[ARFC] Arbitrum USDC Migration

Title: [ARFC] Arbitrum USDC Migration

Author: Gauntlet

Date: 2023-10-19

Summary

See here for the initial temperature check.

Parameter change recommendations to facilitate the migration of bridged USDC.e to Native USDC on Aave’s Arbitrum deployments.

Motivation and Specification

As part of Gauntlet’s work with the Arbitrum Foundation to mitigate risk for the ecosystem while the ecosystem transitions from bridged USDC.e to Native USDC, Gauntlet has proposed adjustments to AAVE on Arbitrum. The adjustments covered in the report can be seen below:

  • Weekly 3% reduction in LTV and LT for USDC.e
  • (Depending on community preference) A conservative borrow/supply cap of 80% of circulating token supply onchain or an aggressive borrow/supply cap of 120% of circulating token supply onchain

These changes are intended to aid Arbitrum in the community’s transition from USDC.e to USDC.

Specification

Note that for native USDC, Aggressive caps are higher than Conservative caps, but for USDC.e, Aggressive caps are lower than Conservative caps. This is intended for the purpose of migration (e.g., asset flows from USDC.e to native USDC).

One exception: for USDC.e borrow cap, the conservative value is greater than the current parameter value. If the conservative option is chosen, we would not move forward with increasing USDC.e borrow cap, as that would be against the intent of this migration recommendation.

Parameter Current Parameter Value Current Supply or Borrow Aggressive Recommended Value Conservative Recommended Value
USDC Borrow Cap 41,000,000 12,000,000 105,000,000 70,000,000
USDC Supply Cap 41,000,000 14,000,000 165,000,000 110,000,000
USDC.e Borrow Cap 100,000,000 29,000,000 70,000,000 105,000,000
USDC.e Supply Cap 150,000,000 33,000,000 110,000,000 120,000,000

Liquidations Data:

Total user count and amount liquidated for dropping USDC.e on Aave V3 on Arbitrum LT to 83%, 80%, and 76%.

83%: 553 liquidated users ($14,217)
80%: 1464 liquidated users ($218,726)
76%: 1864 liquidated users ($313,826)

You can read our full analysis here: Gauntlet's USDC.e Initial Migration Report - #5 by gauntlet - General - Arbitrum

Next Steps

  • Snapshot vote targeting 10/24/2024.

Disclaimer

  • Gauntlet is compensated by the Arbitrum Foundation to provide recommendations to the major protocols on Arbitrum to facilitate USDC migration. These strategic migration recommendations do not fall under the scope of Gauntlet’s continuous market risk management work for the Aave DAO.
  • This proposal is not meant to indicate that the Arbitrum community should mandate the actions of the multi-deployment and self-governed Aave DAO.

Copyright:

Copyright and related rights waived via CC0.

1 Like

There’s not really any rush with the migration right?

  • Weekly 3% reduction in LTV and LT for USDC.e

Therefore any $ of liquidation seems unexpected and “to much”.


Why in the conservative scenario you would increase the USDC.e borrow cap?


  • (Depending on community preference) A conservative borrow/supply cap of 80% of circulating token supply onchain or an aggressive borrow/supply cap of 120% of circulating token supply onchain

I generally don’t understand that plan - why would you randomly increase supply & borrow caps for an asset not even 50% utilized? I guess risk stewards could do that on demand when risk-teams see fit? To me this doesn’t seem to make any sense.

With LSTs - where looping is a big thing-, there have been(i guess still are) big discussions about <= 50% of circulating supply. What would justify setting supply to 120% of circulating for an asset that is not even utilized?


If the community is aligned on off-boarding, wouldn’t the rational thing be to just freeze USDC.e, or even less intrusive set the caps below the current supply/borrow, lower ltv or similar?

3 Likes

With the ACI, we echo @sakulstra, there’s no rush to offboard USDC.e it’s a high quality asset representing USDC from mainnet.

Liquidation of users is unnecessary. They don’t have to be the collateral damage of Circle’s stupid cross-chain policy & inability to communicate with integrators.

we support a simple freeze of the USDC.e reserve and a drop of USDC.e LTV to zero. zero support for LT reductions.

1 Like

sharing sentiment with @sakulstra here. No real rush but it’s something that should happen while inflicting $0 or close to zero liquidations.

Thank you for the insights @sakulstra @MarcZeller @0xkeyrock.eth. The intention behind the suggested parameter modifications was to minimize protocol positions prior to any liquidity shifts in USDC.e due to subsequent ecosystem parameter adjustments. However, we acknowledge the importance of integrating the Aave community’s concerns into our decision-making process.

To clarify, in the conservative scenario we would not increase the USDC.e borrow cap.

Given this community feedback, our next steps involve implementing parameter changes to:

  1. ‘Freeze’ the USDC.e pool.
  2. Raise the USDC supply cap to 50,000,000.
  3. Raise the USDC borrow cap to 45,000,000.

The rationale behind the latter two adjustments is to enable USDC.e users to transition their Aave positions seamlessly.

We target Snapshot vote for these 3 parameter changes on Monday, November 6th.

3 Likes

I appreciate the input but, as most of the responses, this is way too early. Specially because not even the official Arbitrum bridge “bridge.arbitrum.io” has dropped bridging into USDC.E. So why would AAVE force its users do it this early? this is backwards development. I suggest moving forward when at least the official bridge drops or announce a date to drop bridging into USDC.E.

I would even go as far as to wait for the promised incentives to transition, “At a later date, there will be incentives implemented to help facilitate the conversion of Bridged USDC to Arbitrum-native USDC.”, this qoute is from “docs.arbitrum.io/bridge-tokens/concepts/usdc-concept”.

Our priority and best interest are AAVE users, not Arbitrum or Circle. If they want us to transition, offer us incentives to do so like it was promised. Not doing this is a wasted opportunity for the AAVE community. You even suggest we liquidate users that dont transition, that is a big no no for me.

We have published the snapshot here.

1 Like

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