[ARFC] Add AAVE token to Aave V3 Base Instance

[sreno]

Risk Parameters have been updated by Risk Service Providers and ARFC has been updated accordingly 2025-04-01

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Summary

This publication presents the community an opportunity to expand AAVE governance token integration on the AAVE platform by adding AAVE collateral option to Base.

AAVE token has wide integrations into all other major AAVE instances including ETH Mainnet, Arbitrum, Optimism, Polygon, and Avalanche. Adding AAVE to the Base instance is the next logical step in AAVE token integration within the AAVE lending platform.

Motivation

• AAVE token is a versatile governance token which is already accepted collateral on all major AAVE instances.

-The Base Market is growing in TVL, the addition of collateral options already found on other AAVE instances will increase Base Market growth.
-There is deep liquidity on Base chain for the AAVE token already. Price impact of just 0.77% for $1m ETH/AAVE trades using jumper.exchange on Base.
-Aerodrome (Base DEX) has $10m TVL in WETH/AAVE concentrated liquidity.

Base has seen expansion in its TVL now surpassing Arbitrum by ~15%. Base chain is a small but significant part of total Defi TVL (all chains) of 3%.
Source: https://defillama.com/chains

Specification

Ticker: AAVE
AAVE L2 (Base) contract address: [0x63706e401c06ac8513145b7687A14804d17f814b]
(https://basescan.org/address/0x63706e401c06ac8513145b7687a14804d17f814b)

Risk Parameters have been updated and ARFC has been updated accordingly 2025-04-01

Parameter	Value
Asset	AAVE
Isolation Mode	No
Borrowable	No
Collateral Enabled	Yes
Supply Cap	30,000
Borrow Cap	-
Debt Ceiling	-
LTV	60%
LT	65%
Liquidation Penalty	10%
Liquidation Protocol Fee	10%
Variable Base	-
Variable Slope1	-
Variable Slope2	-
Uoptimal	-
Reserve Factor	-
Stable Borrowing	Disabled
Flashloanable	Yes
Siloed Borrowing	No
Borrowable in Isolation	No
E-Mode Category	N/A

Useful Links

AAVE Token

Disclaimer

Edit: The original author does not hold AAVE token and has not been compensated for the writing of this proposal.

Next Steps

1. Publish an ARFC, collect community & service provider feedback before moving forward with governance.
2. if feedback is positive, escalate to ARFC snapshot vote stage
3. if ARFC snapshot outcome is YAE, Publish an AIP vote for final confirmation and enforcement of the proposal.

Copyright

Copyright and related rights waived under CC0.

[sreno]

Requesting proposal modification from @ACI to fit ARFC for already listed on AAVE assets. Requesting a risk assessment from @ChaosLabs or @LlamaRisk

This proposal should be eligible for direct-to-AIP governance process since it is the AAVE token itself.

[sreno]

Bumping, this proposal should go straight to AIP vote since its Aave token. Using Aave on Base market has a strong use case, Base market is expanding its available tokens. Most other Aave markets have Aave token already.

[ChaosLabs]

Overview

Chaos Labs supports listing AAVE on Aave V3’s Base instance. Below is our analysis and initial risk parameter recommendations.

AAVE

AAVE is the native token of the Aave protocol; its supply on Ethereum has been relatively steady over the past three months.

It is also listed in other instances, with Polygon holding the most, followed by Arbitrum, Optimism, and Avalanche.

Market Cap & Liquidity

AAVE currently has an on-chain supply of 25K, or about $4.6M. However, this may be expected to increase following its listing on the Base deployment. Its DEX liquidity on Base is concentrated in an Aerodrome pool with WETH. The amount of WETH contained in this pool has been highly volatile, though it recently reached over $3M WETH, paired with $3.9M AAVE.

LTV, Liquidation Threshold, and Liquidation Bonus

Given the limited market cap and less stable liquidity, we recommend listing with more conservative parameters than on other chains. Hence, we recommend a 10% LB, 60% LTV, and 65% LT.

Supply Cap and Borrow Cap

We recommend setting the AAVE supply cap based on Chaos Labs’ standard methodology, which defines the cap as twice the liquidity available under the liquidation bonus. Based on this approach, we propose an initial supply cap of 30,000 AAVE. As in other instances, we do not recommend allowing the asset to be borrowed.

Oracle/Pricing

We recommend using a Chainlink AAVE/USD market rate oracle for this listing.

Specification

Following the above analysis, we recommend the following parameter settings:

Parameter	Value
Asset	AAVE
Isolation Mode	No
Borrowable	No
Collateral Enabled	Yes
Supply Cap	30,000
Borrow Cap	-
Debt Ceiling	-
LTV	60%
LT	65%
Liquidation Penalty	10%
Liquidation Protocol Fee	10%
Variable Base	-
Variable Slope1	-
Variable Slope2	-
Uoptimal	-
Reserve Factor	-
Stable Borrowing	Disabled
Flashloanable	Yes
Siloed Borrowing	No
Borrowable in Isolation	No
E-Mode Category	N/A

Disclaimer

Chaos Labs has not been compensated by any third party for publishing this recommendation.

Copyright

Copyright and related rights waived via CC0

[LlamaRisk]

Summary

LlamaRisk supports this proposal and aligns with @ChaosLabs’ initially conservative proposed parameters. AAVE has reached a point on Base network at which it is sufficiently liquid, distributed, and established that collateralization is feasible.

The DAO will note that the proposed supply cap (30,000) is more than the current supply of $AAVE on Base (27,910), but good DEX liquidity and good bridging infrastructure.

Proposed parameters

Chaos Labs proposes a supply cap of 30,000 AAVE. The asset would be collateral only, with an LTV of 60% and an LT of 65%. The liquidation bonus is proposed to be 10%. This is substantially less than mainnet, which has an LTV of 69% and LT of 76% with a supply cap of 1.3M and a liquidation bonus of 7.5%.

This proposed onboarding is markedly more conservative than on mainnet, which is appropriate given that Base is a substantially less mature network. Caps are not at capacity on the mainnet, meaning that the unmet demand to collateralize this asset is not demonstrated.

Liquidity

Source: Aave to ETH Base trade, 1inch.io, March 31st, 2025

Liquidity is good, with 2M$ trades facilitated through onchain liquidity venues at a 10% price impact. The primary venue is the AAVE/WETH on Aerodrome, currently paying 410% APR. This pool holds the vast majority (86%) of AAVE on the network .

Aerodrome’s major liquidity provider is this address, who provides nearly the entire pool’s liquidity. Their deposits in Aave V2 indicate that this address holds long-term alignment, but this does not reduce the fact that they may withdraw all liquidity instantly. This results in the potential for liquidation to be unprofitable (stemming from high price impact on this network).

Source: Aave Base to Mainnet bridge, Oku, March 31st 2025

In addition, this asset can be bridged from the network to the mainnet, where it is far more liquid. Some 14,400 $AAVE may be bridged instantly. This will assist liquidators in profitably purchasing distressed positions to dump them instantly.

These considerations make liquidity risk worth considering, which is why Chaos Labs’ parameters are conservative and, therefore, suitable.

Disclaimer

This review was independently prepared by LlamaRisk, a community-led 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.

[ACI]

Thank you @LlamaRisk and @ChaosLabs .

ARFC has been updated accordingly, and it has been escalated to ARFC Snapshot.

Vote will start tomorrow, we encourage everyone to participate.