Summary
Different GSM modules help reinforce GHO’s stability, and the opportunity to improve Aave’s capital efficiency makes it even more of a net positive for the DAO. Llamarisk supports this ARFC and believes that this change will not impact GHO’s risk profile.
GHO was recently trading at an upward peg in comparison with other stablecoins, which resulted in the GSM being fully replenished with USDC. Further factors indicate that USDC GSM shall retain the high exposure to USDC for the time being.
GSM Analysis
GSM Performance
At the time of writing, both USDC and USDT GSMs have exhausted the exposure caps of 8M tokens each. The USDC GSM has been at the cap limit since the 15th of August, 2024 (~60 days).
Source: Tokenlogic GHO Analytics, October 7th, 2024
USDC GSM has been performing as expected for a price stability mechanism. In July, when the GHO price dropped 0.2% (the buy fee) below the peg, it became profitable for arbitrageurs (or swap aggregators) to redeem GHO for USDC, lowering GHO supply and consequently reducing secondary market sell pressure. The correlation between GHO price and GSM fill rate can be observed clearly:
Source: Dune Analytics, October 18th, 2024
One more factor affecting the secondary market price of GHO amount of USDC and, in turn, GSM fill rates is GHO borrow rate. As GHO was trading at a premium (of up to 1%), the borrow rate underwent multiple reductions, pushing the GHO price back to normal levels. As the DAO continues to use balanced push-and-pull measures, the GHO pricing is expected to stay above the 0.2% arbitrage threshold.
Source: Tokenlogic GHO Analytics, October 7th, 2024
Projected Opportunities
As @tokenlogic_karpatkey has summarized it, the current opportunity cost for USDC that could be instead supplied as a collateral on Aave Mainnet market currently is 81.9k USDC.
Source: Tokenlogic GHO Analytics, October 7th, 2024
The average 6-month supply APR for USDC on Aave Mainnet markets is 5.18% with the APR trending slightly below average for the past 2 months.
Source: Aave, October 7th, 2024
If an additional 8M USDC are supplied to Aave’s lending pool, this portion would represent 0.5% of total current USDC supply on Aave and therefore, at current borrow levels, the USDC borrow APY would only be lowered by 0.03%. Therefore, it can be assumed that USDC borrow/supply utility would be impacted insignificantly.
The following graph summarizes the projected yearly gains for different GSM fill levels and USDC APR levels:
Recommendation
We recommend new aUSDC GSM parameters to be identical to the current USDC GSM parameters.
| Parameter | Value |
|---|---|
| Exposure Cap | 8,000,000 USDC |
| Buy Fee (GHO → USDC) | 0.2% |
| Sell Fee (USDC → GHO) | 0% |
| Price Strategy | Fixed 1:1 Ratio |
| Underlying Price Range for Swap Freeze | [0.99 - 1.01] |
| Underlying Price Range for Swap Unfreeze | [0.995 - 1.005] |
| Bucket Capacity | 16,000,000 GHO |