[ARC] Add SUSHI to AaveV3 on Mainnet

Title: Add SUSHI to AaveV3 on Mainnet

Author: Fuji Finance team


This publication presents the community with the opportunity to add SUSHI as an asset in Aave V3 on Mainnet.


SUSHI is the token created by the well-known SushiSwap exchange. It is currently a top 5 DEX by TVL (over $500M at time of writing, with ~$450m from their DEX markets), with deployments on 25 different chains.

While the SUSHI token cannot be used for governance directly, its’ derived forms, xSUSHI and “ETH/SUSHI SLP” (a.k.a SUSHIPOWAH), can be.

Previously, xSUSHI was accepted as a collateral in AaveV2; however, given the events of the FTX collapse in the fall of 2022 and as a mitigation risk proposed by Gauntlet in AIP121, xSUSHI market was frozen along with other markets. Refer to AIP121.

A few days later AIP125 was submitted and approved to un-freeze some of the assets. This proposal allowed some assets to continue being used as collaterals but not as a borrowed asset. However, xSUSHI was not included in the unfreeze.

While xSUSHI was previously supported by AaveV2, we do not propose to support xSUSHI again, but specifically the SUSHI token.

Having two money markets with the same asset helps for general composability. In addition Sushi re-structured their financials, redirecting fees from xSUSHI holders now going directly to the Sushi treasury. It is, therefore, why we also consider that having SUSHI token listed rather than xSUSHI.

SUSHI is also already a supported collateral asset in AaveV3.


The SUSHI token is currently supported on CompoundV2 on mainnet, and we suggest similar risk parameters should be considered with Aave V3 as well. The interest rate curve that optimizes utilization ratio could be similar to the UNI token.

Max LTV Liquidation threshold Liquidation Penalty Reserve Factor
60% 67% 10% 20%

Benefits for Aave:

Aave V3 could benefit from the TVL increase that could be kickstarted from this proposal.

Benefits for the ecosystem:

Having the same token contract, SUSHI, in two reputable money markets creates possibilities for arbitrage and general composability in the Ethereum DeFi ecosystem.

Fuji Finance is an aggregator of money markets, and we would be open to creating a vault that rebalances between the Compound V2 & Aave V3 markets for SUSHI.


Fuji Finance is not an expert in risk, and therefore we suggest the community considers discussing the optimal risk parameters.


SUSHI Listing on Aave V3 Ethereum

Gauntlet supports listing SUSHI on Aave V3 Ethereum. The following table contains Gauntlet’s recommended initial parameters.

Risk Parameter Gauntlet Rec
Isolation Mode YES
Enable Borrow YES
Enable Collateral YES
Borrowable in Isolation NO
Loan To Value 40%
Liquidation Threshold 50%
Liquidation Bonus 10%
Reserve Factor 20%
Liquidation Protocol Fee 10%
Borrow Cap 8,450,000
Supply Cap 8,450,000
Debt Ceiling $24,700,000
Base 0%
Slope1 7%
Uoptimal 45%
Slope2 300%

We recommend the following parameters for SUSHI on Aave V3 Ethereum:

Isolation Mode - Yes
Borrowable - Yes
Collateral Enabled - Yes
E-mode - No

Isolation Mode Debt Ceiling - $24,700,000

We recommend keeping SUSHI in isolation mode. Per Gauntlet’s isolation mode methodology, we recommend the debt ceiling be set to 15% of the token’s circulating market cap. This implies a debt ceiling of $24,700,000. At current prices this is higher than the supply cap; it will not become binding unless token prices rise.

Loan to Value and Liquidation Threshold - 40%/50%

SUSHI has a market cap of $164M, placing it below the other DeFi governance tokens listed on Aave V3 Ethereum. Its DEX liquidity is comparable to those of SNX and MKR. SUSHI’s annualized volatility over the past 28 days is 33.9%. Compare that volatility to LDO at 74.7%, BAL at 46.2%, and CRV at 36.5%, and SUSHI’s volatility is relatively low.

Symbol Market Cap 25% Depth (1inch) Liquidation Threshold LTV
UNI $3.8B $4.5M 77% 65%
LINK $3.3B $4.8M 65% 50%
LDO $1.8B $10.8M 50% 40%
AAVE $912M $10.5M 73% 66%
SNX $752M $1.0M 65% 49%
CRV $671M $9.8M 61% 55%
MKR $580M $910k 70% 65%
BAL $219M $19.8M 62% 57%
SUSHI $164M $1.5M - -

Given SUSHI’s relatively smaller market cap and DEX liquidity, we recommend starting with a conservative LTV of 40% and a conservative LT of 50%, matching the most conservative values of existing DeFi tokens.

Supply and Borrow Caps

Supply Cap (in tokens) - 8,450,000 / Borrow Cap (in tokens) - 8,450,000
Our supply and borrow cap recommendations are set in accordance with Gauntlet’s borrow and supply cap methodology. We recommend capping borrow and supply at half of SUSHI’s average daily trade volume across DEXs and CEXs.

Liquidation Bonus - 10%

We recommend an initial liquidation bonus of 10% to ensure profitable liquidations.

Liquidation Protocol Fee - 10%

Gauntlet recommends an LPF of 10%, matching the LPF for other similar assets.

Reserve Factor - 20%

Gauntlet recommends a reserve factor of 20% for SUSHI on Ethereum, matching the RF of most other non-stablecoins on Ethereum.

IR Curves

We recommend the same IR curves used for other protocol governance tokens on Ethereum, such as LDO, MKR, and AAVE.

Parameter Recommendation
Base Variable Borrow Rate 0%
Variable Rate Slope 1 7%
Optimal Usage Ratio 45%
Variable Rate Slope 2 300%

Great to see this proposal make its way to the AAVE community. :handshake:


Considering the current liquidity and the rather low market cap of SUSHI, which has been trending lower in recent months, we advise cautiousness should the community decide to include SUSHI as a collateral asset on Ethereum V3. To this end, we suggest the implementation of conservative risk parameters, as detailed in our analysis below.

Liquidity and Market Cap

When analyzing market cap and trading volumes of assets for listing, we look at data from the past 180 days. The average market cap of SUSHI over the past 180 days was ~$216M, and the average daily trading volume was ~$50M (CeFi & DeFi).

Untitled - 2023-06-06T002247.946

Liquidation Threshold

Analyzing SUSHI price volatility over the past, we observed daily annualized volatility of 104.51% and 30-day annualized volatility of 52.54%. Considering this volatility, we recommend launching with an LT of 60%.

We support listing SUSHI as borrowable under reasonable limits of supply cap, as we do not observe a significant risk to the protocol by allowing to borrow the asset.

Untitled - 2023-06-06T002249.831

Debt Ceiling

Following Chaos Labs’ Isolation Mode Methodology, we recommend an initial debt ceiling of $3.3M. Under the methodology for Isolation Mode, we consider two levels of probabilities for extreme price drops - Medium-High and High. We estimate the probability of an extreme price drop for SUSHI as High. Given this debt ceiling, we do not identify a profitable attack vector under the current liquidity levels.

Supply Cap, Borrow Cap, and Liquidation Bonus

Following Chaos Labs’ approach to initial supply caps, we propose setting the Supply Cap at 2x the liquidity available under the Liquidation Penalty price impact.

Given the concentrated liquidity of SUSHI we recommend a 10% Liquidation Bonus and a derived supply cap of 1,600,000 SUSHI, and a borrow cap of 700,000 SUSHI.

Untitled - 2023-06-06T002252.202


We recommend aligning the parameters to other governance tokens for the Reserve Factor, Liquidation Protocol Fee, and Interest Rate curves.

Following the above analysis, we recommend the following parameters if the community decides to list SUSHI:

Parameter Value
Isolation Mode Yes
Borrowable Yes
Collateral Enabled Yes
Supply Cap (SUSHI) 1,600,000
Borrow Cap (SUSHI) 700,000
Debt Ceiling $3.3M
LTV 50.00%
LT 60.00%
Liquidation Bonus 10.00%
Liquidation Protocol Fee 10.00%
Variable Base 0.00%
Variable Slope1 7.00%
Variable Slope2 300.00%
Uoptimal 45.00%
Reserve Factor 20.00%
Stable Borrowing Disabled
Flahloanable Yes
Siloed Borrowing No
Borrowed in Isolation No
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