Aave lending pools Vault

Summary:

This idea would work for many of the tokens supported by aave. And would have all of the opportunities there accessed

Abstract:

The main gist of this idea is for deposits of a single coin (say ETH) to be spread across all the aave lending opportunities. The spread would be based on the yield opportunities therein. However, if the vault got too big it would saturate all the lending opportunities found there.

Motivation:

I saw that KNC was currently yielding much more than the other pools on account of low lending to borrowing ratio. I thought perhaps, even though I am not really interested in holding KNC it was a good opportunity. The difference here from just supplying to certain pools is that each vault user would only be exposed to a portion of any single asset and only for a certain time frame.

Specification:

I don’t know the coding that would be required to pull this off but this is the flow of things as I see them.

1 Depositors will deposit the ETH, (or whatever single asset that is deemed best for this use)

2 The code looks at the current aave yield patterns and calculates a ratio of all, or the best, yielding stats of the aave pools. Pools that have higher yield, and thus have more space in them for added liquidity would gain a higher portion of the funds in the vault.

3 The code converts all the ETH in the vault to those tokens in the calculated ratio.

4 The code deposits them and monitors the yield or saturation levels. (the time frame is a part that needs brainstorming)
…leaving the tokens longer exposes vaulter to perhaps undesired tokens.
…leaving the tokens longer also exposes vaulters to capital losses of tokens they are not following.
…leaving the tokens longer creates a better gas to reward ratio, assuming all other things stay constant.

5 rewards are converted back to ETH and perhaps all the pools can be emptied out and converted back to ETH also for redistribution (but this appears wasteful but might offer some security against capital losses if it is )

Now this proposal certainly is not fleshed out but I think it has some potential.

For:

Against:

Poll:

1 Like

There is that one minor issue, the ETH Vault is specifically for ETH and does not change to any other token and/or ERC20 token, “to the best of my knowledge” only ETH is used, and not change into anyother token, as there may be a potential loss should ethereum price go up. Which is why it is an ETH vault, as the ETH will always remain ETH and strategies will be used for ETH without changing the ETH.

You’re right, but this is not an ETH vault. I just chose ETH to illustrate but it could be any coin.

But there is still the issue of missed out capital gains. If the funds remain “spread” during up rises in value

1 Like

Interesting idea…

Looking at AAVE right now, the best APY are in BUSD (22%), KNC (10%) and SNX (39%).

I suppose the issue is how quickly these rates can change (SNX was 93% earlier today), how often the vault swapped assets according to any yield changes, and like you said, the chance of holding onto a random asset that under-performs the deposited asset.

It would be an interesting idea to test out though and see if some parameters could be constructed to solve those issues.

Maybe that’s an idea for V2? Test or Dummy Vaults to experiment with?

1 Like

This proposal has a few problems:

  1. Slippage– you’re proposing to swap to different tokens, this will naturally incur slippage. The more often we swap, and the larger amounts we swap, the more slippage we get.
  2. Price movement– this is the biggest one– unless we’re dealing in stables, there is a high chance that any asset generating high yield will eventually dump– there’s probably a reason people are borrowing it like crazy, and this could be supporting price. By the time the rate drops and our strategy wants to switch out, the price has plummeted.
  3. Rates in general for most tokens are quite low and importantly, tend to fluctuate over short timespans. I just think this would require a lot of complex decision-making, especially regarding the volatile tokens.

Perhaps what would be an interesting idea is a stablecoin-based vault that is agnostic to what type of stablecoin is put into it– like a revamped version of the original Yearn v1. We could utilize all of the various Aave pools (BUSD, SUSD, USDC, USDT, TUSD), use compound, and add in the various curve pools as well. I think this idea could deserve more attention but I would need more time to think on it. At first glance, it would probably be easiest to keep DAI out of it since DAI is off peg so often, and maybe SUSD as well.

Keeping thinking, though!

5 Likes

Dudesahn this is a great reply. A learning experience for anyone that reads it. But it’s good that the OP for you thinking. I expected price switch G’s to be. A huge issue from the get go, but the idea on the table gets brains going.

The lag in yield as price drops it’s a new idea for me. I figured it would be the opposite.

It’s kinda the Wild West right now, but over the past few months generally when a coin has super high interest rates on Aave it’s because someone has found a better way to make more money with it, usually farming. These farms generally cause pumping in price of a token as people buy it to farm with it, and then the price will drop once farmers sell it off to rotate to something else. This is where we wouldn’t want to be caught holding the token.

However, now that the farming craze has died down a bit, it will be very interesting to see how the dynamics shake out.

This makes logical sense to me.

People want to hold their exposure but do some degen’n