Gauntlet Risk Analysis
Simple Summary
Given the low level of DeFi activity, Gauntlet does not recommend that Aave deploy on Celo at this point in time. @ChaosLabs has reviewed this recommendation and has also arrived at the same conclusion.
Discussion
We evaluated the risk associated with deploying Aave on Celo by examining the liquidity of potential tokens and DEX liquidity/activity on the platform, as recommended by Gauntlet’s borrow and supply cap methodology. In particular, we analyzed factors such as:
- overall total circulating supply of potential collateral assets on Celo
- cost of incurring slippage on DEXes
- It takes less than $1mil to incur 25% slippage on CELO, WETH, and WBTC.
- liquidity and total volume of relevant DEXes
The picture painted by these numbers is also consistent with Aave’s asset risk methodology, which would assign a D risk rating to most of the assets we consider: CELO, cUSD, USDC, USDT, WETH, and WBTC.
Relevant Statistics
- TVL: $126 million (as of 2023/03/07)
The majority (68.7%) of Celo’s total value locked is on Mento.finance. This automated market maker (AMM) is primarily used for swapping Celo’s native stablecoins (cUSD, cEUR, cREAL) to and from CELO to help the stablecoins maintain their peg.
DEX Landscape
There are currently 4 decentralized exchanges on Celo (excluding Mento): Curve, Ubeswap, Uniswap, and Sushiswap. Their total value locked (TVL) is relatively low. Among them, Curve has the highest liquidity, primarily due to a cUSD/USDC pool with $20mil TVL and cUSD/USDC/USDT pool with $2.1mil TVL. All other liquidity pools have at most $600k TVL.
| Exchange | TVL |
|---|---|
| Curve | $22.2mil |
| Ubeswap | $3.16mil |
| UniswapV3 | $1.59mil |
| Sushiswap | $1.22mil |
The top liquidity pools on Curve:
DEX Volume
The following table shows DEX volume over the past 1 day, 7 days, and 30 days.
| All DEXs | Ubeswap | UniswapV3 | SushiSwap | |
|---|---|---|---|---|
| 1D | $147k | $58.7k | $77k | $9.1k |
| 7D | $1.65mil | $612k | $892k | $154k |
| 30D | $18.7mil | $14mil | $3.88mil | $780k |
Tokens
We show relevant statistics for CELO, cUSD, USDC, USDT, WETH, and WBTC, as these are the most likely assets to be used on an Aave deployment on Celo.
| Token | Circulating Supply ($) | Net Top 5 Wallets ($) |
|---|---|---|
| CELO | $432mil | $131mil |
| cUSD | $43.5mil | $8.4mil |
| USDC | $8.14mil | $264k |
| USDT | $575k | $2.1k |
| WETH | $1.58mil | $171k |
| WBTC | $596k | $54.5k |
Of the $8.14 million of USDC on chain, $7.2 million of the USDC tokens are in the cUSD/USDC Curve pool. Likewise, $573k of the $575k of USDT is in the cUSD/USDC/USDT Curve pool.
DEX Slippage
| Token | Cost of 2% DEX Slippage | Cost of 25% DEX Slippage |
|---|---|---|
| CELO | $22k | $572k |
| cUSD | $6.1mil | $9.63mil |
| WETH | $2.4k | $33k |
| WBTC | $20 | $1.9k |
We use USDC as the target token when computing the cost of slippage. Though $1 worth of CELO should be redeemable for ~$1 in cUSD, users incur 2+% slippage costs for any CELO to cUSD swap over $30k on Mento.
To avoid large slippage, users can make large CELO to cUSD swaps but must do so via the Granda Mento mechanism, which requires them to create a governance proposal that locks their to-be-swapped funds during the proposal while being voted on by the community. Because swaps for liquidations require timely execution, we do not regard swaps carried out through the Granda Mento mechanism as a viable source of CELO/cUSD liquidity.
Swaps between cUSD and USDC are more liquid than the other assets because there is a $20mil cUSD/USDC pool on Curve, which is also the largest TVL pool on all of Celo.
cUSD Risks
Apart from the liquidity issues with the cUSD token on Celo, we have reservations about the long-term price deviation risk of cUSD. Celo block explorer shows that there is $43.5 million worth of cUSD, $20.3 million worth of cEUR, and $1.12 million worth of cREAL outstanding, which are all backed by a reserve consisting of a blend of CELO, ETH, BTC, DAI, and USDC. Of the reserves, USDC and DAI holdings make up $48 million (according to the USDC and DAI wallets). Although the native stablecoins on Celo are currently overcollateralized, there is still some risk of price deviation given how much of Celo reserves are comprised of CELO tokens.