[ARFC] Deprecation of Small-cap Stablecoins on V2 Ethereum

Summary

A proposal to deprecate USDP, GUSD, LUSD, FRAX, and sUSD on Aave V2

Motivation

Following our ongoing efforts to deprecate the V2 markets and following the recent USDP volatility and subsequent freeze, we propose deprecating smaller market cap stablecoins on V2.

Deprecation Phase I

Recent events have highlighted the need for Aave to reduce its V2 exposure to lesser-used stablecoins, many of which have limited liquidity, thus allowing for price manipulation and other potentially harmful events. Previously, the community followed a two-phase process to deprecate stablecoins, with BUSD and TUSD as examples. Given the success of these, we propose a similar path forward. Notably, none of the below stablecoins are collateral assets, reducing the complication of the process.

For USDP, GUSD, LUSD, FRAX, and sUSD we propose the following parameters:

Parameter Proposed Value
Reserve Factor 95%
Borrowing Enabled No
Base Rate 3%
Slope1 +3%
Slope2 200%
UOptimal 20%

The goal of Phase I is to increase borrower APR to encourage borrowers to repay their loans; this is achieved through higher Base Rate, Slope1, Slope2, and lower UOptimal. Additionally, we recommend leaving them frozen to prevent new supplies and borrowings. Finally, we increase the reserve factor to reduce supply APY, reducing the attractiveness of supply as borrowers pay increased rates.

Following observations from Phase I, we may move to further decrease UOptimal, increase Reserve Factor, and increase Slope2.

Specification

Deprecation Phase I

USDP

Parameter Current Value Proposed Value
Reserve Factor 40% 95%
Borrowing Enabled Yes No
Base Rate 0% 3%
Slope1 12% 15%
Slope2 75% 200%
UOptimal 80% 20%

GUSD

Parameter Current Value Proposed Value
Reserve Factor 40% 95%
Borrowing Enabled Yes No
Base Rate 0% 3%
Slope1 12% 15%
Slope2 150% 200%
UOptimal 70% 20%

LUSD

Parameter Current Value Proposed Value
Reserve Factor 45% 95%
Borrowing Enabled Yes No
Base Rate 0% 3%
Slope1 12% 15%
Slope2 75% 200%
UOptimal 80% 20%

FRAX

Parameter Current Value Proposed Value
Reserve Factor 50% 95%
Borrowing Enabled Yes No
Base Rate 0% 3%
Slope1 12% 15%
Slope2 100% 200%
UOptimal 80% 20%

sUSD

Parameter Current Value Proposed Value
Reserve Factor 50% 95%
Borrowing Enabled Yes No
Base Rate 0% 3%
Slope1 12% 15%
Slope2 100% 200%
UOptimal 80% 20%

Next Steps

  1. Following community feedback, submit the ARFC for a snapshot vote for final approval.
  2. If consensus is reached, submit an Aave Improvement Proposal (AIP) to implement the proposed updates.

Disclaimer

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

Copyright

Copyright and related rights waived via CC0

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We have published a Snapshot for the community to vote on, starting in 24h.

We thank you in advance for your participation in the vote.

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AIP-106 has been published for this proposal.

Thank you in advance for your participation in the vote.