[ARFC] Add bCSPX to Aave V3 Gnosis Instance

[ARFC] Add bCSPX to Aave V3 Gnosis Instance

Author: ACI (Aave Chan Initiative)

Date: 2025-02-17

Risk Parameters updated 2025-02-25


Simple Summary

This proposal seeks to list bCSPX (Backed CSPX Core S&P 500) on Aave V3 Gnosis - Instance, marking Aave’s first RWA token integration on Gnosis Chain. bCSPX represents 1:1 tokenized exposure to the S&P 500 index through a regulated ETF structure.

Motivation

  • Gnosis Chain Growth: Gnosis Chain currently holds $290M TVL (+18% QoQ) with $5M+ daily DEX volumes (DeFiLlama)
  • RWA Leadership: Position Aave as first-mover in RWA lending on Gnosis, following successful integrations like Reental RWA on Polygon and friendly forks like RealT on Gnosis.
  • Market Expansion: Enable exposure to traditional equities through DeFi primitives - a $15.6T addressable market (Galaxy Research)

Benefits for Aave

  1. First RWA on Gnosis: Establish early dominance in RWA lending
  2. New Market Access: Enable crypto-native exposure to S&P 500 returns (13.8% 10Y CAGR) via regulated token (CoinGecko)
  3. TVL Growth Leverage: Tap into $2.5M existing bCSPX/sDAI liquidity pool with GNO incentives (Balancer)
  4. Chain Synergy: Align with Gnosis’ 32% TVL growth in 2024 through strategic RWA integrations (DeFiLlama)

Key Statistics

Metric Value Source
Gnosis TVL $290M DeFiLlama
bCSPX Liquidity $3.0M Balancer
S&P 500 AUM $7.8T ICI
RWA Lending Growth 214% YoY Galaxy

Specification
• Gnosis Contract Address: 0x1e2c4fb7ede391d116e6b41cd0608260e8801d59
Risk Parameters:

Risk Parameters have been updated 2025-02-25 with latest feedback from Risk Service Providers.

Parameter Value
Asset bCSPX
Instance Gnosis
Isolation Mode No
Borrowable No
Collateral Enabled Yes
Supply Cap 4,000
Borrow Cap -
Debt Ceiling -
LTV 68.00%
LT 72.00%
Liquidation Penalty 10.00%
Liquidation Protocol Fee 10.00%
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

bCSPX DocumentationGnosis Chain Growth MetricsRWA Market Analysis

[TEMP CHECK] Add bCSPX to Aave V3 Gnosis Instance

[TEMP CHECK Snapshot] Add bCSPX to Aave V3 Gnosis Instance

Disclaimer

The current proposal is powered by ACI, under Skywards. ACI has not received payment from original author and has not beencompensated for future actions regarding this proposal.

Next Step

  1. Publish ARFC, collect community & service provider feedback before escalating proposal to Snapshot.
  2. Publish an AIP vote for final confirmation and enforcement of the proposal.

Copyright

Copyright and related rights waived under CC0.

5 Likes

Supportive of this proposal. The addition of the first RWA on AAVE will represent the first step in further RWA listings on other markets. RWA will be a powerful growth driver as Crypto becomes more mainstream.

3 Likes

We are in support of this proposal; in our opinion, the Aave DAO integrating RWA Assets is a massive step in the right direction; with the possibility of integrating Pendle Tokens, Aave is already deliberating on the infrastructure needed to handle RWA assets in the near future.

4 Likes

We firmly support adding bCSPX to the Gnosis Instance, as it effectively bridges TradFi with DeFi, offering diversified exposure to the S&P 500.

bCSPX already has around $6M in on-chain liquidity on Gnosis Chain through Balancer and Swapr (Balancer, Swapr), allowing seamless access for users and liquidations, presenting significant potential for deeper integration, especially considering the growing presence of RWA.

CoW Swap is aggregating liquidity and at the time of writing ~$900k worth of bCSPX can be liquidated at a 2.2% slippage.

  • At the event of insufficient on-chain liquidity, or if on-chain price deviates from that of the off-chain index price, Backed offers unlimited native issuance and redemption of bCSPX for onboarded users at market price + 0.5% fee.

Its addition could facilitate the development of Aave-boosted pools on Balancer v3, paired with EURe or xDAI, further enhancing liquidity and utility within the Gnosis ecosystem.

3 Likes

Summary

LlamaRisk supports this ARFC and recommends onboarding bCSPX as a collateral-only asset within Aave V3 on Gnosis. bCSPX is an ERC20 token that tracks the performance of the iShares Core S&P 500 UCITS ETF—providing on-chain exposure to U.S. large-cap equities through Backed’s suite of tokenized real-world assets. The token is deployed on multiple chains (Ethereum, Gnosis, Polygon, Arbitrum, and Avalanche) with plans for Sonic deployment. Liquidity is notably concentrated on Gnosis via Balancer v2 and Swapr pools, which together hold a TVL of approximately $5.5 million.

The availability of a Proof of Reserves feed provides reassurance about the token’s underlying collateral. However, we have observed short-term pricing volatility in bCSPX, with brief upward spikes followed by downward adjustments that mirror fluctuations in London Stock Exchange quotes. This volatility is further exacerbated by the price feed’s 15-minute delay. Additionally, the protocol’s concentrated ownership structure presents a separate risk factor. In light of these factors, we do not recommend borrowing with bCSPX at this time.

Comprehensive audits have resolved all smart contract issues, and following detailed discussions with LlamaRisk, the team has agreed to launch a bug bounty program soon to further enhance protocol security.

From a regulatory standpoint, bCSPX operates under Jersey financial laws and the Swiss DLT Act. Its underlying ETF is authorized by the Irish Central Bank, and token issuance is approved by the Financial Market Authority of Liechtenstein. Custody services are provided by Maerki Baumann & Co. AG and InCore Bank AG, with token holders represented by Security Agent Services AG. Backed employs an institutional Multiparty Computation (MPC) Wallets solution from Fordefi.

In light of the current liquidity profile and pricing challenges, a conservative risk approach—using bCSPX solely as collateral—is advised to ensure safe integration into Aave V3 while expanding Aave’s exposure to tokenized real-world assets.

Collateral Risk Assessment

1. Asset Fundamental Characteristics

1.1 Asset

Issued as an ERC20 token, the Backed CSPX Core S&P 500 (bCSPX) functions as a tracker certificate that mirrors the iShares Core S&P 500 UCITS ETF (CSPX). The underlying ETF aims to reflect the net total return of the S&P 500 Index, composed of 500 of the largest publicly listed companies in the United States, while deducting its fees and expenses. By holding bCSPX, investors gain on-chain exposure to the same performance profile of CSPX in a format that can be easily transacted on blockchain networks.

bCSPX is one offering among a wider suite of bTokens created by Backed; a firm focused on tokenizing real-world assets in compliance with EU financial regulations. Each bToken takes the form of a structured product directly issued on a blockchain and represents a debt certificate fully collateralized 1:1 by an underlying traditional asset, such as an ETF or an equity. The bToken ecosystem spans multiple chains, including Ethereum, Gnosis, Polygon, Arbitrum, Fantom, Avalanche, BNB Smart Chain, and Base.

1.2 Architecture

Only professional/qualified investors can mint or redeem bCSPX, while retail participants have redemption rights but cannot mint new tokens. Under Jersey law, professional investor status may be granted to financial professionals, high-net-worth individuals, regulated service providers, EU professional clients, persons recognized by the Jersey Financial Services Commission (JFSC) on a case-by-case basis, etc. Prospective investors affirm this capacity by completing a self-declaration form. Backed products are unavailable to US persons, US entities, US-controlled entities, and entities or individuals located in prohibited or high-risk jurisdictions.

The subscription process, also known as issuance, starts with the tokenizer (Backed Finance AG) pre-creating ledger-based securities for specific products and holding them in a wallet on behalf of the Issuer (Backed Assets (JE) Limited). When investors want to purchase a product, they submit an order to the Issuer and go through a KYC process. Once the KYC is complete and the Issuer receives payment, it buys the equivalent amount of underlying and transfers it to a collateral account. Then, they instruct the tokenizer to activate the pre-created securities and transfer them to the investor’s specified wallet. It’s worth noting that if the Issuer can’t purchase the underlying within the given timeframe, they’ll cancel the order and refund the investor, minus a small fee to cover expenses.

The redemption process can be triggered in two ways: an investor submits a redemption order (exercising their Investor Put Option), or the issuer decides to terminate a product (using their Issuer Call Option). The issuer’s call is an uncommon measure, generally included for regulatory and legal safeguard purposes. Furthermore, a robust KYC process is in place to ensure full compliance with regulatory standards. Once the tokenizer receives the investor’s products and forwards the redemption order to the Issuer, the Issuer has five business days to complete the redemption. During this time, they deactivate the received products, liquidate the corresponding underlying in the collateral account, calculate the redemption amount, and finally, instruct the payment provider (the custodian) to pay the redemption amount to the investor. If an investor opts to redeem in stablecoins, the issuer converts the specified amount into the chosen stablecoin and transfers it to the investor’s pre-approved wallet.

Issuance for bCSPX generally follows a T+2 timeline, which ensures that new tokens are minted within two business days. Smaller orders can be processed within minutes through Backed’s available working capital. When investors wish to purchase, they must submit an order and complete mandatory KYC procedures by regulatory requirements. The Issuer maintains discretion in rejecting orders based on negative findings.

A similar structure applies to redemptions, where requests of modest size can be settled promptly, and larger ones are finalized within T+3. As with subscriptions, successful KYC verification is required before redemption can proceed. Redemptions may be received in stablecoins or cash, and while orders can be placed at any time on the Backed platform, actual execution depends on the trading hours of the exchange where the underlying ETF is listed. Daily and monthly operational limits apply at different thresholds for professional and institutional clients.


Source: https://assets.backed.fi/, February 19th, 2025

1.3 Tokenomics

bCSPX is issued or redeemed at the price Backed’s brokers obtain for the underlying asset, plus applicable fees, in adherence to best execution practices. The total issue volume can go up to CHF 100,000,000, with the possibility of further expansion. Subscribers can invest at least CHF 5,000, while the overall issue volume caps the maximum. A transaction fee of 0.5% is charged on both issuance and redemption, and no performance fee is associated with bCSPX. The Issuer of the underlying ETF charges an annual management fee of approximately 0.07% of the investment’s value. This rate reflects the actual costs documented by the ETF over the past year.

1.3.1 Token Holder Concentration

On Mainnet Backed:Deployer controls 99.35% of the total supply of 2,843.43 tokens ($1.8m at current ETF price). The next four holders out of 54 in total collectively own <0.34% of the supply.


Source: Etherscan, February 19th, 2025

The total supply of 8622.47 tokens ($5.5m) on the Gnosis chain is currently held by 119 addresses, but the ownership is heavily skewed toward the top holders. Four addresses dominate the token distribution, collectively controlling 98.75% of the total supply. The primary holder is a Vault with 31.15%, followed by the Backed: Deployer holding 28.52%.


Source: Gnosisscan, Date: February 19th, 2025

Overall, the supply of bCSPX is distributed over 5 different chains as follows:

Chain Supply Market Cap
Ethereum 2843 bCSPX $1.8m
Gnosis 8622 bCPSX $5.5m
Polygon 830 bCPSX $0.54m
Arbitrum 1237 bCPSX $0.8m
Avalanche 2835 bCSPX $1.8m

Source: Chain explorers (linked above), February 19, 2025

2. Market Risk

2.1 Liquidity

Liquidity for bCSPX is concentrated on the Gnosis Chain, where the Balancer v2 bCSPX/sDAI pool maintains a total value locked of approximately $3,475,096 including $1.72M in bCSPX. A bCPSX/sDAI pool on Swapr is also available and has $1.05M in bCPSX.

In addition, a lending option through PWN.xyz offers a long strategy with around $30,362.94 in available credit, accessible in USDC.e, EURe, and WXDAI against bCSPX collateral.

There are currently 1900 bCSPX ($1.2m) available to be sold for USDC.e under 2.5% price impact on Gnosis.


Source: CowSwap, Date: February 18th, 2025

2.2 Volatility

bCSPX has reliable price alignment with its underlying CSPX ETF. The trading pattern for bCSPX/USD on DEX demonstrates overall stability, with small-bodied candles reflecting the change underlying off-chain ETF’s price changes.

Source: GeckoTerminal, Date: February 19th, 2025

2.3 Exchanges

Beyond its Balancer and Swapr presence, bCSPX does not currently have listings on centralized exchanges.

2.4 Growth

The tokenized stock metrics for bCSPX reveal distribution across two networks, with Gnosis Chain holding the majority at $5.60M and Ethereum maintaining $1.80M, totaling $7.40M in market cap.

The current price of $641.86 bCSPX has demonstrated a strong upward trend visible from March 2023 to February 2025 with approximately 24% price growth, reflecting the broader positive tradFi market conditions since October 2024.

Source: Goingecko, Date: February 19th, 2025

The total supply of the bCSPX tokens has risen overall in 5 chains. The growth has correlated with the positive market periods, especially since the beginning of November 2024.

Source: Dune, February 18th, 2025

3. Technological Risk

3.1 Smart Contract Risk

3.2 Bug Bounty Program

Backed does not presently offer a bug bounty program. After contacting the protocol team, we were informed that the bug bounty program would be created in the near future.

3.3 Price Feed Risk

Source: https://oracles.backed.fi/, Date: February 19th, 2025

An active Chainlink CSPX/USD oracle supports the asset by updating its data daily or whenever a market price fluctuation exceeding 2% occurs. The market price feed relies on sources from the London Stock Exchange, with updates on a fifteen-minute delay.

The feed setup and the inherent delay may result in a large deviation between the oracle’s reported price and the secondary market price on DEX pools. This is an important consideration for time-critical integrations, especially in lending protocols.

3.4 Dependency Risk

bCSPX employs a Chainlink Proof of Reserves feed, which refreshes every 24 hours or earlier if the latest value diverges by more than 10% from the previously recorded figure. This Proof of Reserves mechanism is facilitated by The Network Firm, an independent auditor granted full access to Backed’s custody accounts. By examining bCSPX’s collateral, the firm verifies the underlying reserves and provides an attestation relayed on-chain via an external adapter.

Source: Backed Proof of Reserves Architecture, Date: February 19th, 2025

bCSPX contract implements:

  • ERC-20 token functionality, incl. support for basic token operations like transfer, balance tracking, and allowances.
  • EIP-712 Standard for permitted and delegated transfer functionality, token approvals and transfers via signed messages, gas-efficient and secure way to manage token permissions
  • Chainalysis sanctions list interface to prevent transfers involving sanctioned addresses

The contract imports and depends on the following:

  • @openzeppelin/contracts-upgradeable/access/OwnableUpgradeable.sol - upgradability framework
  • ERC20PermitDelegateTransfer.sol (custom implementation)
  • SanctionsList.sol (custom implementation)

4. Counterparty Risk

4.1 Governance and Regulatory Risk

European investment regulations established the iShares Core S&P 500 UCITS ETF underlying bCSPX as a UCITS fund. Its Issuer, iShares VII Public Limited Company, J.P. Morgan, 200 Capital Dock, 79 Sir John Rogerson’s 8 Quay, Dublin 2, D02 RK57, Ireland, operates under authorization from the Irish Central Bank and is registered under number 469617.

bCSPX itself is issued by Backed Assets (JE) Limited, incorporated in Jersey Channel Islands and wholly owned by Backed Finance AG in Zug, Switzerland. The bCSPX issuance observes Jersey legal requirements, along with COBO consents under the Control of Borrowing (Jersey) Order 1958 and CGPO consents under the Companies (General Provisions) (Jersey) Order 2002. These approvals align with Jersey’s financial laws, ensure that high-risk securities are not offered to unsophisticated investors, and confirm adequate disclosure in the offering materials. Tokenization follows the Swiss DLT Act, meaning the securities are structured as blockchain-based cryptographic tokens. Because they do not qualify as collective investment schemes under the Swiss Collective Investment Schemes Act, they are not subject to FINMA authorization.

Source: JFSC, Date: February 19th, 2025

On May 6, 2024, the Financial Market Authority (FMA) Liechtenstein, as competent authority under the Prospectus Regulation, approved the Securities Note and Registration Document for bTokens. The Issuer has asked the FMA to notify regulators in other EU member states of this approval.

Brokerage and custodial services for bCSPX are furnished by Maerki Baumann & Co. AG, an independent Swiss private bank in Zurich, and InCore Bank AG, a B2B transaction bank also based in Switzerland.

Tokenholders possess an exclusive claim on the collateral specifically allocated to the product they hold, with no entitlement to collateral backing other products or the Issuer’s assets. Neither bCSPX nor any other Backed product is insured or guaranteed by any governmental authority, regulatory body, or agency. Tokenholders do not acquire any rights akin to those of shareholders, and they are not entitled to voting privileges, pre-emption opportunities in subscribing to the securities of the Underlying ETF, any share in profits of the Underlying ETF issuer, or rights to a distribution of surplus in a liquidation scenario affecting the Underlying ETF. Under the most recent design update, any dividends from the underlying asset are automatically reinvested in the holder’s position, and the token is rebased to incorporate these proceeds.

Security Agent Services AG is the designated Security Agent. By acquiring bCSPX, each investor appoints the Security Agent as its direct representative, enabling the investor to exercise all rights under the Collateral Agreement concluded with the Issuer and the relevant product schedule solely through the Security Agent. In the event of the Issuer’s winding up, administration, receivership, insolvency, or any debt enforcement proceedings, the Security Agent is authorized to satisfy tokenholders’ claims under the Collateral Agreement, including related fee claims, from the proceeds of the collateral before making any other payments. The Security Agent assumes control of the custody accounts and oversees the assets’ liquidation for the tokenholders’ benefit.

Grant Thornton audited the 2022 and 2023 financial statements of Backed Assets GmbH and, based on their statutory examination, identified no indications that the financial statements or the proposal to carry forward the accumulated loss fail to comply with Swiss law or the company’s articles of incorporation. Audited financial statements for 2024 are expected to be available by late April.

4.2 Access Control Risk

4.2.1 Contract Modification Options

4.2.2 Timelock Duration and Function

The contract does not have a built-in timelock mechanism. The owner can immediately change roles and settings.

4.2.3 Multisig Threshold / Signer identity

Owner: 0x22f2dFE84a2EaCfE5d3cA81d26E610CB94eB1603 is a GnosisSafe with the following signers:
0x2860a2051A93113CB6E931022b658ed1dC68D444
0xe25B606f393b60ADcB85cC127A2d79F78C9Cb658
0xd49FbB0711E91eF730c23f0D2fEF4E5C5bF96Eb1

Minter/Pauser: 0xdD276f57e40D745E09855BA5711613F5Da0C4A71 is a GnosisSafe with the following signers:
0x414f6CB44Cd975165f8299a5cCbed92aa1A26F58
0x297C815a70EC3CF394Aa3db5B4AA166448961541
0xA0807ca21101Fd097B60795A786569F6A5F5522E

Backed employs an institutional MPC solution from Fordefi.

Note: This assessment follows the LLR-Aave Framework, a comprehensive methodology for asset onboarding and parameterization in Aave V3. This framework is continuously updated and available here.

Aave V3 Specific Parameters

Parameters will be presented jointly with @ChaosLabs.

Price Feed Recommendation

Given the limited onchain liquidity of this asset, we recommend using Chainlink’s PoR feed in conjunction with the CSPX/USD London Stock Exchange price feed of Chainlink. Nonetheless, as discussed above, the CSPX/USD price feed is delayed by 15 minutes and, therefore, possesses a risk of large deviations.

image
Source: Chainlink CSPX/USD price feed, February 19, 2025

It can be observed that Chainlink’s price feed has reported upward price spikes followed by downward re-adjustments. The nature of these spikes stems from the upward, very short-term volatility observed in the quotes of the London Stock Exchange.

image
Source: Yahoo Finance, February 19th, 2025

Therefore, these deviations justify a proposed large liquidation bonus, which would ensure the execution of liquidations at all times. In addition, we will discuss with Chainlink the potential adaptations to the CSPX/USD price feed that would eliminate the impact of short-term exchange volatility while keeping the risk properties sufficient.

Potential GHO Integration

In the TEMP CHECK phase, an alternative way for Aave to onboard the bCSPX asset via a GHO facilitator was suggested by @MarcZeller. There are multiple ways to segregate the risks via GHO stablecoin, keeping the risk profile of Aave’s Gnosis market unimpacted:

  1. A facilitator operating as a whitelisted minter for bCSPX, directly underwriting loans in GHO using an internal mechanism. This way, the facilitator’s internal mechanism could perform liquidations by performing redemptions on demand. Nonetheless, this solution is non-optimal and would require significant operational overhead, together with a requirement of a price hedge for the period of redemption, which is not instant.
  2. A more probable option would be to onboard this asset in the upcoming emergence market instance on Ethereum Mainnet. This dedicated instance would enable borrowing GHO at premium rates, where a dedicated probationary process would facilitate the growth of this asset before onboarding it to Aave’s main markets.

Nonetheless, the feasibility and implementation of each solution remain to be explored in detail, together with other service providers. Given the limited supply of the asset at the time of this analysis, operational costs for the DAO may be too large to consider onboarding this asset via a dedicated facilitator. Therefore, it is rational to integrate this asset into Aave’s Gnosis market initially.

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.

3 Likes

We’re excited to see Aave foray further into the RWA space with this addition to the Gnosis instance.

Just one question from a regulatory risk perspective - we’d like @LlamaRisk to clearly opine on whether adding bCSPX to Aave exposes the protocol to any regulatory risk. This wasn’t immediately obvious to us upon reading their comment.

1 Like

Our examination of Backed’s legal framework, including the issuer’s regulatory posture, tokenization methodology, issuance and redemption procedures, and asset custody mechanisms, does not reveal any concerns or disputes regarding the product’s compliant status. For clarity, it mentions that the issuer maintains a valid COBO consent granted by the Jersey Financial Services Commission, and the product offering has received approval from the Liechtenstein Financial Market Authority. Backed does not engage in direct marketing or solicitation of users outside Jersey or the EU/EEA, and it enforces a strict policy of geographical restrictions, categorizing certain countries as either prohibited or non-serviceable.

By incorporating bCSPX, AAVE neither assumes nor is expected to assume a client-service provider relationship with any Backed-affiliated entity. Given the asset’s confirmed compliance, there appear to be no impediments to its inclusion in the Gnosis instance.

Nevertheless, this perspective is offered with due regard to the current regulatory treatment of DeFi lending as of the date of this report. Should the legal characterization of DeFi protocols undergo substantial changes, it may become necessary to revisit the decision to onboard regulated offerings such as RWAs.

Nothing in this opinion or the preceding risk assessment should be interpreted as constituting legal advice or a definitive legal position on the operations, organizational setup, or regulatory standing of either AAVE or Backed Finance.

1 Like

Overview

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

bCSPX

bCSPX is an ERC-20 token designed to track the iShares Core S&P 500 UCITS ETF USD, issued as an open-ended Tracker Certificate under Jersey law and the Swiss DLT act. There is no fixed maturity, though it can be redeemed by a holder or terminated by the issuer with 30 business days’ notice. The tokenizer is Backed Finance AG, brokerage and custody are provided by Maerki Baumann & Co. AG and InCore Bank AG, and the security agent is Security Agent Services AG.

Backed Finance has the authority to execute minting, burning, turn on and off the relay function (pre-approve the transfer of tokens using a signed message, the transaction can then be executed using a different account), and use the updating function, which can migrate tokens to a new network or introduce freezing and/or burning functions. Backed is also able to pause all transactions.

The product is collateralized through the purchase of the underlying equities, in which proceeds from an investor buying the product are used to purchase. There is a 0.50% fee for minting and redeeming the token. The underlying ETF has a per year 0.07% management fee and 0.02% transaction fee. The token can be minted by pre-KYCd professional investors and can be redeemed by any KYCd holder. The minimum mint is CHF 5,000; there is a limit on total issuance volume set to CHF 100M, though this can be raised if needed.

Minting is facilitated by a 2-of-3 multisig, designated as the Minter on the bCSPX’s contract, which sends pre-minted tokens — tokens that exist on-chain but have not been collateralized and activated — to the Backed Deployer wallet. Most recently, on January 19, 2025, it pre-minted 3,000 bCSPX. This address is also designated as the Pauser. The Burner is set to the Backed Deployer, currently the second largest bCSPX holder on Gnosis at 27.8% of the total supply.

To mint the token, a user must undergo KYC procedures and submit a purchase order to Backed, after which Backed receives payment and submits a creation order. The issuer uses the payment (less fees) to purchase the underlying; if this is successful, the tokens are activated and transferred to the designated wallet. If the assets are not bought in time, the purchase is canceled, and the funds are returned.

If Backed decides to discontinue bCSPX for any reason, they can exercise their “Issuer Call Option” by giving notice to investors at least 30 business days before the termination date. This decision can be based on several factors, such as illiquidity of the underlying asset, regulatory changes, increased costs, taxation, or technological risks, and may result in a redemption amount that is significantly lower than the original issue price. In the event that this process is triggered, we would likely recommend gradual reductions in LT over the course of the 30-day period.

To request a redemption, an investor must go through KYC procedures, after which they forward the redemption order to the issuer, which then has five business days to deactivate the received tokens by transferring them to a designated wallet. They then liquidate the underlying according to the amount of tokens deactivated, calculate a redemption amount, and instruct the Paying Account Provider (Maerki Baumann or InCore Bank) to pay the redemption amount, less fees. In case of a redemption to stablecoin, the issuer transfers the redemption amount, less fees, directly to the investor’s wallet.

Market Cap and Liquidity on Gnosis

bCSPX currently has a total supply of 8,622 on Gnosis, representing an on-chain market cap of $5.6M. It has 136 unique holders, with the Backed Deployer holding 2,403 tokens. There has been a steady upward trend in liquidity following a sharp uptick in mid-January; its largest liquidity pools are paired with sDAI.

Volatility

The underlying asset has low volatility relative to crypto-native assets listed on Aave. Since liquidity has improved, bCSPX has more closely tracked the underlying, with a 30-day daily annualized volatility of 14.48%.

Pricing

There is currently no Chainlink price feed available for the asset on Gnosis, while the Ethereum CSPX price feed is subject to a 15-minute delay and uses a 2% deviation threshold. Moreover, the data may be derived from a value in the middle of the bid-ask spread at market open, recording a price where no or minimal trades have actually occurred. This culminates in the Chainlink feed returning very large price changes relative to previous updates, with multiple updates of more than 15%.

These price spikes additionally appear to reflect anomalous data provided by certain data providers, such as TradingView, shown below.

While sufficiently conservative parameters may prevent bad debt, stale and incorrect prices triggering significant updates can erode the liquidation incentive, delaying liquidations in extreme cases. Furthermore, we cannot rule out the possibility of a more severe temporary price spike that, through deviation scaling beyond a certain threshold, could lead to deliberate arbitrage and, thus, bad debt. Accurately assessing the value of the underlying asset as collateral in a lending market and forecasting the potential adverse consequences of artificial volatility across the ecosystem remains infeasible, especially when considering that the price spike occurs at the same time every day.

Instead, until Chainlink fixes the bCSPX/USD feed, we propose that Aave utilize the SPY/USD feed (currently deployed on Arbitrum), which tracks the more liquid SPY and uses a deviation threshold of 0.5%. This leads to more stable and fresher pricing with no extremely large updates as seen in the CSPX oracle; SPY’s maximum change between updates was 3.22%, well within a volatility-minimized range per the distribution below.

SPY is currently priced 6.9% lower than CSPX because the latter accumulates dividends in its stock price. This underpricing does not pose a risk to Aave with the selected listing parameters, as it will essentially reduce the asset’s borrowing power. Below is charted the ratio of SPY to CSPX over time, showing how the ratio has fallen from 1.00 in 2021 to 0.9411 in 2025. In 2024, the ratio declined by 1.37%.

Moreover, modifying the current bCSPX PoR feed on Polygon to deviate from a total underlying calculation to alternatively reflect a readable representation of asset collateralization would be a nice multiplicative addition to the SPY/USD feed. However, as mentioned previously, the minting process can deliberately lead to undercollateralized (pre-minted) nominal shares while minting is performed across chains, thereby making this quantification non-trivial.

LTV, Liquidation Threshold, and Liquidation Bonus

Given the factors mentioned above, in which there is some friction in redeeming the asset, we recommend setting its Liquidation Bonus to 10%. Taking this LB into account, we recommend setting its LT to 72% and LTV to 68%.

Supply and Borrow Caps

According to our usual methodology, we recommend setting the asset’s supply cap at 2x the amount of liquidity available at a price impact equivalent to the Liquidation Bonus, which leads to a recommendation of 4,000 bCSPX.

Given the likelihood of price dislocations arising from underpricing in expectation, we do not recommend allowing borrowing of the asset. Collateralized bCSPX debt positions would not be liquidated efficiently due to significant debt underpricing.

Specification

Following the above analyses, we have aligned with @LlamaRisk on the following parameters:

Parameter Value
Asset bCSPX
Instance Gnosis
Isolation Mode No
Borrowable No
Collateral Enabled Yes
Supply Cap 4,000
Borrow Cap -
Debt Ceiling -
LTV 68.00%
LT 72.00%
Liquidation Penalty 10.00%
Liquidation Protocol Fee 10.00%
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

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

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Having initially noted concerns about the pricing approach for this asset and following discussions with Chaos Labs, we agree that using a SPY/USD feed currently represents the best solution. We recognize that a properly implemented PoR could help mitigate exposure to bad debt in cases of insolvency. The natural discount between CSPX and SPY and the proposed LTV and LT values provides a significant buffer that adequately addresses potential risks.

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It is our opinion that bCSPX operates within appropriate regulatory boundaries, and we aim to provide additional insights into what this means for potential AAVE integration. As a tokenized equity instrument, bCSPX is structured to adhere rigorously to Jersey Laws in terms of issuance and to comply with MiFID II provisions with respect to its offerings.

The limitation of token sales to users within the EU/EEA effectively ensures that operations remain confined to territories within the issuer’s approved scope. Crucially, Backed does not sell its tokens to U.S. persons or on behalf of U.S. persons, and tokens are neither marketed, offered, nor solicited in the United States or any other jurisdiction where such activities are prohibited. Consequently, the potential for overlapping jurisdictional claims—especially in light of concerns regarding U.S. regulatory reach—is robustly mitigated.

The design of Backed Tokens permits issuance and redemption by Professional and Qualified Investors while also allowing retail users to redeem tokens provided they successfully complete mandatory AML/KYC checks with the issuer. This structure facilitates DeFi composability and token integration, enabling Backed Tokens to circulate among various pools on distinct decentralized protocols without being necessarily classified as securities trading venues. By extending the hold and redemption functionality to retail users, the requirement that both sides of the transaction be accredited investors is effectively relaxed.

In a separate context, AAVE possesses compelling arguments to claim exemption under Recital 22 of MiCA, which states that “where crypto-asset services are provided in a fully decentralized manner without any intermediary, they should not fall within the scope of this Regulation.” The protocol’s design, along with its technical and governance frameworks, is sufficiently decentralized to exempt it from the authorization obligations imposed by MiCA potentially. Moreover, given the decentralized nature of the protocol and the absence of legal personality, pursuing authorization under CASP (as defined in MiCA) or as an Investment Firm or Trading Venue under MiFID appears unwarranted. At this stage of regulatory evolution, no established laws or procedures would enable a decentralized protocol to obtain the relevant authorizations.

Based on the foregoing observations, we do not identify bCSPX listing as entailing increased regulatory risks.

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Great analysis, thank you - very clear!