Hi @MarcZeller,
Given GHO is to be launch on Ethereum v3, I think we need to understand the mechanisms supporting GHO and how it will interact with each Asset Reserve. There is no documentation on GHO and no mechanism design modelling shared with the community, so I can only comment based upon what is heard on the grape vine, which could be very wrong.
From what I understand, GHO can be minted against any collateral asset on Aave v3 and there is only two parameters that are governance controlled which is the Interest Rate and the global amount of GHO which can be minted per Aave deployment. From what I understand there is no way to control how much GHO can be minted against each Asset Reserve. Therefore, GHO can be backed 100% by high volatile assets, it is possible, just not likely.
In a risk off event, the correlation across asset prices converges to 1. This means all higher risk assets tend to trade the same way. During these risk off events, there is a rush into stable coins and even redeemable stable coins trade above $1. This was definitely the case when the Luna crash happened, USDC, DAI and USDT all traded above $1. It is likely GHO will trade the same way.
Let’s consider a tail risk scenario… What happens when the GHO mint limit is reached, or is close to it, and there is a market crash where GHO trades above $1 and there are a lot of long tail assets backing GHO which collapse in price. This seems like a recipe for a greater chance of bad debts emerging as the stable coin trades above the redemption price, gas is typically high, governance token liquidity often contracts or DEX pool become overweight the high risk asset leading to higher price impacts on swaps. This all happens around about the same time which compounds the issues. This might be offset by a higher liquidation reward but the CRV event shows us there is still risk of bad debt despite a functioning liquidation process. This scenario is a by product of not being able to control which assets can back GHO which could be considered a design flaw/trade-off in how GHO integrates to v3.
It is hard to tell if the above is true when there is no public docs on GHO and no mechanism modelling shared with the community to fully understand the limitations / risks presented by GHO given the current design limitations of Aave v3. How easy would it be to upgrade Aave v3 to better accommodate GHO before deploying it on Ethereum. Seems like now is the right time to discuss how GHO interacts with v3 and then discuss if we upgrade v3 in production or do it now when there are no user funds in the contracts.
From what I can tell, the only way Aave can deploy GHO safely on v3, is to heavily restrict which assets are listed as collateral and then use SupplyCap to risk how much collateral can be deposited. There is no way to prevent any asset from being used to mint GHO and to my knowledge there is no way to introduce a GHO Reserve and then only enable GHO borrowing by certain types of collateral. It seems the current design of v3 is rather restrictive and sub optimal given the trade-offs with supporting GHO. Without upgrading v3 to have better risk controls for GHO, it seems the only logical way forward is to heavily restrict what assets are onboarded to v3 on Ethereum.