Summary
LlamaRisk endorses the proposed enhancements in Aave’s Gnosis market instance. These changes would make the market more efficient and enable a new use case without having a material impact on the market’s risk profile. Ultimately, the focus switch to USDC.e would also lower the asset parameter management efforts, unifying the supply and making the supply/borrow yields less volatile.
Nonetheless, to facilitate a more natural and effective transition to USDC.e, we recommend combining the reduction in LTV to 0 together with the increase in RF. This will ensure that no new borrow positions are opened using USDC while keeping current borrowers unaffected.
Lastly, considering the uncertain demand for sDAI loans, we believe a more conservative borrow cap of 4m sDAI should be initially set to match current liquidity levels. In addition, making sDAI non-borrowable in the proposed sDAI/USDC.e E-Mode would be rational as the primary use case of that E-Mode is expected to be yield-looping using sDAI as collateral and borrowing USDC.e. Therefore, we propose the following setup for sDAI/USDC.e E-Mode:
| Parameters | sDAI | USDC.e |
|---|---|---|
| Collateral | Yes | No |
| Borrowable | No | Yes |
| Max LTV | 90% | 90% |
| Liquidation Threshold | 92% | 92% |
| Liquidation Bonus | 2% | 2% |
sDAI Liquidity
At the time of writing, ~1.3M of sDAI is available to be sold for USDC.e under the 2% liquidation bonus. An additional 200k sDAI could complement this amount if wstETH and other volatile asset routes would be considered.
Source: CowSwap, March 4th, 2025
The vast majority of sDAI liquidity resides in Balancer liquidity pools, where the largest pool pairs sDAI with USDC.e and USDT for a TVL of $6.46M. Other pools include wstETH, EURe, bCSPX, and GNO, with the total liquidity TVL being $20.3M. These assets have also been onboarded to Aave’s Gnosis market. Therefore, these liquidity pools are important for stabilizing and processing potential liquidations.
Source: Balancer, March 4th, 2025
According to these liquidity levels, sDAI borrow caps must be set lower than initially proposed by @kpk. Furthermore, sDAI borrow positions should not be opened using the E-Mode to cover possible liquidity risks sufficiently. This has resulted in the recommended revisions defined in the summary section.
Discontinued Assets
While proposed changes offer an initial look at the enhancements, it is important to summarize the long-term goals of reworking the Gnosis market:
- USDC is to be phased out and off-boarded gradually;
- xDAI is to be discontinued and off-boarded gradually;
- USDC.e and later GHO are to become the primary stablecoins of the market.
The proposed ARFC suggests starting a gradual off-boarding of USDC, but an immediate off-boarding of xDAI may not be ideal and, therefore, is not proposed. Delaying xDAI off-boarding would help maintain market stability and improve user retention by ensuring a smoother transition. Additionally, the upcoming deployments of GHO and bCSPX will expand market use cases and prevent liquidity constraints within the Gnosis market. After that stage is complete, transitioning from xDAI could commence.
Disclaimer
This review was independently prepared by LlamaRisk, a community-led 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.