[ARFC] Add USDT to Ethereum V3 Market

Governance
1

title: [ARFC] Add USDT to Ethereum V3 Market

Author: @marczeller - Aave-Chan Initiative, @Llamaxyz, @MatthewGraham DeFi_Consulting

Dated: 2023-01-31

Simple Summary

This proposal presents Aave with the opportunity to onboard USDT to the Ethereum v3 Liquidity Pool.

Abstract

USDT is a centralized stablecoin minted by Tether. for each unit of USDT in circulation; Tether holds a dollar or equivalent in short-term bonds or commercial paper.

This ARC is a joint effort with @Llamaxyz to allow a selection of assets to be onboarded on V3 via the governance process. Both Llama & ACI will propose AIPs on onboard assets on V3

USDT is currently one of the largest V2 stablecoin reserve with ~335m$ supplied

Motivation

Supporting stablecoin diversity is part of the Aave-Chan Initiative (ACI) delegate platform.

The ACI does not have any link nor is paid by Tether or any entity to present this ARC.

The risk parameters provided introduce USDT as a non-collateral asset.

The Interest rate Strategy curve is the same as for USDT in V2. for now.
The ACI is supportive of onboarding USDT as it was in V2.
For now, the ACI doesn’t consider V3 mature enough to activate a USD stablecoins emode and consider USDT in it.
Also, supply and borrow caps are suggested for this asset to limit risk exposure.
They’re currently set to allow reserve utilization to cross the Uoptimal point slightly. But @ChaosLabs & @Pauljlei input is valuable on this.

By presenting each asset to be onboarded to v3 Ethereum individually, the community can focus on a specific asset, with individual Snapshots determining how to proceed. Finally, approved assets listings can be grouped for the on-chain AIP vote.

Specification

Ticker: USDT

Contract Address: 0xdAC17F958D2ee523a2206206994597C13D831ec7

Risk Parameter Value
Isolation Mode NO
Enable Borrow YES
Enable Collateral NO
Loan To Value N/A
Liquidation Threshold N/A
Liquidation Bonus N/A
Reserve Factor 10%
Liquidation Protocol Fee 0.1
Borrow Cap 185M
Supply Cap 200M
Debt Ceiling N/A
Base 0%
Slope1 4%
Uoptimal 90%
Slope2 72%

Additional note:

USDT has been excluded from collateral assets since DeFi inception due to its centralized nature. After years of functioning as intended and witnessing the growth of USDC in the DeFi ecosystem, it seems that reasons for exclusion have fewer grounds in the current DeFi ecosystem and pragmatic approach would be to onboard it in a conservative way and make risk parameters evolve based on market data.
While this ARC doesn’t present a proposal to add USDT as collateral, the ACI thinks the community should consider this as something to discuss at a later stage when V3 will have more maturity.

Copyright

Copyright and related rights waived via CC0.

14 Likes
2

Thanks for the detailed post @MarcZeller. Given that USDT will not be used as collateral, we are in support of the proposed parameters recommended.

3 Likes
3

Thanks for your feedback, given the strategic nature of USDT onboarding with our relationship as a protocol to balancer pools and with risk team feedback taken.

If the community is not voicing strong opposition to an “accelerated” process this proposal will escalate to snapshot phase tomorrow at noon.

allowing an AIP vote to exist next week if the snapshot phase outcome is YAE.

5 Likes
4

Hi @MarcZeller - thanks for putting this forward.

This seems to fill a hole expressed by @solarcurve and repairs important relationships with Balancer.

Full support & excited for more usability in V3.

3 Likes
5

Llama is in full support of onboarding USDT quickly to Ethereum v3 and using the accelerated approached outlined above.

We would also like to extend the accelerate pathway to listing BAL and CRV given there strategic value proposition to Aave. If there are no objections, similar to the above, we will progress BAL and CRV in line with USDT.

1 Like
6

Due to the current circumstances, risk profile, and parameter settings of USDT, Chaos Labs supports the expedited listing process.

For CRV and BAL, although we recognize the strategic significance of these assets, we think we should continue with the standard process to allow the risk managers to review the proposals and advise on the parameter configurations, as the ones in the proposal were recommended a couple of months back, and may need to be updated to reflect current market conditions.

2 Likes
7

Not generally opposed, but the 185M ceiling on a 70M pool seems excessive in comparison to e.g. ava v3 with 5M ceiling on a 500M pool.

8

@Llamaxyz In support of this, but might I kindly suggest you guys post on their respective ARFCs posts so the community has a better chance to see it?

@sakulstra while I agree it’s a big step, we have to keep in mind that being too conservative might hurt the migration of V2 users. Even with the currently proposed cap, not every position has the ability to migrate.

I’ve edited a typo about the debt ceiling, this asset is not proposed as part of isolation mode so new value is set to N/A

here’s the link to the snapshot vote, starting tomorrow at 1pm.

https://snapshot.org/#/aave.eth/proposal/0x81e8a39e2c0409b5aeb82e5ac367492759a60e93da15f7b64bd4560508400987

9

Crypto Plaza fully support the onboarding of USDT. This stablecoin has played a really important role within the liquidity in crypto ecosystem. Although it is true that there have been continuous doubts about their solvency, in most cases they were not well founded and the strong resistance to crises of withdrawals has been demonstrating solvency in times of great stress. It is a stablecoin that has had a strong regulatory focus with no major issues.

USDT has even shown a commitment to non-censorship in certain situations. Understanding that the governance of these projects can change and their legal situations and that it is necessary to review these conditions, we are facing one of the most liquid stablecoins that have proven solid during complex markets.

4 Likes
10

Gauntlet does not have any recommended changes to these parameters at this time. However, depending on how market usage evolves, we may fast follow with interest rate curve recommendations.

2 Likes
11

@Michigan_Blockchain supports the onboarding of USDT. @MarcZeller mentioned the proposed parameter are the same as USDT on V2, but it looks like the Uoptimal on V2 is 80% instead of 90%?

2 Likes
12

hello @GCao you’re correct for USDT on V2 as of now following the AIP-148 implementation.

That being said at the time of creation of this ARFC the uOptimal was set at 90%

our current position is that it’s actually a good outcome as it makes V3 slightly more attractive than V2 and might encourage user migration from V2 into V3.

13

Thanks for the clarification!