[ARFC] Aave Liquidity Committee Funding Phase IV
Title: [ARFC] Aave Liquidity Committee Funding Phase IV
Author: @karpatkey_TokenLogic
Created: 2024-09-25
Summary
This publication presents the Aave Liquidity Committee (ALC) Phase IV request.
Phase III Update
Ethereum
During the previous phase of the ALC, GHO’s peg has been resilent and more recently, has been trading above peg due to demand for stkGHO. A 5M GHO swap resulting in a low quoted price impact.
Overall, TVL is sitting around $45M with the amount of GHO allocated to DEXes being approximately 10M. These numbers don’t account for GHO Stability Modules (GSM) totaling 16M across USDC and USDT.
The Tricrypto pool on Curve and 80/20 wstETH/GHO pool on Balancer have seen inflows in response coordinating liquidity and boosting rewards to those pools. By workingly closely with various fund managers, we have been able to achieve significant deposit growth over the last month.
With perp funding rates drifting lower, the cost of capital has also drifted lower from 17.5% to around 10-12%. In general, providing DEX liquidity has become more attraction from a capital allocation perspective. However, stkGHO remains the more attractive investment and we consistently receive this feedback from various fund managers across the industry.
On Ethereum, the more battle tested pools like Balancer’s GHO/USDC/USDT 3pool have had good success with attracting liquidity relative to the newer ECLPs by Gyroscope. On Arbitrum, with a more retail LP user base, the reverse appears to be true.
More generally, this is leading to a re-think of how we approach ECLPs in general with Maverick proving to be more effective and responsive as a peg defense tool on Ethereum with over 6M of liquidity.
The Notional Finance integration provides a large portion of the 3pool liquidity on Balancer by offering users the ability to leverage farm the incentives to amplify the returns. Leveraging the BPT postion on Aura Finance, has proven an effective tool to help support the peg.
The below provides an overview of GHO’s current liquidity incentive distribution on Ethereum:
Arbitrum
GHO’s growth on Arbitrum has been slower than intended due to lack of volume through the bridge.
There is no native supply on Aave and transferring GHO to Arbitrum for yield is directly competing with stkGHO and liquidity provisioning on Ethereum. Borrowing GHO on Ethereum to provide liquidity on Arbitrum requires extra steps and generates similar returns. Of the GHO that was coordinated through the bridge, a large portion has been swapped out of DEX liquidity pools and now resides on Aave. The ability to arbitrum GHO’s price between networks becomes more practical with growing supply on both networks.
The above has influenced in GHO consistently trading above $1.00, with a 5M swap resulting in a higher price impact (above 50%). The TVL in GHO pools in Arbitrum is $5.7M, with GHO representing about $1.2M.
Phase IV Lookahead
Ethereum
In the near future we expect GHO to be listed on InstadApp with several curated vaults providing additional utility and yield opportunites that use GHO.
A sUSDS/GHO strategy vault is expected to launch on Contango with support from the Contango team. Early stage discussions with prospective investors is promising.
We also expect GHO to feature in the upcoming Royco launch with the intent to drive flows into several yield strategies across Ethereum and Arbitrum.
Achieving 50M of DEX liquidity on Ethereum across various integrations remains a key focus. Whilst we are yet to acheive this target, we are currently very well positioned for current market conditions.
The 80/20 wstETH/GHO pool on Balancer and GHO/wBTC/wstETH pool on Curve are to be consolidated into GHO/tBTC/wETH pool. This is expected to reduce cost and offer better swap routings.
In the near future, we expect further joint collaborations between Paxos, Balancer and the ALC resulting in a new liquidity pool and acheiving the 50M TVL target. Looking beyond this, there will be an increasing focus on integrations that create utility for GHO.
With GHO surpassing 150M circulating supply and approaching 50M in DEX liquidity, we expect potential opportunities for the ALC to support GHO listing on centralised exchanges.
When accounting for the above, the proposed quarterly budget for the Ethereum ecosystem is 650,000 GHO.
Arbitrum
To boost GHO supply on Arbitrum, the September Finance update proposes transferring 5M GHO from the Treasury on Ethereum to Aave v3 on Arbitrum. This is substantially increase the GHO supply on the network.
In the near future, we expect GHO to be listed on Synthetixs v3 with under-utilised liquidity deposited into Aave v3 to earn yield.
A USDe/aGHO ECLP is to launch soon with x30 Sats with support from the ALC.
The ALC’s focus on Arbitrum is shifting towards creating utility and demand sinks for GHO as DEX liquidity is well positioned to support the peg.
The previous ARB budget for GHO liquidity on Arbitrum was 375,000 ARB over 3 months. This is equivalent to around $200,000 at spot prices. With the expected GHO listing on Synthetix in the near future, the overal Arbitrum budget is to replace existing liquidity spending and also focus on the broader adoption of GHO within the ecosystem.
The quarterly budget for the Arbitrum ecosystem is 300,000 GHO.
Performance Metrics
The below details some high-level GHO metrics:
| Description | Ethereum Value | Arbitrum Value |
|---|---|---|
| TVL DEX Liquidity Pools | 50M | 30M |
| TVL Utility Liquidity Pools (Excl. stkGHO) | 15M | 10M |
| DEX Liquidity Composition | < 50% GHO (< 33% for 3pools) | < 50% GHO (< 33% for 3pools) |
| Swap Price Impact $5M Swap (GHO to USDC) | < 0.10% | < 0.25% |
| Annualised Peg Volatility | < 5.00% | < 5.00% |
| Price level for >90% time | $0.995 using Redstone Medium Price | $0.995 using Redstone Medium Price |
Please note, each of the above targets has external dependencies beyond the control of the ALC. The above table serves as a North Star for the ALC to strive towards over the next three months. Having measurable targets provides a clear direction and goal to achieve.
Specification
Create an Allowance for GHO on Ethereum for a total of 950,000 GHO.
ALC Ethereum SAFE: 0xA1c93D2687f7014Aaf588c764E3Ce80aF016229b
Disclosure
TokenLogic and karpatkey receive no payment for this proposal. TokenLogic and karpatkey are both delegates within the Aave community.
Next Steps
- Gather feedback from the community.
- If consensus is reached on this ARFC, escalate this proposal to the Snapshot stage.
- If Snapshot outcome is YAE, an AIP will implement this proposal.
Copyright
Copyright and related rights waived via CC0.