PEPE is a widely held, highly liquid asset in the crypto ecosystem. Its rapid growth in adoption, substantial trading volumes, and deep liquidity across major centralized and decentralized exchanges make it a natural candidate for integration into AAVE.
Adding PEPE could:
Expand AAVE’s market reach and attract a new demographic of depositors and borrowers.
Help fuel the growth of GHO, AAVE’s native stablecoin, by increasing the available collateral base for GHO minting.
Generate additional liquidation income for the AAVE protocol. Given PEPE’s nature as a meme-driven asset, it is reasonable to expect elevated levels of borrowing, speculation, and resulting liquidations — all of which could accrue value to the AAVE DAO.
Further diversify the asset options available to users while carefully managing risk through isolated market controls.
Specification
Risk Parameters will be provided by Risk Service Providers and ARFC will be updated accordingly.
Disclaimer
The proposal is directly powered by ACI, under Skyward. ACI did not received compensation for the creation of this proposal.
Next Steps
Collect community & service providers feedback before escalating proposal to ARFC snapshot stage.
If the ARFC snapshot outcome is YAE, publish an AIP vote for final confirmation and enforcement of the proposal.
As the original poster of the TEMP CHECK, I want to first thank everyone for the thoughtful feedback and discussion on the PEPE proposal. I appreciate the diverse perspectives shared and would like to address some of the concerns raised:
1. Reputational Considerations:
I understand the apprehension regarding the inclusion of meme coins like PEPE in AAVE’s core markets. However, it’s worth noting that traditional financial platforms, such as Charles Schwab, offer a wide range of assets—from blue-chip stocks like MSFT and AAPL to more speculative penny stocks. This diversity doesn’t necessarily tarnish their reputation; instead, it caters to a broader user base.
Similarly, casinos provide both high-stakes games and penny slots, with the latter often being significant profit centers. The key is in offering choices while managing risks appropriately.
2. Risk Management:
Conservative risk parameters, such as Loan-to-Value ratios and liquidation thresholds, would be recommended by risk management partners to mitigate potential volatility. As long as we set the parameters correctly — we can dramatically reduce the risk of bad debt.
3. Revenue Opportunities:
Incorporating PEPE could open up new revenue streams for AAVE:
GHO Growth: By allowing users to deposit PEPE and borrow GHO, we can increase the utility and adoption of AAVE’s native stablecoin.
Liquidation Income: Given the speculative nature of meme coins, there’s a higher likelihood of liquidations, which can generate additional income for the protocol.
4. Market Demand:
PEPE has demonstrated substantial trading volumes and liquidity across major exchanges. Its inclusion could attract a new demographic of users to AAVE, expanding our community and user base.
In Conclusion:
The integration of PEPE, when approached with caution and strategic risk management, presents an opportunity to diversify AAVE’s offerings and tap into new markets. I welcome further discussions on this and am open to collaborating on refining the proposal to address any outstanding concerns.
Hello, I’m rather in favor of this proposal, with the necessary risk management, of course.
However, even if the addition of PEPE were to take place on the main instance, I believe it’s important to clarify from the start that this would ONLY be in a testing context, and that if the results are conclusive and the DAO wishes to further develop the memecoin market on the platform, a dedicated instance for memecoins should be created in order to separate these assets from the rest of the protocol.
In my opinion, the memecoin market is significant and worth considering due to the volumes generated and the potential revenue it could bring to the DAO. With support from platforms like Contango, traders could easily trade these assets directly through AAVE, whereas other major money markets do not currently offer them.
It might also be interesting to look at the case of Kamino on Solana, which lists memecoins on its lending platform and, to my knowledge, hasn’t encountered any major issues so far.
Since Aave 3.2 introduced Liquid emodes, we have gained the benefits of instance segregation by locking up collateral with debt assets in pairs without the downside of splitting liquidity across separate instances. Consequently, onboarding can occur on any instance without penalty.
My two cents:
Demand is on mainnet.
Prime is viewed as a highly curated market with a smaller asset selection. Onboarding PEPE there might send the wrong message.
Core is more open but only native GHO minting is available. This setup with V3 does not allow adding a risk premium to the GHO borrow rate.
I suggest onboarding ahead of this AIP a wrapped GHO, wGHO, in Core with a bespoke interest rate strategy. I would like @ChaosLabs to implement an Edge Oracle on this debt asset that mirrors the GHO borrow rate plus a premium.
The DAO currently provides liquidity in Prime. The DAO should also LP in wGHO. I recommend creating a junior risk tranche for StkGHO by covering wGHO separately from GHO under an umbrella.
If the PEPE experiment succeeds, expand long tail collateral wGHO onboardings to boost protocol revenue while keeping risk in check.
For wStkGHO stakers, since the wGHO borrow rate exceeds the GHO minting cost, they should earn more than StkGHO stakers, compensating them for the added risk via higher yield.
For those familiar with the ACI vision, this essentially revives the emergence instance concept, monetizing long tail assets in a structure that offers higher profit margins for those assets.