Is Aave’s ‘Balance Protection’ backed by Relm — an FTX insurer?

Yesterday, Decentralized Finance (DeFi) lending protocol Aave announced a mainstream-friendly savings app with all crypto references abstracted away.

A million dollars’ worth of “Balance Protection” is among the features to help potential new users feel at ease. However, the conditions remain somewhat vague and are to be confirmed upon launch.

While many have praised Aave’s push to onboard the masses, some are unconvinced by the offering, even writing it off as “just marketing.”

Read more: Justin Sun’s Poloniex and HTX withdraw huge amounts from AAVE

Aave’s ever-expanding empire

Lending protocol Aave is the DeFi sector’s largest platform, with over $30 billion in total value locked (TVL). After conquering DeFi, it’s looking to a wider audience.

The upcoming app’s branding is pitched more like a neobank than coming from within the crypto ecosystem, a move to shed the latter’s risky reputation.

Aave claims the app will support transfers to and from over 12,000 banks and cards, thanks to last week’s news that Aave Labs subsidiary Push had gained MiCA approval as a Crypto Asset Service Provider in Ireland.

Voices from within the Aave community have called this Aave’s “iPhone moment,” and that pairing of a consumer-focused UX with on-chain transparency will serve as the “perfect DeFi Trojan horse to eat the banks at their own game.”

Aave’s “Balance Protection” and the FTX Insurer behind it

One sticking point that has left some unconvinced, however, is the million-dollar insurance policy.

Nick Cannon, of Aave’s regular sparring partner Gauntlet, recognizes that insurance in DeFi is “a missing primitive”, but dismissed Aave’s offering as “just marketing.”

Zama’s Ankur Banerjee called the description of what’s covered “pretty narrow criteria,” compared to deposit guarantees at banks. Similarly, Cork Protocol’s Luke Chmiel sees the comparison Aave makes between their coverage and the “Industry Standard” $250,000 as disingenuous.

Read more: ‘Sherlock missed it’: Cork hacker slams audit firms in on-chain messages

The app website states that the policy will apply to “eligible customer[s]” and will “cover defined loss events, such as security breaches and technology failures.” It states that “full details, including limits and eligibility, will be shared upon launch.”

Tellingly, the two examples of “loss events” don’t include bad debt, which can lead to losses during market volatility. Bad debt is accrued when the liquidation of collateral is unable to cover the value of borrowed funds.

Aave does have its own $325 million fund to cover bad debt, Umbrella, which governance delegate Marc Zeller claims amounts to “double coverage.” However, the collapse of a billion-dollar collateral token such as Ethena’s sUSDe could quickly surpass Umbrella protection.

Read more: High yields to haircuts: Has DeFi learned anything from yield vault collapse?

Some even voiced concerns over the credibility of Relm, the Deltec International-linked insurance provider, which is mentioned in the screenshots on the Apple App Store listing for this application.

The firm’s website lists coverage of AI, biotech, and crypto firms alongside esports, psychedelic therapeutics, and space economy insurance.

Relm was also the firm responsible for insuring FTX US and FTX Australia before their collapse due to the criminality of the broader FTX/Alameda Research enterprise.

Despite this, others pointed to Relm’s impressive rating, assuaging doubts about their ability to cover losses.

Protos has reached out to Aave to comment on details of the Balance Protection policy and will update this article should we hear back.

DeFi diehards

Not all Aave users will jump at the opportunity to use a shiny new app.

Despite the announcement’s generally positive reception, there was a slight hiccup over the referral system, which reportedly ‘doxxed’ users’ names. Aave founder Stani Kulechov stated the issue had been fixed a few hours after it was flagged.

Zeller also explained that Aave’s traditional DeFi users won’t benefit from protection without submitting to know-your-customer (KYC) screening. The insurance is a benefit for those willing to KYC, but he reassured regular users that the “protocol stays permissionless.”