[ARFC] Add MKR to Ethereum v3

[ChaosLabs]

V2 → V3 Migration

Any asset listed on AAVE V3 that is also listed on AAVE V2 must be competitive in lending and borrowing terms. Otherwise, users will keep using AAVE V2. As you have accurately noted, listing the assets mentioned above in Isolation Mode is more restrictive than the cross-collateral functionality still available on AAVE V2.

The migration of such assets will be an iterative process:

1. Listing the asset on AAVE V3
2. Reducing the lending and borrowing terms on AAVE V2. We have a few tools to promote this: interest rate changes, disabling borrows, disabling use as collateral, and freezing assets altogether.
3. Monitoring the transition and (if needed) taking steps to increase the attractiveness of lending and/or borrowing on V3 while decreasing on V2.

We are awaiting the community vote on the four assets, but once it passes, we intend to follow up with a proposal to freeze the supply for those assets on V2.

It is important to note that we still need to make the AAVE V3 markets more appealing to MKR, UNI, and SNX holders over time. Analyzing the collateral compositions of the top 10 suppliers of these tokens in AAVE V2, we see that these positions have massive stETH supply that outnumbers their supply of the newly listed tokens. This means that to promote the migration of liquidity to V3, we need not only to attend to the direct parameters of these three tokens but also to look at the full picture. According to the collateral analysis of the top 10 suppliers of those assets, it is highly likely that even if all were listed with higher LT and outside of isolation mode, we would see little migration as most of their collateral is wstETH, for which current parameters on V3 are significantly inferior to V2 outside of E-Mode.

We have started working on a Migration Methodology to facilitate the transition of funds from AAVE V2 to AAVE V3. However, as seen in this instance, it requires an overarching strategy to accommodate all token holders’ needs. We are currently moving forward with specific listings and parameter settings that we identify as safe. These are generally over-conservative and lack the incentivization required to facilitate the full migration from V2 to V3, for which we will lay down a more robust approach in the coming weeks.

GHO Launch

An additional consideration for launching volatile assets in isolation mode on V3 Ethereum is a safeguarded launch for GHO, as stated in our original proposal for asset configurations for the V3 Ethereum launch

@ChaosLabs

Our recommendation is to have a 2-phased approach regarding the assets initially listed. It’s important to emphasize - per our understanding with core contributors - GHO is just a normal V3 asset. It doesn’t benefit from any extra feature, such as only being mintable by some assets or debt ceilings. The only way to restrict collaterals would be with isolation mode. Therefore, the limited assets in our proposal are by design. We want to support a safeguarded GHO launch, ensure high-quality collateral for GHO minting, and allow more time for a community discussion regarding the long-tail assets to be listed, given considerations (GHO launch, economic viability ) that were not taken into account in the original Snapshot.