Summary
LlamaRisk supports this proposal and endorses the detailed analysis conducted by @ChaosLabs. We align with the proposed parameters based on their rationale and our independent research. We want to highlight a few additional considerations for the DAO:
osGNO
The majority of liquidity in the Balancer pool was contributed by a single address approximately 90 days ago, creating significant liquidity concentration risk. This presents a critical point of failure - if this major liquidity provider withdraws, it could severely destabilize the pool. While osGNO’s underlying collateral redemption mechanism provides some protection, Aave liquidators may still struggle to execute profitable liquidations efficiently.
The Balancer pool’s asymmetric composition (66% osGNO / 33% GNO) further compounds these risks, as the path to exit could become particularly challenging during periods of market volatility.
Given the asset’s thin liquidity, the highly limited LTV and LT parameters for non-E-mode osGNO are prudent. This conservative approach reduces bad debt risk by restricting leveraged positions to GNO borrowing only, capitalizing on the assets’ inherent price correlation.
GNO
Source: GNO supplier market positions, Chaos Labs Community Analytics, 23 December 2024
LlamaRisk supports removing GNO from isolation mode with the recommendation that supply caps are not increased under current market conditions. The asset on Aave is primarily used to collateralize USDC.e loans that are unlikely to be liquidated. To allow a greater blend of assets will not only increase GNO’s attractiveness as collateral but may also facilitate the Gnosis Credit Line proposal put forward recently.
Source: GNO supplier market wallet health, Chaos Labs Community Analytics, 23 December 2024
The primary concern for this proposal centers on GNO’s limited liquidity. A relatively modest swap of $1.1M (~4500 GNO) causes a 7% price impact. With the removal of isolation mode, the protocol may attract additional GNO deposits given the ~20K supply cap room. At full capacity, total GNO TVL would reach ~$23M, resulting in LTV-adjusted debt potentially exceeding 10x available liquidity. This creates significant risk during large-scale liquidations, particularly since many of the largest GNO positions on the network are non-liquidatable. Given these market conditions and potential bad debt, we strongly recommend maintaining the current supply cap without any increases.
sDAI
Making sDAI borrowable introduces significant risks. Primarily, sDAI’s inherent APY can be modified at short notice by Sky contributors. Users may face unexpected interest rate changes without adequate preparation, creating an operational burden for the DAO to maintain aligned IRM parameters.
This risk is amplified on the Gnosis Chain, where staked DAI yields are higher than native due to an additional layer of yield redirection. Almost all xDAI represents DAI staked on Ethereum and bridged to Gnosis. Users may experience rapid changes in position health and face potential liquidation if they fail to manage their collateral and debt positions actively.
Current market conditions suggest a limited initial borrow cap of $2M, indicating insufficient financial infrastructure for profitable shorting opportunities. Given these constraints and the lack of clear benefits, we cannot support onboarding sDAI as a borrowable asset without a more compelling strategic rationale.
Disclaimer
This review was independently prepared by LlamaRisk, a community-led non-profit decentralized organization funded in part by the Aave DAO. LlamaRisk is not directly affiliated with the protocol(s) reviewed in this assessment and did not receive any compensation from the protocol(s) or their affiliated entities for this work.
The information provided should not be construed as legal, financial, tax, or professional advice.