Summary
LlamaRisk supports the proposal to deploy a stataUSDC GSM on Base. GSM is a crucial stability component for GHO stablecoin, proving its utility in historical instances. Therefore, it is rational to enable it with GHO’s deployment on Base. We also support the proposed GSM parameters, including 0% swap fees. While no swap fees could introduce unexpected volatility of the GSM deposits, we could put the recently discussed hypothesis to the test without risking losing already accrued deposits which serve as a stability buffer.
The linked discussion explores the possible changes in the usage patterns of GSMs if the GHO burn fees were eliminated, suggesting that GSMs could be used as a “piggy bank” for users who want to be able to receive the deposited stablecoins in the future at the same 1:1 ratio, making the GSM more comparable to Sky’s PSM. Nonetheless, removing swap fees could introduce unwanted deposit fluctuations; therefore, if high variability in deposits is observed, we will reintroduce the GHO burn fee in a way that is similar to other existing GSM deployments.
GSM Utility
The stablecoin buffer available in the USDT/USDC GSMs on Mainnet has historically acted as a last resort peg safeguard, where at a -0.2% secondary market discount of GHO, it provided an additional GHO sell-side buffer, which helped to limit the extent of the extent of the pricing downturns. The correlation between GHO secondary market price and the GSM deposits amount is also visible in the charts below.
Source: Dune, February 7th, 2025
Source: Dune, February 7th, 2025
Asset Choice
The choice of stataUSDC token is motivated by USDC being the largest stablecoin on Base. Currently, the supply of USDC is at 3.6B, with the second largest stablecoin being USDS, with a supply of 100M. As a result, fluctuations in the USDC secondary market peg on Base are less likely, and therefore, the stability buffer is expected to be available for the long term. Depositing the underlying USD on Aave’s Base market will also provide additional capital efficiency for the DAO. A second GSM where GHO would be paired with another stablecoin is not needed.
Impact on Aave’s Market
Supplying the underlying USDC on Aave’s Base market would have a dilutive effect on the supply yield. At the time of writing, 183M USDC has been supplied at a current APY of 5.39%. If an additional 10M USDC were deposited, the supply APY would be reduced by ~0.7%, bringing the borrow APR down by ~0.8%. Nonetheless, the USDC supply yield on Base will remain similar to that of other Aave markets. In addition, a lowered borrow rate could attract new borrows. Therefore, after the market reaches a new equilibrium, the impact on the DAO’s revenues is expected to be positive.
Source: Aave Base, February 7th, 2025
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.