[ARFC] GHO Flash Minter Facilitator Arbitrum

[karpatkey_TokenLogic]

---

title: [ARFC] GHO Flash Minter Facilitator Arbitrum
author: @karpatkey_TokenLogic
created: 2024-07-29

---

Summary

This publication proposes deploying a FlashMinter Facilitator on Arbitrum.

Background

1. Title of Facilitator
   Arbitrum FlashMinter Facilitator

2. High-Level Description of Mechanism/Request
   FlashMinting provides the same functionality as a flashloan, but instead of borrowing assets from a pool, users would be able to FlashMint GHO and repay in a single transaction.

3. Author / Link to License
   @karpatkey_TokenLogic, MIT License

4. Link to whitepaper
   NA

5. How Facilitator Furthers GHO
   FlashMinting GHO would allow for efficient arbitrage and refinancing. Thus, FlashMinting would play an important role in peg maintenance.

6. Organization / DAO responsible for operation of the Facilitator
   The Aave DAO.

7. History, Details, Background of the operator of the Facilitator
   The Aave DAO governs the Aave Protocol and consists of a wide variety of contributors, delegates and token holders.

Credit Line Details

1. Requested Facilitator Capacity
   2,000,000 GHO

2. Use of Funds
   This Facilitator Capacity would be used to allow users to FlashMint.

3. Revenue Streams
   To start, it is proposed that the fee for FlashMint would be set at 0%. In the early stages, GHO’s ability to maintain its peg would be enhanced by the presence of low fees, which incentivize arbitrage. However, at the same time the 0% fee would mean that in the short run the FlashMint Facilitator would not create revenue for the DAO.

4. Revenue Split/Interest Terms
   If the DAO decides to add a fee for this Facilitator, all revenue will go to the Aave DAO Treasury.

5. Collateral Posted
   NA

6. Other Commercial Details/Considerations
   NA

Mechanism & Risk Details

1. Detailed Description of the Facilitator
   The FlashMinter Facilitator would allow users to FlashMint and borrow GHO if they repay the borrowed GHO in the same transaction. The FlashMinter would have a beneficial influence on GHO’s ability to maintain its peg because it enables more efficient arbitrage.

2. How Facilitator is backing GHO
   Since no GHO is effectively entering circulating supply, no backing is needed.

3. If RWA - description of legal structure etc
   N/A

4. Detail any/all risks (Contract risk, Cross-chain, Bridging, Regulatory, etc)
   Smart contract risk is always present. To mitigate this risk, the code for this Facilitator has been audited by multiple top auditing firms.

5. Please include links to supporting docs
   GHOFlashMinter Documentation

Governance Controls

1. List of controls given to Aave DAO
   The only controls related to the FlashMinter facilitator are:
   -Changing the FlashMint fee.
   -Changing the Facilitator’s bucket capacity.
   These changes would be made through an Aave DAO Short Executor vote.

2. Controls given not to Aave DAO
   N/A

3. Alternative controls / roles that may be present but not set (optimistic governance? Risk Admin? SubDAO etc) + description on who can set these roles
   N/A

4. Upgradability controls
   N/A

Specification

The following outlines the parameters for the Arbitrum GHO FlashMinter Facilitator:

Parameter	Value
Facilitatory Capacity	2M Units
FlashMint Fee	0.00%

A draft PR is located here.

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, escalate this proposal to the AIP stage.

Copyright

Copyright and related rights waived via CC0.

[LlamaRisk]

Summary

LlamaRisk supports deploying the GHO Flash Minter Facilitator on Arbitrum. This proposal aims to extend the successful implementation from Ethereum to Arbitrum, enhancing the GHO ecosystem. We encourage stakeholders to read our recently published explainer article on GHO stablecoin for a comprehensive understanding of the Flash Minter mechanism and its implications.

Proposed Parameters

We reviewed the draft PR. The proposed configuration for Arbitrum mirrors the facilitator bucket and fee parameters of the GHO Flash Minter on Ethereum. This parameter composition has proven its relevance, as the facilitator continues to be utilized regularly on Ethereum, predominantly for debt swaps.

Use cases

The FlashMinting mechanism offers several use cases:

• Arbitrage Opportunities: As mentioned by @karpatkey_TokenLogic, flashminting can be used for arbitrage within the Aave protocol and other DeFi platforms. This process allows the user to profit from the price difference between different liquidity pools without needing initial capital, leveraging the flashmint feature to perform the trade.
• Liquidating Unhealthy Positions: Flashminting can also be utilized to liquidate unhealthy GHO borrow positions within the Aave protocol. If a borrower’s collateral falls below the required threshold, making their position unhealthy, a liquidator can flashmint GHO to repay the borrower’s debt and receive a liquidation bonus. This way, the liquidator does not need to use any of their funds to liquidate GHO debt.
• Debt swap: One of the biggest entities using FlashMinting on Ethereum is the ParaSwapDebtSwap contract, allowing users to swap one debt position for another - partially or completely. A similar use case would arise if GHO Flashminter is deployed on Arbitrum.

These capabilities also contribute to market efficiency and help stabilize GHO’s price.

[sakulstra]

Could someone elaborate on why exactly the FlashMinter on arbitrum should exist?

On mainnet i kind of see the point: GHO is not flashloanable due to technical limitations inferred by the way the pool facilitator works.

On Arbitrum though, GHO is just an ERC20 in regards to the pool. It has a proper aToken and can be flashloaned. People are already doing exactly that and debtswap etc should already work.

Adding a flashminter will just remove the flash fee, which i guess is not purely positive?

[ChaosLabs]

Chaos Labs endorses the proposal to create a FlashMinter Facilitator on Arbitrum.

We echo previous comments by @LlamaRisk, noting that the Facilitator should improve arbitrage on Arbitrum, improving GHO’s peg. Additionally, as discussed, it can be used to liquidate unhealthy positions and perform debt swaps. To address @sakulstra’s question on why this is beneficial given GHO’s ability to be flashloaned on Arbitrum, we note that as of this writing there is just over 130K GHO able to be borrowed (341K supplied and 207K borrowed). GHO uses on Arbitrum thus far have not driven significant growth in its associated Aave market. As a result, the flashloanable amount remains significantly smaller than what is proposed here.

[ChaosLabs]

After carefully reevaluating the technical aspects, we’ve determined that flashloans are an adequate solution for the proposed use cases. As a result, we’ve revisited our previous position and do not recommend creating a Flashminter Facilitator on Arbitrum.