[ARFC] Deploy USDC and USDT GSM On Arbitrum


title: [ARFC] Deploy USDC and USDT GSM On Arbitrum
author: @karpatkey_TokenLogic
created: 2024-06-30


Summary

This publication proposes deploying a USDC and USDT GHO Stability Module (GSM) on the Arbitrum network. The two GSMs are to be maintained by the GHO Stewards.

Motivation

The GSM provides stability to the GHO peg by enabling assets to be exchanged within a defined price band. Deploying a GSM on the Arbitrum network enables swaps to be filled without unnecessarily creating an arbitrage opportunity between networks.

With the LTIPP ARB grant coinciding with GHO being launched on Arbtirum, the Aave DAO can stimulate demand for GHO whilst also restricting the Bridge Facilitator mint cap to encourage users to mint GHO via the GSMs. User will also be able to swap USDC and USDT for GHO via aggregators that have integrated the GSM. This will lead to USDC and USDT being deposited into the GSM.

With a healthy balance of USDC and USDT in each respective GSM, the Bridge Facilitator cap can be raised more aggressively and a GHO Bucket Cap with Facilitor role can be introduced to Aave v3 on Arbitrum.

Specification

The below provides the initial configuration of the USDC and USDT GSMs that will be updated by the GHO Stewards post launch.

Parameter Value
Freeze Lower Bound $0.990
Freeze Upper Bound $1.010
Unfreeze Lower Bound $0.995
Unfreeze Upper Bound $1.005
Mint GHO Fee 0.05%
Burn GHO Fee 0.20%
Supply Cap 1.00M

An necessary adjustments to the Bucket Capacity for CCIP Bridge will be made at time of AIP submission and mentioned in the comments below.

Disclosure

TokenLogic and karpatkey receive no payment for this proposal. TokenLogic and karpatkey are both delegates within the Aave community.

Next Steps

  1. Gather feedback from the community.
  2. If consensus is reached on this ARFC, escalate this proposal to the Snapshot stage.
  3. If Snapshot outcome is YAE, the ALC will implement proposal.

Copyright

Copyright and related rights waived via CC0.

4 Likes

LlamaRisk supports the deployment of the GHO Stability Module (GSM) on the Arbitrum network. As outlined in our recent research on GHO, the GSM plays an important role in maintaining GHO’s stability. This deployment on Arbitrum aligns with the goal of enhancing GHO’s stability and accessibility across multiple networks.

It is understood that the price strategy for the Arbitrum GSM will be a fixed 1:1 swap ratio between GHO and approved stablecoins (USDT, USDC), consistent with the existing Ethereum GSMs.

We support implementing low, non-zero mint and swap fees for the Arbitrum GSM, with a lower fee to encourage GHO minting and capital retention within the system. This approach manages exposure, prevents large fee-free swaps, ensures balanced GSM operations, and mitigates unwanted potential depletion of the GSM, such as large GHO mints via CoW Protocol swap routing observed with the Ethereum USDT GSM.

Lastly, regarding the funding of the GSM, we will await further information on the Facilitator on Ethereum that will mint GHO for use on Arbitrum.

This deployment represents an important step in expanding GHO’s ecosystem and enhancing its stability across networks. We will continue to monitor and provide updates as the implementation progresses.

2 Likes