[ARFC] 5M USDC Allocation for GHO Market Making on Gnosis Chain

Governance
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Title: [ARFC] Deploy 5M USDC for GHO Market Making on Gnosis Chain

Author: @kpk
Date: 2025-04-30

Summary

This ARFC proposes allocating 5 million USDC for market-making activities of the GHO token on Gnosis Chain. The funds will be managed non-custodially under kpk’s mandate with Aave, with the goal of enhancing liquidity, particularly for GHO / USDC.e and GHO / EURe, and minimizing price impact, all without additional fees to the DAO.

Motivation

Deploying GHO on Gnosis Chain is a critical step in expanding its reach and utility, particularly as Gnosis Chain grows with use cases like Backed Assets and Gnosis Pay. To support this expansion, deep and responsive on-chain liquidity is essential.

When GHO is launched on a new blockchain, significant incentives are typically required to bootstrap liquidity, which is foundational for enabling composable DeFi services on top of existing markets. This early liquidity, however, is often passive and does not respond dynamically to price imbalances or shifts in market demand.

This proposal addresses that challenge by deploying active, non-custodial liquidity through kpk-managed positions. This approach tackles two key limitations at once:

  1. It reduces the need for high incentive costs typically associated with passive liquidity mining, and

  2. It ensures liquidity can respond to market conditions, contributing to healthier and more efficient pools.

Liquidity would be provided to key pairs, including GHO / USDC.e and GHO / EURe, and leveraging a non-custodial management system for transparency and security. It aligns with Aave’s goals and requires no additional compensation, as it falls under kpk’s existing mandate with Aave.

Specification

Source of Funds

In order to fund this proposal, 5M USDC should be bridged to the Gnosis Chain.

Use of Funds

The 5M USDC will be allocated across a series of liquidity pools and strategies to support the GHO token’s stability and adoption. The core activities will include:

  • Liquidity provisioning between GHO / USDC.e and GHO / sDAI, to support deep liquidity with other major stablecoins in the GC ecosystem

  • Liquidity provisioning between GHO / EURe, to facilitate future integrations with Gnosis Pay

  • Deposit or withdraw - swap - GHO from the market to stabilize the price during volatile periods.

Liquidity pools will be deployed mainly in Uniswap v3 and Balancer (specially once sGHO is deployed).

As additional fiat-backed stablecoins are added (e.g. with Gnosis Pay expansion to other countries), new GHO pairs may also be introduced.

The strategies will aim to:

  • Kickstart liquidity with key stablecoin pairs

  • Maintain tight spreads

  • Reduce price impact for common trade sizes.

  • Enable healthy arbitrage and cross-pair parity among GHO and other stables

Asset Management Architecture

Funds will be managed using kpk Permissions in a dual multisig system:

1. Avatar Safe (Portfolio Wallet)

  • Holds custody of funds, controlled by Aave-affiliated signers

  • Controlled by trusted Aave-affiliated signers

  • kpk will act as a transaction proposer for permission updates, with no direct signing authority over assets. This ensures accountability and separation of roles.

2. Manager Wallet Safe

  • Holds permissions to execute pre-approved transactions
  • Does not hold DAO assets
  • Controlled by kpk

This non-custodial and trust-minimised operational setup illustrates kpk’s core asset management pipeline: kpk controls a Manager Wallet (Safe) assigned with a manager role, which enables us to execute transactions on behalf of the Portfolio Wallet (Safe) within the scope of the On-Chain Permissions Policy. This system ensures:

  • Flexibility: kpk will be able to manage positions within the scope of the On-Chain permissions with the required agility to interact with market movements;

  • Security without compromising execution speed. The only actions allowed are the ones validated on the On-Chain Permissions Policy, ensuring the scope defined will be respected while granting execution agency to the Manager Wallet

  • Ownership without increasing operational workload for the Portfolio Wallet signers. The Portfolio Wallet retains ownership of all assets, but the Manager Wallet handles all operational maintenance of the positions.

Proposed Signers:

Avatar Safe (Portfolio Wallet):

  • Representatives from ACI, Aave Labs, TL, and BGD/Certora

Manager Wallet Safe:

  • Signers from kpk

KPIs and Objectives:

This initial allocation will be used to achieve the following:

  • Price impact:

    • Less than 0.1% on 1M swaps for USDC.e,

    • less than 0.5% on 100k swaps for EURe

Next Steps

After community feedback, the proposal will proceed to an ARFC Snapshot vote. If approved, kpk will:

  • Set up Safe infrastructure and share initial permissions for review

  • Coordinate with @tokenlogic the proposal for asset transfer to the Avatar safe

  • Deploy liquidity pools

Copyright

Copyright and related rights waived via CC0.

8 Likes
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TokenLogic appreciates the proactive initiative outlined in this proposal to enhance GHO liquidity on Gnosis Chain. We recognize that early liquidity is essential for GHO’s success on any new chain, and the proposed mechanism by @kpk is well-aligned with those objectives.

With several funding proposals expected to be submitted in the near term, including initiatives to grow Aave’s market share on Base and some CEX Earn programs the total cost, timing, and interdependencies of these efforts are not yet fully defined. These are expected to be quite sizeable incentive campaigns utilising treasury funds. In this context, committing $5M for market making on a network where GHO has not yet launched introduces an additional layer of complexity. While the proposal outlines a strong operational framework, we believe strategic sequencing is critical to avoid overcommitting resources prematurely.

As such, we suggest revisiting this proposal closer to the actual GHO deployment on Gnosis Chain, when liquidity needs, competitive priorities, and DAO-wide capital strategy can be more accurately evaluated. A delay will allow the DAO to approach this proposal with a clearer understanding of its total funding landscape and ensure capital is deployed where it can deliver the highest marginal utility.

We look forward to continuing collaboration on this front and welcome further discussion as deployment timelines and funding priorities evolve.

3 Likes
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Thank you, @tokenlogic, for your thoughtful feedback—we appreciate the nuances involved in meeting all the fund requirements.

kpk timed this proposal to coincide with the GHO launch on Gnosis Chain (GHO contracts and deployment AIP PR under development) and the subsequent sGHO rollout.

With your input in mind, we’ll move this ARFC to Snapshot for community review now and coordinate the fund-transfer AIP once everything is ready.

2 Likes
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Hi @kpk @TokenLogic thanks for all the context here. From our end, we’re not sure exactly which way to lean here because both of your points are valid - GHO’s launch on Gnosis Chain does need initial liquidity to be successful, but on the other hand, it’s important for there to be a perfectly aligned incentive program across chains and CEX Earn programs. Allocating 5M USDC to Gnosis Chain without complete visibility of the amounts allocated to those initiatives may not be the optimal move for the DAO.

From our end, we’d like to know a few things:

(1) When will there be further visibility on the amounts allocated to all initiatives? I.e., how long will we have to wait before we can allocate the USDC to Gnosis Chain?
(2) What will the impact of the delay be on GHO’s launch on Gnosis Chain?

If the answer to (2) is that there will be a significant impact, then it may make sense to allocate the funds now. If the answer is that we can afford to wait, then it makes sense to have an aligned program of allocation.

2 Likes
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Thanks @sid_areta for your comment.

Expanding into point #2—here’s why postponing this proposal and the USDC allocation directly impacts our ability to launch GHO and sGHO with the intended incentives at the desired time:

  • Operational setup. The governance approvals establishing kpk-managed Manager Wallet and Avatar Safe rely on this proposal passing. If the proposal is delayed, the following steps (multisig assignments, policy validation, security review) can’t be completed on schedule. That is why this ARFC will progress to snapshot, leaving the fund coordination for AIP (as part of a funding AIP or a dedicated one).
  • Execution/deployment window. In addition to that, if the allocation isn’t committed by the time permissions are finalised, we’ll not be able to deploy the active liquidity strategies in time for the GHO and sGHO launch. GHO traction would rely solely on passive LP incentives, resulting in wider spreads, poorer depth, and likely higher retroactive incentive costs.

It is important to highlight that this is working capital, not an expense. This 5M USDC is for market-making activities, and the funds always remain under Aave’s DAO custody. Approving this proposal now ensures the permissions setup work and market-making rollout move forward in lockstep with launch, delivering the optimal on-chain liquidity the DAO expects.

1 Like
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Thanks for putting up the proposal. Can we see some additional modelling on the liquidity? Trying to understand exactly the impact of the 5M GHO (which is sizeable MM budget), especially curious about the swap sizes that are expected.

2 Likes
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Thanks @Stani for your comment.

We’d like to clarify that the request is for 5M USDC only, with no additional GHO, to support and strengthen GHO’s liquidity and utility at launch on Gnosis Chain.

The goal is to use these funds as working capital, rather than relying solely on incentive programs to reach equivalent market depth. This approach aims to position GHO as a leading stablecoin on Gnosis Chain and the most attractive debt asset—especially when compared to alternatives like xDAI or USDC.

Achieving this requires deep and effective liquidity, which will be deployed on Uniswap and Balancer across the following markets (subject to adjustment as needed):

  • GHO / USDC.e
  • GHO / sDAI
  • GHO / EURe
  • Additional RWA-related markets in the future

The requested USDC will be allocated within these pools to minimize price impact for typical trade sizes. Our targets are:

  • <0.1% price impact on 1M USDC.e swaps, and similar for sDAI — laying the groundwork for sGHO
  • <0.5% price impact on 100K EURe swaps

This strategy not only supports GHO’s growth and stability, but also allows Aave to earn trading fees, while maintaining flexibility to adjust the allocation strategy over time.

1 Like
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The current proposal has been escalated to ARFC Snapshot and vote will start tomorrow. We encourage everyone to participate!

2 Likes
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Im voting abstain, as Im currently unsure if we can handle all initiatives we have running and or planned that are impactful and important for the DAO like Umbrella. Its crucial to time things and maybe wait for the official launch of GHO on Gnosis and then even think about batches of 1-2m of GHO instead of 5m directly. This may handicap some planned strategies but makes sure we are efficiently using that money.

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Thank you @Stani, @TokenLogic, @sid_areta, and @EzR3aL for your valuable contributions to the discussion. We’re currently integrating your feedback into a more developed version of the proposal and look forward to continuing the collaboration to ensure alignment with the DAO priorities.

1 Like