A Discussion on a GHO Real World Asset Facilitator

Governance General
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Hey Aave fam!

With the successful launch of v3 on mainnet and GHO hitting testnet. Centrifuge is incredibly excited for what this means for the RWA ecosystem. We’ve been talking with members across the Aave community and it seems everyone else feels the same way - RWA can be a big part of GHOs success.

I wanted to share some thoughts and news from our community with yours:.

  • We shared some in-depth thoughts on the Management and Collateral of a Stablecoin recently. Short summary: Collateral can’t be onboarded in a vacuum and has to be thoughtfully done. We put our heads together with one of the leading thinkers in the stablecoin ecosystem, Steakhouse Financial, to share our view here.

  • The Centrifuge Credit Group has officially launched and gone live. We see this as a critical tool for our community and the entire real world asset ecosystem. Our facilitator perspective outlines a GHO Facilitator that could specifically leverage the Credit Group for Aave’s own needs. Please join our governance call tomorrow on February 16th to hear from them directly at their inaugural meeting.

  • We’re hosting a small RWA event at ETH Denver on Tuesday March 1st and would love to see you there. Everyone is looking for the next bull cycle narrative but we know real momentum is built, you can’t just wait for it to happen. Email us at marketing@centrifuge.io if you’re interested in attending!

All this excitement means one thing for us that I’ll say simply: Centrifuge wants to be the first Real World Asset Facilitator for GHO.

We know we have the infrastructure, the know-how, and the ecosystem to be the best partner for integrating GHO with the real world. And we know there will be many RWA facilitators and room for many RWA engagements in the future. We want to build by example, and provide a GHO facilitator with a collaborative, governance-integrated, and scalable on-chain RWA approach. We’re confident we can help set the tone for real world assets with GHO, just as we’ve done for Maker and Aave before.

As soon as the GHO facilitators are ready for onboarding, our next step is to post a formal facilitator proposal. We’ve begun preparing a draft already, so please feel free to reach out to me on Twitter or on Discord at Khan#2663 if you’d like to participate in providing some early feedback to us

I’d love to hear more from the Aave Community directly. How do you feel about Real World Assets? What are your biggest concerns? What RWA would you like to see GHO engage with? What would you like to see from the governance of facilitators? Of RWA collateral?

Would love to hear some thoughts from our friends and delegates: @AaveLabs @lbsblockchain @WintermuteGovernance @Kene_StableLab @JesusCryptoPlaza @pennblockchain @fig @Llamaxyz @stani @Anjan-ParaFi

We’re looking forward to building with Aave!

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Thanks Khan for this message appreciate the tag. For us as a club, we think a facilitator role for RWA for GHO is something we’d love to debate and possibly explore. The use cases are quite far and with different protocols in the past, it has become apparent that it is useful. I have a couple questions regarding logistics of actually operating such a thing? Further, maybe give this thread as an opportunity for prospective people/groups who would be interested in this role to come forth and nominate themselves or others. Opinions everyone?

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Hello here :raised_hands:

I will not surprise anyone that Real World Assets is the narrative right now and a lot of attention is focused on RWA DeFi.

I have some questions, probably some of them are general, but anyway:

  • Can you describe the draft of your plans in case Centrifuge becomes an RWA Facilitator?
  • Which risks and difficulties you can see right now for both Centrifuge/Aave and how you are planning to fix them?
  • Why Centrifuge?

Thank you in advance.

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Thanks @Khan, excited to see this discussion about real-world assets (RWAs) for the GHO stablecoin.

At Chainlink Labs, we share the sentiment that RWAs have enormous potential to bring trillions of dollars worth of assets on-chain and into DeFi to create a more efficient, transparent, and secure financial system.

Asset tokenization can allow for increased liquidity of traditionally illiquid assets; greater accessibility to previously closed investment opportunities; greater transparency in ownership; and a reduction in administrative costs associated with the trading of these assets, including management, issuance, and transactional intermediaries. By combining platforms like Centrifuge and Aave to enable RWA collateral for GHO, DeFi can serve a broader market and unlock many opportunities for traditional and on-chain finance.

Market-for-Trust-Minimization

A critical aspect of transferring value on-chain via RWAs is directly connecting the off-chain world to the on-chain world. Secure oracles allow RWA collateral to reach its full potential by providing reliable information about the underlying reserve assets that can be used in several key processes such as minting, verification, managing, and more. If RWA collateral is to be introduced to GHO, we believe that Chainlink Proof of Reserve (PoR) can play an essential role in increasing user trust and enable GHO to reach its full potential.

The governance of GHO facilitators should take into consideration transparency when proposing tokenized assets as collateral. Aave has already pioneered the usage of PoR with BGD Labs’ integration of Chainlink Proof of Reserve into the Avalanche markets as a circuit breaker for cross-chain activity. With the upcoming launch of GHO, Aave has an opportunity to trailblaze again by integrating PoR into the minting process of GHO when tokenized assets are used as collateral.

In this implementation, anytime a facilitator (such as Centrifuge) requests to mint GHO using RWAs as collateral, the minting function can reference the corresponding PoR contract to help ensure sufficient collateralization of off-chain reserves. If the reserves are found to be insufficient, the minting transaction would be reverted, protecting the protocol. Furthermore, Chainlink PoR can provide the community with increased insight and transparency into the off-chain reserves of RWAs that back GHO.

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Naturally, different tokenized assets will necessitate different oracle network structures and use case requirements. Since Chainlink interoperates with any API and off-chain system, Chainlink oracles can source this data from multiple avenues, including established auditing/CPA firms. We’re happy to collaborate with Centrifuge and other RWA stakeholders or facilitators in developing a PoR solution that works best for the protocol.

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Thanks @Khan for this. I am happy to see that Aave is taking this next step in its growth, and am positive that it will result in Aave increasing its revenues and ensuring that it can survive any future crypto regulatory ambiguity and secondary market recession.

TLDR - Aave RWA investment needs to account for sovereign risk diversification just as much as financial diversification to avoid over-reliance on U.S. market during a period of high inflation and de-dollarization.

My main concerns regarding RWA collateralization is to ensure that the basket of RWAs Aave chooses to invest in are just as geographically diverse as they are financially diverse (in terms of different asset types, yield ratios, and risk profiles). More specifically, we need to make sure that we don’t only on-board American and European-based RWAs - particularly given the continued global recession and the likely re-emergence of emerging market bonds due to increasing, international de-dollarization and hiking U.S. fed rates.

If we look at MakerDAO, which has already collateralized over $700 million in real-world assets - 100% of their portfolio is U.S. economy-based (American bank loans & U.S. Treasury Bonds). This somewhat makes sense, given that the world’s largest stablecoins (including DAI) are pegged to the U.S. Dollar, however, unlike the U.S. Dollar, stablecoins like DAI and GHO have the ability to strengthen their status as a reliable, store of value by diversified collateralization (even better than USD on the gold standard in my opinion).

We cannot transform GHO into a widely adopted, reliably collateralized stablecoin if its underlying RWA investments are centralized to one sovereign territory - one that’s regulatory regime hasn’t been particularly ideal for Web3 growth.

My suggestion would be the following:

  1. Ask the community (and seek financial strategist advice) what they think our collateral portfolio should look like to hedge the most risk in the near-term between off-chain RWA investments (e.g. U.S. Treasury Bonds) and on-chain RWA investments (e.g., provide debt investment to a real-world defi lending protocol).

  2. Ensure that all collateral on-boarding frameworks (for application and governance voting) have a conflict of interest clause to highlight if any Aave core contributors have vested interests in oncoming RWA deals. MakerDAO had issues with this on their now $1.25 billion DAI Debt Ceiling RWA Vault (Monetalis Clydesdale).

  3. Ensure that we leave at least a minority portion of the portfolio to support liquidity for up and coming projects (that have undergone validated audits, etc.)

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