[ARFC] Add PYUSD to Aave v3 Ethereum Market

Title: [ARFC] Add PYUSD to Aave v3 Ethereum Market

Author: Aave Chan Initiative (ACI)

Date: 2024-01-15

Simple Summary

This AIP proposes the onboarding of the PYUSD stablecoin, minted by Paxos Trust Company, into the Aave V3 Ethereum pool.

Motivation

PYUSD is a USD-pegged stablecoin minted through Paxos. While it’s still young, it has grown to a circulating supply of over $230M with strong peg resilience. Onboarding this asset into Aave will:

  • Build synergies between Aave and PYUSD.
  • Offer Aave users an additional stablecoin option.
  • Strengthen the relationship between the PYUSD & the GHO stablecoin. (Trident may explore the deployment of a PYUSD/GHO pool)

We propose a PYUSD onboarding outside isolation mode but without collateral properties.

If the community deems that PYUSD as collateral is immediately viable we stand ready to support that role on day one; otherwise following PYUSD maturity, the Aave governance can propose a collateral activation for PYUSD at a later stage.

Specification

Ticker: PYUSD
Contract address: 0x6c3ea9036406852006290770bedfcaba0e23a0e8
Price Feed: 0x8f1df6d7f2db73eece86a18b4381f4707b918fb1

Chainlink Oracle: https://data.chain.link/ethereum/mainnet/stablecoins/PYUSD-usd

We propose the following parameters for a PYUSD onboarding:

Parameter Value
Isolation Mode No
Borrowable Yes
Collateral Enabled No
Supply Cap (PYUSD) 25M
Borrow Cap (PYUSD) 20M
Debt Ceiling N/A
LTV N/A
LT N/A
Liquidation Bonus N/A
Liquidation Protocol Fee 10.00%
Variable Base 0.00%
Variable Slope1 6.00%
Variable Slope2 80.00%
Uoptimal 80.00%
Reserve Factor 20.00%
Stable Borrowing Disabled
Stable Slope1 13.00%
Stable Slope2 300.00%
Base Stable Rate Offset 3.00%
Stable Rate Excess Offset 8.00%
Optimal Stable To Total Debt Ratio 20.00%
Flashloanable No
Siloed Borrowing No
Borrowed in Isolation No

Liquidity and Market Cap

The PYUSD token was introduced a few months ago, and since its launch, its market cap has increased to approximately $230million. Over the coming weeks the pool will be scaled further with incentives in order to reach the necessary liquidity to support the proposed market parameters.

When analyzing market cap and trading volumes of assets for listing, we look at the available historical data. The 30 Day average Market Cap of PYUSD is $170M with a 30 day average volume of $4.7M. Over the last 7 days, the average Market cap has climbed to $209M with the same period seeing an average volume of $8.7M, the volume and aum increase is on the back of prior stakeholder efforts and we expect both to grow meaningfully in the coming weeks.

With peg holding well since inception, an average intra-day volatility of ~0.01%, and the ability of onboarded institutional investors to redeem PYUSD 1:1 with Paxos, we see low risk related to the stability of PYUSD’s price.

Initial Supply and Borrow Caps

PYUSD circulating supply is ~$230M. Given PYUSD is a new asset listing, we recommend adopting a conservative approach for setting supply and borrow caps for PYUSD, which gives room to expand caps should cap usage be elevated. We recommend a supply cap of 25M and a borrow cap of 20M.

Variable Borrow Rate

We recommend setting slope 1 to 7% due to current on-chain stable yield opportunities which we believe will remain viable for the foreseeable future.

Borrowable in Isolation

We do not see excess risk with enabling PYUSD being borrowable in isolation. If the community wishes to take a more conservative stance, it may wish to only limit PYUSD borrowing to non-isolated collateral.

Disclaimer

This proposal is powered by Skywards. The Aave Chan Initiative is not directly affiliated with Paxos or Trident and did not receive compensation for creation this proposal.

Next Steps:

  1. If consensus on ARFC stage is reached and risk service providers provide feedback on risk parameters, escalate to ARFC snapshot stage.
  2. . If ARFC snapshot stage outcome is YAE, escalate to AIP stage

Copyright

Copyright and related rights waived via CC0 .

4 Likes

We at Trident look forward to the communities thoughts on this proposal. Thank you for moving this proposal forwards @ACI

Cheers,
Mason

4 Likes

We supportive of onboarding PYUSD for the following reasons:

  • The attention to onboarding PYUSD is exceptionally high, and there is demand.

  • Adequate liquidity is also secured on Curve, and we believe concerns about liquidation risk are currently low.

2 Likes

We support listing PYUSD to V3 Ethereum as a non-collateral asset, with the following updates to the parameters suggested in the original analysis above:

  1. Interest Rates - we recommend aligning the IR parameters to those of other stablecoins across V3 deployments, setting slope 1 to 6% in line with the most recent stablecoin IR update.
  2. Supply and Borrow Caps - in line with our approach for new asset listings, we recommend more conservative supply and borrow caps, setting them at 10M and 9M, respectively. Although on-chain liquidity* could allow for higher caps, our preference is setting the caps conservatively to observe borrower behavior and demand, before optimizing the caps.

*the main liquidity sources for PYUSD are the FRAXPYUSD and the PAYPOOL on Curve, which were deployed in the past several weeks and hold nearly 23M PYUSD each at the time of writing

Parameter Recommendations:

Parameter Value
Isolation Mode No
Borrowable Yes
Collateral Enabled No
Supply Cap (PYUSD) 10M
Borrow Cap (PYUSD) 9M
Debt Ceiling N/A
LTV N/A
LT N/A
Liquidation Bonus N/A
Liquidation Protocol Fee 10.00%
Variable Base 0.00%
Variable Slope1 6.00%
Variable Slope2 80.00%
Uoptimal 80.00%
Reserve Factor 20.00%
Stable Borrowing Disabled
Stable Slope1 13.00%
Stable Slope2 300.00%
Base Stable Rate Offset 3.00%
Stable Rate Excess Offset 8.00%
Optimal Stable To Total Debt Ratio 20.00%
Flashloanable No
Siloed Borrowing No
Borrowed in Isolation No
3 Likes

We agree to support listing PYUSD to Ethereum V3 as a non-collateral asset.

Interest Rates

Gauntlet accepts setting Interest Rates in line with Stablecoin IR and in tandem with the rest of the stablecoin assets having a slope 1 to 6%.

Supply and Borrow Caps

We agree with above recommendation to set Supply and Borrow caps conservatively at 10,000,000 and 9,000,000 respectively.

Parameter Value
Isolation Mode No
Borrowable Yes
Collateral Enabled No
Supply Cap (PYUSD) 10M
Borrow Cap (PYUSD) 9M
Debt Ceiling N/A
LTV N/A
LT N/A
Liquidation Bonus N/A
Liquidation Protocol Fee 10.00%
Variable Base 0.00%
Variable Slope1 6.00%
Variable Slope2 80.00%
Uoptimal 80.00%
Reserve Factor 20.00%
Stable Borrowing Disabled
Stable Slope1 13.00%
Stable Slope2 300.00%
Base Stable Rate Offset 3.00%
Stable Rate Excess Offset 8.00%
Optimal Stable To Total Debt Ratio 20.00%
Flashloanable No
Siloed Borrowing No
Borrowed in Isolation No
3 Likes

After gathering feedback from both community and Risk Service Providers, an ARFC Snapshot has been posted with their risk parameters recommendations.

Vote will start tomorrow, we encourage everyone to participate.

1 Like

Following governance monitoring, the following ARFC Snapshot has ended with both quorum and YAE as winning option with 587K votes.

Next step will be the escalation of the proposal to AIP stage.

1 Like