Reserve Fund Application by Aave

General
1

Applicant information

Name: Aave DAO

Key Information: aUSDC is an interest-bearing token representing USDC deposits in Aave’s decentralized lending protocol.

Expected APY: Variable with an average of 5.8% over the past year on ETH mainnet.

Underlying asset(s): USDC

Minimum/Maximum transaction size: No minimum, maximum capacity at time of submission is circa $710 million.

Current AUM for asset: Approximately $1.54 billion in USDC.

Volume metrics: aUSDC can be directly withdrawn in exchange for USDC. USDC has circa $5 billion trading volume per day.

Proposal Summary

We propose allocating a portion of Ethena’s Reserve Fund to Aave’s aUSDC, providing exposure to the DeFi lending market while maintaining stablecoin backing and offering competitive yields with high liquidity.

Basics and background

  1. How will this allocation improve the diversification or capital efficiency of Ethena’s Reserve Fund and/or backing assets?

This allocation enhances diversification by providing exposure to the DeFi lending market while retaining stablecoin backing.

  1. Please describe any experience your firm has in working with decentralized organizational structures

Aave operates under a DAO structure. The DAO has been successfully managing protocol upgrades, risk parameters, and treasury allocations through decentralized governance for several years.

  1. What is your entity’s current assets under management, assets held in trust, total value locked, or equivalent metric for your legal structuring?

Aave’s total value locked (TVL) across all supported networks is approximately $17 billion.

Legal design

  1. Do holders of your product have any shareholder, investor, creditor or similar rights?

aUSDC holders do not have shareholder rights. They are entitled to redeem aUSDC for the underlying USDC plus accrued interest at any time.

  1. Describe the legal and contractual structuring for your product, specifically naming any regulatory bodies overseeing the product, if applicable.

Aave operates as a decentralized protocol without direct oversight from traditional regulatory bodies. The protocol adheres to relevant DeFi regulations and best practices. Smart contracts govern the issuance and redemption of aUSDC.

  1. How would the proposed allocation be treated in a bankruptcy or insolvency situation?

In the event of insolvency, aUSDC holders have a claim to the underlying USDC pool. The protocol’s liquidation mechanisms and safety modules are designed to protect user funds. There is also the Aave Safety Module and soon Aave’s Umbrella program which are structured to backstop the protocol.

Smart Contract/Architecture

  1. How many smart contract audits have been completed with respect to your tokenized product? Please name the auditors and provide a copy of reports.

Multiple audits have been completed. Audit reports are available on Aave’s GitHub repository.

  1. Is the asset/product permissioned? If so, how are you managing user identities? Any blacklisting/whitelisting features?

aUSDC is permissionless. No KYC is required.

  1. Is the asset/product present on several chains? Are there any cross chain interactions?

aUSDC is available on multiple networks including Ethereum, Polygon, Avalanche, Optimism, Arbitrum, and others. Each network has its own isolated pool without direct cross-chain interactions.

  1. Are the applicable tokens being used in any other protocols? Please describe the various components of the ecosystem.

aUSDC can be used as collateral within Aave and in many other DeFi protocols.

  1. How are trusted roles/admins managed in the system? Which aspects of the solution require trust from users?

Aave relies on decentralized governance. Key parameters are controlled by token holders through the Aave DAO. Users need to trust the smart contract implementation and the governance process. In recent times, several professional service providers have been onboarded by the DAO to ensure important work is carried out to the highest standards, these service providers are regularly reviewed and held accountable by the DAO to ensure responsible management of the protocol.

  1. Is there any custom logic required for your token/product? If so please give any details.

No custom logic is required. aUSDC is a rebasing ERC20 token.

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