Aave Releases Activation Proposal For ‘Umbrella’ Security Module Using aTokens Staking Mechanism
In Brief
Aave announced plans to launch the Umbrella upgrade in the near future, with BGD Labs ready to activate the module.
Decentralized finance (DeFi) lending protocol Aave announced plans to launch the Umbrella upgrade in the near future, with the Aave contributing organization, BGD Labs, ready to activate the module.
One of the key components of Aave’s decentralized autonomous organization (DAO) is the Aave Safety Module, a system that currently allows users to stake assets like AAVE, stkABPT (Balancer AAVE/wstETH LP token), and GHO to earn rewards. However, there is a potential risk of slashing if these staked assets are needed to cover any bad debt within the Aave liquidity pools.
The Aave Umbrella upgrade represents a evolution of this system. Instead of staking AAVE and stkABPT, users will stake Aave v3 aTokens, such as aUSDC or aUSDT, to earn rewards while also assuming the risk of slashing. Aave aTokens are considered the most suitable asset to cover bad debt in the Aave pools, as they only need to be burned in case of such a scenario, unlike AAVE or stkABPT, which would need to be sold.
Moreover, Umbrella introduces an objective system that triggers slashing based on the existence of bad debt (referred to as a deficit) on the smart contracts of Aave’s pools, rather than relying on governance decisions or other subjective mechanisms. Lastly, the on-chain rewards management system of Umbrella is designed to be both flexible and fair for stakers, while prioritizing capital efficiency in the DAO’s budget management.
Umbrella Upgrade: Introducing New Staking System To Enhance Protocol Safety And Streamline User Experience
Umbrella will replace Aave’s current Safety Module with a new system that uses aTokens as staking assets. In the event of bad debt, the system will automatically burn the staked aTokens to cover the losses, removing the need for governance intervention.
Once Umbrella is launched, the Aave decentralized application (dApp) will introduce a new tab named “Umbrella,” where users can access a variety of aTokens available for staking. Users will be able to stake their aTokens with Umbrella, provided there are no existing borrowings against them.
By staking with Umbrella, users will take on the risk of slashing while contributing to the overall safety of the protocol, earning rewards in return. These rewards, determined by the Aave DAO, will be visible in the Aave dApp UI. The interface will allow users to interact with the Umbrella smart contracts, enabling actions such as staking, activating cooldowns, unstaking, claiming rewards, and viewing aggregated data related to their staking positions.
Although the Aavenomics proposal will introduce changes to stkAAVE and stkABPT, Umbrella operates independently, so users holding these assets will not need to take any action. For stkGHO, the migration process will be straightforward: users can withdraw from the legacy stkGHO and stake in Umbrella’s Staked GHO.
BGD Labs Outlines Guidelines For Activating Umbrella
Implementing the Umbrella system into Aave involves several decisions that require approval from the DAO. Technically, Umbrella can be activated across all networks hosting Aave pools, as it is dependent solely on Aave v3.3 being enabled, which is already the case for all networks where Aave operates.
In practice, however, Aave recommends starting with a select group of networks for the first 2-3 months. This will allow service providers to become familiar with the operational aspects of Umbrella, such as Target Liquidity modeling and rewards management, before scaling it further.
For assets, Aave suggests initially focusing on a small group of assets in the selected pools that are highly borrowed and could potentially create a deficit in certain positions.
Since Umbrella requires some time for minimal setup, Aave advises keeping slashing active for stkAAVE and stkABPT until Umbrella liquidity reaches its Target Liquidity, or even acceptable levels, if the target is not met.
However, the situation with stkGHO is different, as Umbrella should have a StakeToken instance for GHO staking from the beginning. Therefore, Aave recommends removing slashing and cooldown from the current stkGHO system and moving rewards to the new Umbrella Staked GHO. This will allow all stkGHO holders to migrate smoothly, without encountering any barriers.
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About The Author
Alisa, a dedicated journalist at the MPost, specializes in cryptocurrency, zero-knowledge proofs, investments, and the expansive realm of Web3. With a keen eye for emerging trends and technologies, she delivers comprehensive coverage to inform and engage readers in the ever-evolving landscape of digital finance.
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Alisa, a dedicated journalist at the MPost, specializes in cryptocurrency, zero-knowledge proofs, investments, and the expansive realm of Web3. With a keen eye for emerging trends and technologies, she delivers comprehensive coverage to inform and engage readers in the ever-evolving landscape of digital finance.
