Some major concerns around this proposal
1- Aave earned $1m in revenue in the past 7 days, with ~$60m in annual revenue. Why would Aave DAO request a grant when it is fully equipped to pay for development itself? Especially considering the product is a) untested in production and b) already available through various other service providers who did not receive such a grant.
2- The numbers don’t add up. Here’s a summary of the growth of Leveraged Farming and Liquidity Manager protocols as a percentage of DEX TVL. - DeFiLlama data
Current percentage of total DEX TVL - as of May 8th
- Liquidity Manager: 3% ($600m)
- Leveraged Farming: 1.5% ($300m)
Historic ATH percentage of DEX TVL
- Liquidity Manager: 7.3% (Jul 27th, 2022)
- Leveraged Farming: 6% (Sep 4th, 2021)
Aave saying they can get $500m in borrows against LPs is like saying they will single-handedly double the Leveraged Farming market. That seems highly unlikely, and a more realistic yet still optimistic estimation would be in the $100m ballpark, making the deal a net-cost to Uniswap DAO. ($4.5m in revenue against $13m+ in costs)
3- Even if Aave can capture significant market share, we can expect a sizeable part of that TVL to come out of existing protocols’ TVL, thus reducing the net impact on Uniswap’s growth (capital simply migrates) while simultaneously executing a vampire attack against existing protocols using freely acquired UNI incentives.
What is the potential impact?
All of the above points suggest this proposal would actually instigate a net-negative for the ecosystem. Uniswap DAO is unlikely to see the promised TVL growth, and in any case it would do so at the expense of existing protocols by being complicit in a vampire attack. If Antitrust laws existed in DeFi, this proposal would certainly perk ears.
The only one standing to benefit is Aave DAO and the GHO stablecoin. If they genuinely want to grow the use of Leveraged Farming and ALMs for Uniswap pools through their GHO stablecoin, there are far more conducive courses to explore.
How Aave could support the Uni ecosystem fairly
For example, Aave DAO could support and incentivize the use of GHO in existing Leveraged Farming markets, using its infrastructure to provide a direct line of liquidity (aka protocols plug into Aave’s market). This is a far more neutral approach which Aave DAO could easily fund itself, and which constitutes a net-positive on the ecosystem:
- Diversification of debt assets (most protocols use USDC to leverage up)
- Cheaper borrowing leads to better yields for farmers (lend pool utilisation in Leveraged Farming protocols can be a growth bottleneck, which Aave could help ameliorate)
- Aave contributing in a wholesome manner could draw additional TVL to LP management verticals unilaterally, resulting in growth for everyone (Uniswap, GHO, and ecosystem protocols alike).
A word of caution
I urge anyone voting on this proposal to think carefully about the implications. This proposal creates a massive precedent for collusion. Uni is the biggest DEX, Aave is the biggest money market. It is entirely against the spirit of DeFi to have them vampire attack already aligned ecosystem protocols, using UNI bribes to damage the competitive market, for a product that is untested and not part of their core business.