Aave Founder's Personal Account: Aave as a Financial Infrastructure Layer

Author: Stani Kulechov, Founder and CEO of Aave; Translation: @JinseFinancexz

As I previously wrote, DeFi has improved the capital allocation problem: the supply-side problem. On-chain liquidity is highly flexible and can even flow programmatically to risk-adjusted trading opportunities. Aave has proven its ability to absorb hundreds of billions of dollars in liquidity, thanks to the trust it has built over the past few years and the superior cost structure it offers on its cryptocurrency-backed lending model.

This liquidity creates tremendous opportunities for emerging financial primitives and application scenarios. The next stage of DeFi's evolution will focus on the demand problem, rebalancing the supply and demand equilibrium of liquidity.

As I mentioned before, solar infrastructure alone has brought $30-50 trillion in yield opportunities to Aave. But this is far from the end, because Aave can tap into more than $200 trillion in future opportunities.

1. Infrastructure that drives everything, finance that connects everything. The foundation that makes everything function is infrastructure. It is this layer that ensures our electric cars have driving range, our homes remain warm and bright, our water flows smoothly, our computers can perform tasks, and the world remains connected. From a capital allocation perspective, infrastructure is considered a safe choice. The world needs energy, water, computing power, and communication. Mature infrastructure also carries lower technological risk, which diminishes over time and with economies of scale, transforming from a technological opportunity into a financial opportunity as it matures. While considered stable and safe, emerging infrastructure also offers strong allocation opportunities and can potentially yield higher returns. Its technology is located at an earlier stage of the cost curve, resulting in a higher risk premium. (Correct) Infrastructure is an excellent target for finance because it typically involves high capital expenditures requiring financing and low operating costs, meaning operating costs are low enough to cover debt repayments over the asset's lifespan. In many ways, infrastructure capable of supporting future growth is a hard asset that generates cash flow. Most importantly, if structured properly, infrastructure financing follows Aave's lending model—lending against the asset itself rather than user credit, which is quite similar to its current operating model. 2. How big is the opportunity? I believe that infrastructure assets crucial to the world's transition to abundance include: solar power plants, batteries, data centers and GPUs, electrified transportation, robotics, desalination, mining, carbon capture, nuclear energy, and space infrastructure. If any assets are not included, it's not because I lack confidence, but rather to demonstrate the breadth of this category. An asset is likely meaningful as long as it falls under the category of "abundant assets" and is not obsolete infrastructure. Solar Energy and Batteries: Solar energy alone requires $15-30 billion in capital expenditure financing. At this scale, solar energy will replace fossil fuels by 2050. I have discussed this in detail in previous articles. Data Centers and GPUs: Cumulative capital expenditure for GPUs and data centers is between $15-35 billion, depending on the susceptibility to the proliferation of artificial intelligence applications. McKinsey alone estimates a $67 billion capital expenditure requirement by 2030. My logic remains: if you give computers more computing power, they can perform more calculations and handle more complex tasks. Moore's Law has its limits, but we are entering an era of atomic-level engineering and vertically stacked GPUs, and even these advancements cannot stop us from building more computing power. This doesn't even consider quantum computing, which could drive the distributed expansion of its own computing power. Robotics: The automation of human tasks will be a defining characteristic of the world we are transitioning into. Robots, whether specialized warehouse systems or humanoid robots for routine manual labor, will replace human labor, giving us more freedom. Robotics alone could require $8-35 billion in capital expenditure by 2050. Electric Vehicle Infrastructure: Transportation electrification (electric vehicles, railroads, airplanes, drones, charging networks, ships, ports) is about to undergo a massive shift from fossil fuel systems to electric systems. Capital expenditure is projected to be approximately $10-25 billion by 2050. Autonomous driving itself will ensure no vehicles are idle; they will serve society around the clock. Nuclear Energy: I have a love-hate relationship with nuclear energy as an abundant asset. It is a safe choice for producing large quantities of energy. However, nuclear energy is deeply embedded in policy, making innovation difficult and financing more challenging. Projects often become more expensive and time-consuming than anticipated. This could change with the advent of small modular reactors and the establishment of better policy frameworks. My capital expenditure estimate is more conservative, constrained by policy, at $3-8 billion by 2050. Solar Desalination: Desalination is not new. It has existed for decades and is heavily relied upon by Middle Eastern countries. While its costs remain high, economies of scale and solar energy will provide us with near-free water resources anywhere in the world. Required capital expenditure is projected at $6-12 billion by 2050. Carbon Capture: Growth will be driven by government incentives. Projected capital expenditure: $3-8 billion by 2050. Key Minerals: Copper, lithium, nickel, and rare earth elements that power electrification, robotics, and more. Projected capital expenditure: $5-15 billion by 2050. Digital Networks: Fiber optics, communication towers, and satellite ground segments. Projected capital expenditure: $6-15 billion by 2050. Space Infrastructure: As economies of scale are applied to transportation and launch, the space sector will grow significantly as a scale factor. Space will become an infrastructure sector in the coming decades. Conservative capital expenditure estimates for 2050 are $2-6 billion, but this figure could have a much higher multiplier effect. If launch costs follow the historical cost curve and decline by 10-50 times, the potential gains could expand to $10-30 billion, and in extreme cases, even $50 billion. This includes: $3-8 billion for satellite constellations, $1-3 billion for launch infrastructure, $2-7 billion for on-orbit infrastructure (fuel tugs, service stations, essentially orbital logistics hubs), $2-10 billion for space-based solar power, $1-5 billion for space manufacturing, and $1-5 billion for lunar infrastructure. (I skipped hydrogen production because I'm unsure how it will develop within the broader electrification transition.) In short, infrastructure financing could be a $100-200 trillion opportunity for DeFi. For reference, the world's top ten banks manage approximately $130 trillion in assets. If Aave successfully finances the majority of this transition, it will become the largest financial network to date. 3. Choosing the Right Form for Aave Infrastructure financing in DeFi can take two main forms.

Form 1: Interest-Bearing Stablecoin (YBS)

YBS is becoming a powerful example of how off-chain revenue can be distributed to on-chain users. Ethena primarily achieves this through basis trading; USD.ai achieves it through GPU funding. Staking sUSDai can yield an annualized return of 10-15%.

From Aave's perspective, the growth of YBS directly translates into the growth of the protocol. Aave is like a **circular machine**: if the yield generated by a YBS infrastructure product is higher than Aave's cost of capital (approximately 4-5%), then there is an opportunity for circular arbitrage: borrowing liquidity from Aave using YBS as collateral and then reinvesting it. I view YBS as a wrapper for on-chain revenue distribution, possessing some characteristics of traditional off-chain funds.

Form Two: Direct Collateral

Using tokenized infrastructure directly as collateral means that its yield or economic appreciation remains off-chain or in the hands of the borrower, but flows into Aave due to collateral and lending demand, thus generating stablecoin supply yield for depositors. This path also does not target stable net asset value, making it ideal for assets with volatile net asset value that cannot pass the stablecoin test.

Which path will prevail? It's hard to say. Both have their advantages, and Aave has provided good support for both models. Examples of YBS include Ethena's sUSDe and Maple's SyrupUSDT.

Examples of direct collateral include loans backed by Tether's gold (xAUT), Bitcoin, and Ethereum, as well as the JAAA RWA Fund. In these cases, the economic appreciation of the underlying assets accrues to the asset owners in exchange for interest payments made indirectly to on-chain depositors through Aave. It's worth noting that Aave's own aTokens (such as aUSDC) are, in a sense, the earliest form of on-chain YBS designed for this type of use case. The choice of form depends on the user type. In the first form, the user profile might include on-chain allocators looking to maximize their YBS yields; in the second form, borrowers might be operators or funds seeking to expand their liquidity positions to build more infrastructure and thus scale their businesses, without direct on-chain yield distribution. 4. Is there enough yield? Given the current interest rate environment, DeFi currently does have excess capital, and infrastructure financing should provide sufficient upside to mobilize this capital. The average internal rate of return (IRR) for various industries are as follows: solar energy 10%, batteries 12%, data centers 13%, electric vehicle charging infrastructure 13%, water infrastructure 9%, while space infrastructure can reach 18%. The higher the technological risk and the earlier the cost curve, the higher the assumed return. The yield can be further amplified through strategies. A vault built on Aave V4 can be allocated to solar power plants with yields of 8-12%, then used as collateral to borrow GHO (generating high income for Aave), and the borrowed GHO can be reinvested in battery storage plants with yields of 12-18%, or even in GPU data center opportunities with annualized yields of 10-20%. DeFi users are typically sensitive to redemption risk and lock-up periods (this may change as the field matures). Infrastructure products typically generate cash flow, which helps mitigate redemption risk. Using Aave as a liquidity supplement makes these products more accessible to users who focus on providing liquidity to specialized hubs that focus on these specific economic characteristics and trust assumptions, while isolating risks and limiting their impact on the wider system, and ensuring access to infrastructure opportunities. Another key difference is that tokenizing the assets directly allows for auction-based liquidation, which improves the liquidity of these assets compared to complex debt-packed funds. 5. Aave as a Financial Infrastructure Layer For Aave to capitalize on RWA and infrastructure opportunities, the best path is to be a foundational layer of financing liquidity, starting with mature assets with lower technological risks (such as solar energy), and then gradually moving towards higher-risk assets using the granular risk control provided by the Aave V4 hub-and-spoke architecture. Currently, most RWA tokenizations focus on assets with deep liquidity: Treasury bills, money market funds, and corporate credit. These assets trade smoothly, and users already have ample channels to borrow against them. Similarly, while private lending seems like a compelling use case for DeFi, it also has its drawbacks. Private lending typically funds CLOs, corporate loans, and private equity. If the infrastructure layer is what I call the bottom layer, then this is the top layer. In this rapidly changing world, especially at the top layer, assets need to be geared towards the future we are building, not the past we are leaving behind. A great asset-backed financial product may look beautiful on paper, but it may lose its place in the future world. The tokenization of traditional financial assets will continue to grow and will undoubtedly be part of the Aave narrative, just as crypto-native assets and their growth have always been part of it. But the bigger opportunity lies in becoming the **infrastructure financing layer of the future**. This is what excites me about RWA and Aave. 6. What does this mean for fintech companies? Large fintech companies are increasingly becoming the distribution and experience layer: the interface through which powerful financial products reach end users. As I previously wrote, DeFi allows fintech companies to unlock leaner cost structures for new products. DeFi operates nearly autonomously, is more transparent, and is guaranteed to execute through smart contracts. It requires less operating expenses, enables thinner profit margins, and opens up new financial opportunities. In a world where financial services are increasingly commoditized and no longer offer differentiated value propositions, the ability to access unique yield opportunities brings new value to fintech companies (and even banks) and their users. The active participation of fintech companies in the stablecoin issuance space also means that this could open up new use case opportunities for their stablecoins and generate real lending demand based on infrastructure collateral. Fintech companies and banks, through Aave Kit and the Aave App, can become the perfect distribution channel connecting the future we are building, generating yields from infrastructure collateral on Aave V4. Integrating Aave into fintech companies and banks to inject capital could accelerate the transition to a world of abundance by 10-15 years. This presents a unique opportunity for Aave and its numerous integration partners to capture and share the value of a $200 trillion market.