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Bankless AMA #2:
Stani Kulechov, Founder of Aave

Guest: Stani Kulechov, Founder of Aave
Date: June 25, 2020

0xLucas: Stani - Great to have you here. Since Ryan couldn't make it today, I'll start us off with his question to you: What's your favorite Bankless piece?

Hi all, nice to be here and first of all, I love Bankless! ❤️

The most interesting piece is actually the recent one on yield farming.

Dan is a really smart person and has a really long term perspective on the space. I really love the idea of rewarding LPs. That is nothing new in the sense that we already had a small experiment for rewarding LPs with Microstaking back in the ETHLend era. What is actually more important than the numbers for rewards, is a) rewards allocation and b) the quality of the recepient

For example, it makes more sense to reward LPs than borrowers to avoid wash borrowing just simply to farm. That kind of farming does not actually serve much of the user acquisition.

Similarly, high yields might work as a way to attract more LPs but that might be so that the LPs are not here to stay. What is more important, what I call "sustainable farming", where your rewards incentives are planned farmers to plant crops for long term, I actually tweeted about this:

In other words, you need to pick your liquidity source and chase that, that is what we are now working in Aave with the upcoming Aavenomics .

David Hoffman: Stani, thanks for joining us here!  My question is about the plans for Aave to transition from a centrally managed project to a globally managed protocol?

• Is this even something that is desired by the team/in the roadmap
• What are the strategies, short term, and long term, for this to be achieved?

Currently, Aave Protocol has been now in main-net since January, over six months. The Protocol has received lot of traction and there is lot of value in stake (around 120 mm USD worth). Now it's time to remove the protocol from the team and give it to the LEND token holders. We are expecting to release the governance module within weeks followed by an admin key transfer ceremony.

In terms of strategies, we as a team would like to have some stake amongst all stakeholders within the protocol, especially in the beginning, given that the token has been in the market for years, the holder base is wide, which gives more comfort for us that the power is not too centralized. Short term we want to build the V2 of the protocol and for the long term, the biggest value-added of the Aave team is the know-how. We want to keep building products on top of Aave, but we also want others to be able to do the same.

The process is quite slow actually, first the token governance contract is publish, followed by test-net release, followed by main-net release, followed my transfer. After that we are able to publish our Aavenomics for the governance voting. More on that on our governance post.

Above Average Joe: The overall trend of governance over time is to grow, are you concerned that over time this could corrupt the initial intent of the revolution by the introduction of LEND, and result in a digital system of control rivaling the current structure but without the ability to opt-out, due to the digitization of real-world goods as a trend? Could the differences in rival protocols lead to factions, and financial warfare?

That is interesting, I would see that there will be not much of financial warfare as diversification is on of the underlying principles in finance, not to have eggs in the same basket. Once the diversification is reached, there will be competition as there is. End of the day, everything would be arbitraged to the point that the ecosystem will be based on risk diversification in different levels (wow that’s deep ...)

Overall, I think tokenization/digitalization is going to take more off in upcoming years, that is why we at Aave have the multi-market strategy so that we can create an interest rate on any liquid market, imagine in the future there will be interest rate properties, carrots, and even royalty streams and each in own Aave money market where can be used as collateral.

Mark O’Sullivan: Appreciate you taking the time to do the AMA @Aave Stani!

• What do you feel right now is the biggest barrier to mass adoption?
• How many of your team are currently paid in crypto?
• Having read the story of the Robinhood trader who racked up serious amount of losses trading and later committed suicide, have Aave got any plans to help emphasize the risk of borrowing to your users and hopefully reduce the number of potential losses (especially for newbies to the crypto scene)?

lovely questions. On mass adoption, I think value is the barrier. You need to have value to play and it should not be like that since mass has equal amount of value. For example, interest-bearing aTokens such as aDai or aUSDC that you receive when you deposit to Aave, will increase in value directly in the token holders address. That is basically a global USD inflation mitigating, automated treasury management account which is powerful in countries where there is inflation or issues with banks not giving your savings out during crisis (Venezuela, Lebanon, Turkey etc). You could techically obtain DeFi account just by obtaining aDai. That is big mass adoption factor. But if you don't have much value, let say under 100 usd or even less in some places, it's quite difficult to get motivated to save funds. Also I believe transfer of value is not the holy grail. I think the holy grail is the ability to build value for people without needed to have it in first place. If we crack that code, scaling might happen.

around 2/3 are paid in crypto one way or another, either aDai, aUSDC or aLEND

we do have an extensive risk framework and monitor risk and usage all the time: https://docs.aave.com/risk/ having you mentioned that case, I though we ough to emhpasis to have some kind of way to interact with users that do not have a financial control and provide some help. So far it hasn't been issue but I can see that happening as the space grows.

SillyFace: How do we use Aave? And what articles can I read to learn more?

Go to app.aave.com and there is a nice faq for you but it's quite simple, you can interact with different wallets and initiate the approve and deposit function, it's that simple to deposit to Aave

Here is a nice guide btw written by Isa from our team that gets you from zero to Aave Fam hero

0xLucas: EthLend was around for a while and it was relatively under the radar for the most part of 2018/2019. Why do you think the EthLend to Aave rebrand was such a success?

ETHLend was an amazing experiment. It was practically the first blockhain-based overcollateralized lending protocol. Back then there were no stablecoins or liquidity in token markets. I think we gained nice community and once we branded to Aave and launched the new protocol, the DeFi community was amazed on the idea of reinventing, I think that is what gave us attention and we are happy that we took that courage

Canadians4crypto: Could you give us your take on these extreme gas prices we are seeing and if they are affecting your customer’s willingness to make transactions. I just wonder if the Average Joe is going to be priced out soon.

High gas prices suck. Luckily in Aave there isn't many transactions that are needed to earn or to draw credit line. One of the main things on V2 is the optimization of the gas which will reduce quite a lot.

Above Average Joe: What're your thoughts on personal tokens and their future with Aave?

I love personal tokens, I think they will become quite liquid some of them at some point and what is cool that one personal token can be backed by another, oh, did we just invent loan guaranteeing?  😁

I would love to see the personal token money market in Aave as soon as there is highly liquid personal tokens. 🙂

(Follow up) Above Average Joe: What level makes a personal token 'Highly liquid'?

I think highly liquid means mostly that if there is a loan backed by a personal token, that loan collateral should be enough liquid in a secondary market like uniswap or balancer to be able to sell the personal token to regain the loan position back. It's really interesting to see how big the personal token market caps can become. I really see lending and borrowing as a use case since mostly what I could imagin is that personal tokens will be bound by promises, which is practically debt

Josephit:  The website was super laggy yesterday when I was scrambling to figure out how to "repay" on etherscan if things got out of hand.  Is there a guide on how to manually perform repay, etc without the front end interface?

the laggyness yesterday was due to thegraph as their servers were more exhausted than pornhub's. Farming has brought quite lot of people into DeFi

thats quite interesting, we could do a guide on how to do it manually for example through Etherscan. Currently you can also use other front ends:

0xLucas: How did the idea of flash loans come about? That's a mindblowing DeFi primitive that I don't think many could've come up with…

Flash loans is not a novel idea per se there has been previously primitives of transactions relying upon the atomicity of Ethereum and also in forms of loans. What made flash loans interesting via Aave was mainly the fact that there was lot of developers that were interested in building on top of Aave, hence there was lot of flash loans based money legos. For example, DeFi saver uses Aave flash loans on every CDP that you close or pre-leverage. They saved quite a lot of CDPs during the black thursday.

0xLucas: Question-based on today's Thursday Thought piece - what's your most controversial take in crypto/DeFi?

I really hate that some projects are turning into SF/Bay area and seeing that you need to be there to establish network effects. I think what is the point of DeFi is that people can come around any part of the world and simply provide some value added. Don't get me wrong, I love many projects from SF but I also think we should not create a new wall street concentration of power, instead DeFi street should be located in all parts of the world.

Joesphit: I love the promise and execution of flash loans to make arbitrage into almost a perfect market.  What is a use case (if any) for flash mintable tokens?

flash mintagle tokens are interesting, we had something like this in mind last summer but the issue was that when you mint a token you could most likely use if that token would have liquidity if you mint it on spot and close the mint on the same tx. So it would work if the supply is extended temporary and to certain extent (otherwis you could do it infinitely and destroy markets)

0xLucas: Outside of crypto, what do you like to do?

Outside of crypto I love to sail! I have been sailing since I was teen and it's quite popular thing to do in Finland where I am from. I also like to grill sausages, play tennis and swim in the sea. I also read (a lot). I love to study economics even tho will never pursue a degree, I would love to have a urban farm some day as we lol

0xLucas: What's been the most influential book you've read?

I think the most influential book has been Concept of Law by HLA Hart, mostly because I studied law and that has been the best mind fuck in jurisprudence and gave a lot to me.

SillyFace: Where is Aave based? Team, offices etc?

Aave is based in London, we have also an office in Switzerland and will probably in the future will have an US office as well. The team is quite decentralized and consisting mostly of developers and product people. I would love to see more talent in Aave and we are growing substantially now.

Canadians4Crypto: Has Aave ever considered partnering with RealT for loans on tokenized property?

yes we love RealT and we are researching it a lot. The potential is enormous and @David Hoffman and their team has done lot of great work on the project. I personally think real property will unlock lot of liquidity into the DeFi space

Above Average Joe: Finally, anything in particular you want to beat the drum on? even outside of crypto?

I would like to beat the drum on thinking and critisism. DeFi space was months ago a place where decentralization and the roadmap to decentralization was important, today we are back in looking for yield optimization. Yields are awesome and yieldhacking is what we are now pushing in Aave but there are more important things to be solved such as the governance. Does token based governance work? or how it should be improved? There is much to contribute in this discussion and it can only improve by taking action and part of it.

0xLucas: I think that's a great answer to end on. Very thought-provoking! So that's all the time we have folks! Thank you @Aave Stani for taking the time to write out all these answers - very insightful stuff!

Before you go:

1. What is the best way to get in touch if folks have more questions?
2. What's the best way to stay on top of Aave-related updates?

For more questions: https://discord.gg/AnSqnvV and to stay updates the discord works well or t.me/aavesome!

Also to spread bankless, keep educating your peers to become bankless!

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Aave

Aave is an open source and non-custodial protocol for money market creation. Originally launched with the Aave Market, it now supports Uniswap and TokenSet markets and enables users and developers to earn interest and leverage their assets. Aave also pioneered Flash Loans, an innovative DeFi building block for developers to build self-liquidations, collateral swaps, and more. Check it out here.

Not financial or tax advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This newsletter is not tax advice. Talk to your accountant. Do your own research.

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