB48”,
“value”: “0”,
“method”: “approve(address,uint256)”,
“params”: [
“0x87870Bca3F3fD6335C3F4ce8392D69350B4fA4E2”,
“1000000000000”
],
“operation”: 0
},
{
“to”: “0x87870Bca3F3fD6335C3F4ce8392D69350B4fA4E2”,
“value”: “0”,
“method”: “supply(address asset, uint256 amount, address onBehalfOf, uint16 referralCode)”,
“params”: [
“0xA0b86991c6218b36c1d19D4a2e9Eb0cE3606eB48”,
“1000000000000”,
“0x7951c7ef839e26F63DA87a42C9a87986507f1c07”,
“0”
],
“operation”: 0
}
]
Snapsafe payload

1 Like
9

Here is a Tenderly simulation of the transaction created by @Belac : https://dashboard.tenderly.co/public/safe/safe-apps/simulator/7763610b-52eb-4c1b-9882-1bd577723837.

10

This proposal has been executed: https://etherscan.io/tx/0x82178d4fffc39ef0eacc327e70ad3456107caeb4c27758db8e7e8926abf0fb0c

1 Like
12

We would like to provide a minor update to the proposal,

The DAO allocated around 1,000,000 USDC to the Aave protocol on May 30, 2023, earning around 51,988 in yield. Netting around 5.1% yield over the previous 11 months, the allocation is currently earning around 10% yield.

Track DAO treasury at: https://app.palmeradao.xyz/dashboard/1inchDAO
and the position using https://community.chaoslabs.xyz/aave/risk/wallets/0x7951c7ef839e26f63da87a42c9a87986507f1c07