[ARFC] Chaos Labs Risk Parameters Update - AUSD on V3 Avalanche

[ChaosLabs]

Overview

Chaos Labs recommends making AUSD into a collateral asset on Aave V3’s Avalanche Deployment.

Motivation

AUSD is a stablecoin native to Avalanche; in November 2024, we provided a detailed recommendation for listing for the asset. At the time, we stated that, because “stablecoins on Aave typically show little demand as collateral due to their primary role as borrowable assets, we recommend setting AUSD as non-collateral. This aligns with AUSD’s relatively volatile liquidity profile and limited operational history.”

We now have a greater historical record on which to judge the asset and its suitability as collateral, especially its liquidity profile. The asset’s liquidity has been steadily growing since October 2024, currently pooled against about $10M worth of USDC and USDT.

Additionally, AUSD’s peg stability has improved, with just 1.56% daily annualized volatility over the last 30 days.

AUSD Usage on Aave

The AUSD market is currently slightly underutilized, with a utilization rate of 61.29%.

Borrows of the asset have fallen slightly from their peak, while the supply has remained relatively stable. Supplying is currently incentivized, with an 8.24% asAVAX APR.

BTC.b has consistently been the most popular collateral asset for AUSD debt, followed by USDC.

Elsewhere on Avalanche, borrow rates for stablecoins have been following. Given the current incentives, allowing AUSD as collateral could increase borrowing of other stablecoins, as users seek to arbitrage their rates.

While AUSD-AUSD looping is possible and has been observed on other protocols, the implementation of Merit provides the protocol with more granular control over rewards, allowing the DAO to limit the incentives that can be obtained through looping.

LB, LTV, and LT

We recommend a Liquidation Bonus of 6.00% for AUSD, aligning with other, smaller stablecoins like FRAX on Arbitrum. Taking this larger LB into account, we recommend an LT of 72.00% and an LTV of 69.00%.

Specification

Parameter	Value
Asset	AUSD
LTV	69.00%
Liquidation Threshold	72.00%
Liquidation Bonus	6.00%
Liquidation Protocol Fee	10.00%

Disclaimer

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

Copyright

Copyright and related rights waived via CC0

[LlamaRisk]

Summary

LlamaRisk supports the proposed change and collateral risk parameters for AUSD. Based on the growth in the asset’s liquidity and continued stability, enabling the asset as collateral is well justified. In addition, current supply and borrow caps are rational. This change, together with the ongoing supply incentives, could further boost the utility of this asset on Aave’s Avalanche market therefore, the caps could further be revised employing Chaos Labs Risk Stewards.

There is currently around 7.5M AUSD to be sold for USDC within a 6% price impact. The liquidity mainly resides in 3 Joe V2.1 pools where AUSD is paired with USDC, USDT, and deUSD for a total TVL of ~$20M. As indicated by Chaos Labs, the asset’s liquidity has been stable at these levels for the past months.

Source: DefiLlama, February 28th, 2025

It is notable that Agora has not yet implemented a bug bounty program, though they have indicated it would be live in Q1 2025. We believe that this is a crucial risk mitigation mechanism that is imperative for every protocol. We look forward to Agora adhering to the best practices and keeping the protocol safety bar higher through the timely implementation of this program.

Disclaimer

This review was independently prepared by LlamaRisk, a community-led non-profit decentralized organization funded in part by the Aave DAO. LlamaRisk is not directly affiliated with the protocol(s) reviewed in this assessment and did not receive any 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.