Aave DAO's bold wager on AAVE tokens, a potential risky move

In the ever-evolving world of decentralised finance (DeFi), Aave DAO is considering a significant shift in strategy - moving into Real-World Assets (RWAs). This potential move could have lasting effects on Aave's position in the crypto banking space.

Currently, Aave DAO's treasury strategy heavily relies on AAVE tokens. While this approach has served the DAO well, it could be seen as risky compared to the more diversified treasury strategies of other DAOs like Gnosis. For instance, Gnosis DAO holds a mix of various tokens, providing flexibility to generate returns and support operations without relying too heavily on any particular asset.

Aave could learn from the experiences of other DAOs in integrating RWAs. Other DAOs have successfully diversified their portfolios by incorporating RWAs, such as treasuries, corporate bonds, and private credit. This strategy not only diversifies their treasury but also creates new revenue streams.

The integration of RWAs by Aave could introduce different types of risks, but these could be managed effectively. For example, forming partnerships with RWA management groups could help Aave gain a foothold in the RWA market.

The benefits of effectively managing RWAs are significant for Aave. Aave DAO's Horizon platform enables institutional borrowing of stablecoins against tokenized RWAs, combining regulatory compliance with permissionless DeFi liquidity. This strategy also diversifies Aave’s treasury by integrating traditional assets and bolstering cross-chain DeFi infrastructure and RWA tokenization, backed by a $2.5 billion treasury expansion.

However, Aave's focus on a single asset class (AAVE tokens) could lead to problems, especially in a volatile market. The DAO keeps a significant portion of its treasury in AAVE tokens, with plans to diversify some into stablecoins and ETH, but remains heavily reliant on its own tokens. This consolidation of power through the focus on AAVE tokens could be a point of debate regarding the long-term sustainability of the protocol.

Moreover, Aave's immersion in its own game may lead to missing out on opportunities within the broader crypto ecosystem. Pooling resources with other entities could be a smart move for Aave, as suggested by the potential benefits seen in the more balanced approaches of DAOs like Gnosis.

In conclusion, Aave's potential move into RWAs presents a mix of risks and rewards. By learning from the experiences of other DAOs and adopting a more balanced approach, Aave could effectively manage the risks associated with RWAs and reap the significant benefits they offer.