[ARFC] Add sUSDE to Aave V3 Base Instance

[sreno]

[ARFC] Add sUSDE to Aave V3 Base Instance

Author: sreno

Date: 2025-02-03

ARFC edited by ACI under Skywards. Also Risk Parameters added after Risk Service Providers feedback 2025-02-17

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Summary

–EDITED: removed USDE–
This publication presents the community an opportunity to expand sUSDE integration on the AAVE platform by adding sUSDE collateral option to Base.

sUSDE is an innovative stable-coin derivative producing real yield through perpetual arbitrage and ETH backing yield.

Motivation

• Expanding sUSDE integration into Base would allow any size L2 participant to access sUSDE yields while avoiding the expensive gas fees incurred from ETH main-net.
  -Adding sUSDE to Base V3 market would allow Base sUSDE to be used productively through lending. This would facilitate the same ‘Borrow USDC/USDT then stake/swap for sUSDE’ arbitrage which happens within the ETH V3 main market, but on Base.

Ethena lacks strong foundations on Base L2 for their native yieldbearing stable-coin, sUSDE. The addition of sUSDE to Base V3 AAVE market would facilitate this expansion to the untapped L2 market for Ethena.

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

Updated price feeds for USDE and sUSDE could mean one or both will not have to be added to Base V3 in an isolated market.

Specification

Ticker: USDE and sUSDE
USDE L2 Contract Address: [0x5d3a1Ff2b6BAb83b63cd9AD0787074081a52ef34]
(https://basescan.org/address/0x5d3a1Ff2b6BAb83b63cd9AD0787074081a52ef34)
sUSDE L2 Contract Address: [0x211Cc4DD073734dA055fbF44a2b4667d5E5fE5d2]
(https://basescan.org/address/0x211Cc4DD073734dA055fbF44a2b4667d5E5fE5d2)

Risk Parameters updated 2025-02-17

sUSDe Market Configuration (Base Instance)

Parameter	Value
Isolation Mode	No
Borrowable	No
Collateral Enabled	Yes
Supply Cap	1,200,000
Borrow Cap	-
Debt Ceiling	-
LTV	70.00%
LT	73.00%
Liquidation Bonus	8.50%
Liquidation Protocol Fee	10.00%
Variable Base	-
Variable Slope1	-
Variable Slope2	-
Uoptimal	-
Reserve Factor	-
Stable Borrowing	Disabled
Flashloanable	No
Borrowable in Isolation	No
E-Mode Category	Stablecoin

sUSDe Liquid E-mode Configuration

Parameter	Value	Value	Value
Asset	sUSDe	GHO	USDC
Collateral	Yes	No	No
Borrowable	No	Yes	Yes
Max LTV	88%	-	-
Liquidation Threshold	90%	-	-
Liquidation Bonus	4.0%	-	-

Useful Links

Project: https://ethena.fi/
Docs: Key Addresses | Ethena

Disclaimer

The current proposal has been edited by ACI, under Skywards. ACI has not received payment from original author and has not been compensated for future actions regarding this proposal.

Edit: The original author holds sUSDE but has not been compensated by Ethena for writing 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.

[stani]

Supportive of this proposal as there are integrators that are asking for the support as well.

However I do not think this proposal can use Direct-to-AIP framework as the risk managers @ChaosLabs and @LlamaRisk needs to assess the local risk on Base of these assets. Hence a Temp Check is needed.

[EzR3aL]

I edited the proposal to TEMP CHECK as Stani outlined.
@ACI this proposal is seeking for Skywards support. Would you mind helping out here and pushing it to Snapshot and do the ARFC in his behalf?

[MarcZeller]

Hello,

Supportive of part of this proposal (there’s no use-case for USDe as collateral in Aave) if risk teams feedback is positive.

@stani @EzR3aL, Proposals to onboard assets already onboarded on other networks does not require a TEMP CHECK, they require a risk service providers & @bgdlabs feedback to make sure the new network liquidity and token standard are up to Aave standards then they can go to snapshot and AIP edited the proposal to reflect this.

[sreno]

Thank you for your feedback, I was aware USDE could be a problem because USDE is in an Isolated Market in the ETH Core Market. I am unsure if I should edit my proposal now to remove USDE or allow @bgdlabs to make that decision.

[MarcZeller]

as you wish, it’s your proposal good ser.

[LlamaRisk]

Summary

LlamaRisk supports the proposal to onboard sUSDe on Aave’s Base market instance. The Base market is ready for onboarding its first yield-bearing stablecoin even though currently, it is primarily used for leverage looping ETH LSTs. However, the current supply of sUSDe on Base is minimal, and risks of liquidity stability are persistent. It remains to be seen if the demand for sUSDe is apparent on this L2 chain where sUSDe’s supply has recently been bootstrapped. Therefore, we recommend onboarding it with a conservative setup.

A similar setup resembling Aave’s Core market would be used to onboard sUSDe, incorporating a sUSDe Stablecoins E-Mode, albeit with more conservative parameters. The exact recommended parameters have been agreed upon and will be shortly presented by ChaosLabs.

Ethena’s Current State

After renewed growth, Ethena’s total USDe supply has reached $6B. Part of the growth can be attributed to the successful integration of sUSDe into Aave’s Core market. Seeking to continue the development of the protocol, Ethena has issued the USDtb RWA stablecoin backed by U.S. treasury fund products, which serves as a yield-bearing product that helps to anchor the floor yield of sUSDe to traditional market rates. More recently, Ethena announced plans to expand more broadly to the TradFi space, introducing iUSDe, a product designed to export sUSDe in regulated offerings.

Source: LlamaRisk’s Ethena Risk Dashboard, February 13th, 2025

Supply

The total supply of USDe stands at 6B, with 66.5% staked to sUSDe, equating to a total sUSDe supply of 4B. The ratio of USDe supply staked in sUSDe is down to 66.5% from the high of 76%, which results in a slightly higher boost of sUSDe’s yield.

Source: LlamaRisk’s Ethena Risk Dashboard, February 13th, 2025

Focusing on the sUSDe’s supply on Base, it can be observed that the supply on this chain has only recently been bootstraped, with 3.1m sUSDe ($3.56m) available. This figure was reached in one month, but the exact reasons for this inflow are unknown.

Source: Dune, February 13th, 2025

The vast majority, ~98% of all sUSDe supply on Base, is concentrated in two contracts: DEX pools on a recently deployed InfinityPools DEX on Base with 2 pools and a TVL of $6.5m. InfinityPools DEX contracts have been audited by Cantina and ABDK.

Source: Etherscan, February 13th, 2025

Utility & Stability

The current muted funding rates environment has lowered the yields of sUSDe tokens, leading to decreased utilization of the tokens in the yield venues. The harsher funding rates environment and reduced Open Interest levels have also resulted in Ethena unwinding part of the perpetual positions and moving a larger part of USDe backing to stablecoins. At the time of writing, the stablecoin portion amounts to $2B.

Source: LlamaRisk’s Ethena Risk Dashboard, February 13th, 2025

The protocol has maintained the recommended levels of reserve fund capital, which currently stands at $60.5m. It provides a 1% over-collateralization buffer for USDe stablecoin.

Source: LlamaRisk’s Ethena Risk Dashboard, February 13th, 2025

Liquidity on Base

DEX Liquidity

As mentioned above, all of the sUSDe’s liquidity is concentrated in InfinityPools DEX LPs. The first is the sUSDe/USDC pool, which has a TVL of $4.5m and offers an APY of 9% over the past 7 days. The second one is the sUSDe/wstETH pool with a TVL of $1.8m and a 7-day APY of 14.3%.

Source: InfinityPools DEX, February 13th, 2025

Source: InfinityPools DEX, February 13th, 2025

Low levels of liquidity result in 700k sUSDe being available to be sold for USDC within a 3.6% price impact. This should prompt a conservative initial supply cap for sUSDe.

Source: InfinityPools DEX, February 13th, 2025

Yield Venues

No other yield venue integrations have been observed on the Base chain. This could represent a market opportunity for Aave, where the integration of the lending market could be the leading factor for the growth of the supply of sUSDe on Base.

Aave V3 Specific Parameters

Will be jointly discussed with @ChaosLabs.

Disclaimer

This review was independently prepared by LlamaRisk, a community-led non-profit decentralized organization funded in part by the Aave DAO. LlamaRisk serves as a member of Ethena’s risk committee. LlamaRisk did not receive 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.

[ChaosLabs]

Overview

Chaos Labs supports the listing of sUSDe on Aave V3’s Base instance. Below, we present our analysis along with initial risk parameter recommendations.

Market Cap & Liquidity

The total supply of sUSDe on Base currently stands at 3.13M, translating to a $3.59M market cap. Below, we present sUSDe’s total supply on Base over time. The data shows that sUSDe’s total supply began rising rapidly around mid-January 2025, reaching approximately 3.2M over the past month.

sUSDe’s liquidity on Base is primarily concentrated in two InfinityPools trading pairs: the sUSDe/USDC pool, which currently holds $4.5M TVL, and the wstETH/sUSDe pool, with $1.83M TVL. In addition, the two largest holders of sUSDe are also these two trading pools, holding 2.49M sUSDe and 576K sUSDe, respectively, representing 79% and 18% of the total supply.

sUSDe Top Holders

Below, we present the aggregated sUSDe DEX liquidity on Base paired against sUSDe over time. The chart shows a steady increase in liquidity over the past month, indicating strong and growing DEX liquidity.

Volatility

Compared to USD, sUSDe exhibits low volatility, with a daily annualized volatility of 4.13% and a 30-day daily annualized volatility of 4.03%.

Additionally, sUSDe’s market price in the InfinityPools sUSDe/USDC pool has remained relatively stable. The largest depeg observed occurred around February 2, 2025, with a deviation of approximately 120 bps, aligning with the overall performance of sUSDe on Ethereum during that period.

E-Mode

We recommend establishing a Stablecoin E-Mode for sUSDe, USDC, and GHO to enhance capital efficiency and potentially drive growth in the sUSDe market.

LTV, Liquidation Threshold, and Liquidation Bonus

We recommend aligning the initial parameters with those on the Ethereum Core instance while setting a slightly conservative LTV and LT. Although sUSDe’s total supply on Base is currently sufficient, its rapid growth has only occurred within the past month, leaving limited historical data for analysis. Given this, a cautious approach to LTV is warranted to account for potential market behavior uncertainties.

Supply Cap and Borrow Cap

We recommend setting sUSDe’s supply cap using our standard methodology, which calculates the cap as 2x the liquidity available under the Liquidation Bonus. Based on this approach, we propose a supply cap of 1.2M.

Considering the yield-bearing nature of sUSDe, we recommend designating sUSDe as non-borrowable for now.

Cross-Chain Infrastructure

sUSDe Base deployment uses LayerZero OFT standard to mint and redeem the asset from and to the original chain (Ethereum). Thanks to this, the bridging takes under 10 minutes on average, making it possible to arbitrage the DEX pools efficiently between the chains and maintain a high correlation between the original and bridged versions of sUSDe.

Unlike Base’s official bridge, LayerZero relies on external relayers to validate cross-chain messages.

IOAppCore.sol

Oracle/Pricing

Given our previous analysis of sUSDe’s current oracle risk, assuming the passing of the AIP, we recommend maintaining the approach outlined in this post: using the Chainlink sUSDe/USDe exchange rate feed, supplemented by the Chainlink USDT/USD market price feed.

Recommendation

sUSDe Market Configuration (Base Instance)

Parameter	Value
Isolation Mode	No
Borrowable	No
Collateral Enabled	Yes
Supply Cap	1,200,000
Borrow Cap	-
Debt Ceiling	-
LTV	70.00%
LT	73.00%
Liquidation Bonus	8.50%
Liquidation Protocol Fee	10.00%
Variable Base	-
Variable Slope1	-
Variable Slope2	-
Uoptimal	-
Reserve Factor	-
Stable Borrowing	Disabled
Flashloanable	No
Borrowable in Isolation	No
E-Mode Category	Stablecoin

sUSDe Liquid E-mode Configuration

Parameter	Value	Value	Value
Asset	sUSDe	GHO	USDC
Collateral	Yes	No	No
Borrowable	No	Yes	Yes
Max LTV	88%	-	-
Liquidation Threshold	90%	-	-
Liquidation Bonus	4.0%	-	-

Disclaimer

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

Copyright

Copyright and related rights waived via CC0

[ACI]

Thank you @LlamaRisk and @ChaosLabs .

As you can see, ARFC has been updated with latest Risk Parameters.

ACI has escalated the proposal to ARFC Snapshot.

Vote will start tomorrow, we encourage everyone to participate.

[Michigan_Blockchain]

As Michigan Blockchain, we support adding sUSDe to Aave v3 Base Instance. sUSDe is Ethena’s yield bearing stablecoin and is currently active as collateral on the Aave v3 Core Instance, with $454.95m in value supplied currently on the Core Instance. Currently, almost all of the borrows against sUSDe is in non yield bearing stablecoins, which means people are supplying sUSDe with the strategy of borrowing non yield bearing stablecoins against it and converting them into sUSDe as well, which is a low-risk and stable arbitrage strategy.

Distribution of borrowed assets against sUSDe

sUSDe is also available as collateral on the Prime Instance, however, not on any L2, which prevents users that can’t afford Ethereum gas fees from using sUSDe as collateral as an arbitrage opportunity. As Base is currently the L2 with the highest TVL with over $4b in value, we believe that it should be the first L2 instance on Aave that receives sUSDe collateral option. Currently there is no yield bearing token on the Base Instance, so this will improve the capital efficiency greatly on a very large market.

sUSDe liquidity has only very recently been onboarded on Base, and currently the sUSDe supply is only 3.1m. Ethereum to Base TVL ratio is 75:4 while sUSDe supply on Ethereum to sUSDe supply on Base ratio is greater than 1000:1, which shows how sUSDe supply on Base is relatively really low even scaling according to the chain TVLs. Therefore, we recommend more conservative parameters for sUSDe compared to the Core Instance as a result of the lower liquidity of sUSDe on Base even keeping in mind the chain’s smaller TVL.

According to ChaosLabs, “Compared to USD, sUSDe exhibits low volatility, with a daily annualized volatility of 4.13% and a 30-day daily annualized volatility of 4.03%.”. Because of that, we also support enabling E-Mode for sUSDe on Base Instance because this low volatility (despite the current very low liquidity) ensures that there won’t be significant depegs in the future as liquidity keeps growing. So, it makes sense to enhance capital efficiency by allowing a higher borrow rate against sUSDe when borrowing stablecoins. This will lead to greater arbitrage gains for Aave v3 Base Instance users looking to supply sUSDe as collateral without posing an extensive additional risk.

-Kerem Dillice

[ACI]

After Snapshot monitoring, the current ARFC Snapshot has ended, reaching both Quorum and YAE as winning option, with 815.5K votes.

Therefore [ARFC] Add sUSDE to Aave V3 Base Instance has PASSED. Thank you everyone who participated.

Next step will be the publication of an AIP for final confirmation and enforcement of the proposal.

[sreno]

Hi can you publish the AIP for this proposal? I’m not sure what do to next.

[ACI]

@sreno Of course, this proposal is under ACI Skywards, as you can see since we edited and help escalate to ARFC Snapshot. So the AIP is being worked on. Thank you