@llamaxyz.lens is thrilled to propose a revised outlook for the @aaveaave.lens Safety Module to the community.

Following feedback, the strategy was split in 6 posts on the Aave forum.

The summary can be found here, but this post will dive into each topic

governance.aave.com/t/discussion-safety-module/12029/9

The strategy aims to improve the SM design on several aspects, such as:

~ Increase the SM cover value

~ Improve Incentives management

~ Increased SM depositors rewards

~ Reduction of the cover cost

PART I: Migrate the StkABPT to @balancerprotocol.lens V2

The publication proposes an update of the initial SM pool parameters to consider several configurations on Balancer

~ B-80AAVE-20wETH

~ B-80AAVE-20wstETH

~ B-50AAVE-50wETH

~ B-50AAVE-50wstETH

Proposal I: governance.aave.com/t/temp-check-safety-module-update-part-i-migrate-aave-weth-balancer-v1-pool-to-balancer-v2/12748

PART II: Assets diversity, SM Categories & Slashing

This proposal introduces risk tranching by creating 3 categories with different slashing, parameters & rewards

~ Single Assets: Similar to current design (Reduced emission, 30% max slashing)

~ Volatile & Stable BPTs: LPs staked in Balancer gauges through @AuraFinance

(BAL + AURA rewards, 45% max slashing for volatiles, 60% max slashing for Stables)

Proposal II: governance.aave.com/t/temp-check-safety-module-upgrade-part-ii-asset-diversity-sm-categories-slashing-updates/12749

PART III: Enable smBPT gauges

This proposal proposes to improve the capital efficiency in the SM by creating gauges on smBPT instead of classic BPT

To generate enough BAL + AURA rewards, the Aave DAO will need to attract vote on the associated gauges, which can be done by voting or creating vote incentives for veBAL & wrappers holders.

Classic gauges would dilute the SM reward budget since anyone could receive yield while bypassing the SM risks & cooldown.

smBPT allows anyone to deposit in the pool & earn fees, but only SM depositors would receive BAL + AURA rewards.

Proposal III: governance.aave.com/t/temp-check-safety-module-upgrade-part-iii-enable-gauges-on-bpt-in-safety-module-smbpt/12750

PART IV: Incentives management upgrade

This proposals focuses on updating the current AAVE reward budget management

~ 25% of the current SM budget as liquidity mining on single assets (no gauges)

~ 75% of current SM budget as vote incentives on smBPT gauges through Warden Quest by @paladin.lens for volatile & stable BPTs categories

This allows to leverage the premium of gauge weight power compared to direct liquidity mining and benefit from several Quest benefits such as

~ Defined amount of votes needed

~ Fixed reward / vote paid to voters

~ Ability to retrieve unspent rewards

~ Incentivize veBAL & wrappers

Proposal IV: governance.aave.com/t/temp-check-safety-module-upgrade-part-iv-incentives-management-upgrade/12751

PART V: veToken Management framework

This proposal aims to define a framework to manage the strategic assets locked on the collector contract by electing a committee in charge of the following actions

~ Lock / relock assets

~ Cast gauges votes

~ Monitor the market

~ Create the Quests

~ Claim & Compound the yield

Proposal V: governance.aave.com/t/temp-check-safety-module-upgrade-part-v-vetoken-holding-management-framework/12752

PART VI: Future considerations

This proposal aims to recap the design proposed and add future considerations for this strategy

~ Progressive incentives migration to the new design

~ Incentives budget sustainability

~ Protocol Owned liquidity considerations

~ Framework to add new assets to the SM

Proposal VI: governance.aave.com/t/temp-check-safety-module-upgrade-part-vi-future-considerations/12753

Looking forward to get feedback on the forum and discuss these topics with the community