[ARFC] Launch GHO on Base & set ACI as Emissions Manager for rewards

[ARFC] Launch GHO on Base & set ACI as Emissions Manager for rewards

Author: ACI

Date: 2024-10-07

ARFC has been updated with latest Risk Parameters provided by Risk Service Providers. 2024-10-11


Summary

This proposal aims to launch GHO on Base & set ACI as Emissions Manager for GHO and aGHO potential rewards and incentives.

Motivation

With a dedicated portion of GHO supply moving to the Arbitrum network and the generous grant from the Arbitrum DAO as part of the LTIPP, Aave DAO successfully bootstrapped GHO liquidity both within the Aave protocol and throughout the Arbitrum ecosystem.

Building on this success, it is now time to expand GHO to other networks. However, the lessons learned from the Arbitrum launch highlight the importance of coordinated efforts in several key areas:

  • Implementing the necessary smart contracts and infrastructure to support GHO on the network
  • Establishing appropriate risk parameters and collateral requirements specific to the Base ecosystem
  • Integrating GHO with existing DeFi protocols and applications on Base to foster immediate utility
  • Collaborating with the community to ensure a smooth launch and widespread adoption

These factors underscore the significant effort required from all service providers to create a successful launch. This ARFC vote seeks community approval to proceed with the launch of GHO on Base.

Specification

The ACI invites all service providers to provide input on their scopes within this proposal.

The proposed launch of GHO on Base will involve the following key components:

  • BGD and Avara to implement and deploy the necessary smart contracts for GHO on the Base network, including cross chain bridge infrastructure and addition to Aave v3 Base.
  • Risk service providers and finance service providers should collaborate on appropriate risk parameters and collateral requirements tailored to the Base ecosystem. From learnings on Arbitrum launch, ACI suggests a $25m starting bridge cap to allow for growth using the planned programs from the Base ecosystem.
  • ALC will create a plan to bootstrap initial liquidity for GHO on Base, potentially including incentives or partnerships with existing Base protocols.
  • ACI will coordinate with Base ecosystem teams to promote the GHO launch with appropriate support and incentives. The Base and Optimism ecosystem have provided a large commitment already. The DAO has previously voted for a continued incentives program and matching of the OP Retroactive Grant, that can be used to launch GHO on Base.
  • ACI will be the Emission Manager for GHO and aGHO potential rewards and incentives.
  • ACI multisig address: 0xac140648435d03f784879cd789130F22Ef588Fcd

The exact timeline and detailed technical specifications for each component will be determined by the service providers and presented in subsequent AIPs, pending the approval of this ARFC.

Parameter Value
Asset GHO
Market Base
Isolation Mode No
Borrowable Yes
Collateral Enabled No
Supply Cap 2,500,000
Borrow Cap 2,250,000
Debt Ceiling -
LTV -
LT -
Liquidation Bonus -
Liquidation Protocol Fee -
Variable Base 0%
Variable Slope1 12%
Variable Slope2 65%
Uoptimal 90%
Reserve Factor 10%
Stable Borrowing Disabled
Flashloanable Yes
Siloed Borrowing No
Borrowable in Isolation No
E-Mode Category N/A

Useful Links

ARFC: Merit Base incentives and SuperFest matching

Disclaimer

The ACI is not presenting this ARFC on behalf of any third party and is not compensated for creating this ARFC.

Next Steps

  1. If consensus is reached on this [ARFC], escalate this proposal to the Snapshot stage.
  2. If the ARFC snapshot outcome is YAE, service providers will proceed with the appropriate AIPs.

Copyright

Copyright and related rights waived via CC0.

6 Likes

Highly supportive of this move. Base is getting a lot traction and will probably enable retail user a very smooth and easy access to Blockchain, wallets and eventually Aave and GHO.

1 Like

Summary

Llamarisk endorses the expansion of GHO to new networks, recognizing that a sustainable approach is key to the successful growth of Aave’s stablecoin. Our analysis indicates that GHO is ready for further cross-chain deployment, with both Base and Avalanche networks considered suitable candidates.

The initial market and bridge facilitator parameters will be established jointly with @ChaosLabs shortly.

Current GHO Scale

Arbitrum, selected as the first blockchain for GHO expansion beyond Ethereum, has seen GHO in operation for over 100 days. The stablecoin’s total supply is approaching 160 million, with steady growth since its cross-chain debut. A recent influx of GHO bridging to Arbitrum has been observed, primarily driven by the @ACI led ARB incentive program for GHO borrowing. This experience positions Arbitrum as a valuable reference point for future deployments.

image
Source: Tokenlogic GHO Analytics, October 9th, 2024

Facilitators

GHO is minted through different facilitators. The primary one is the Aave Mainnet facilitator, who mints GHO on demand when collateral is supplied to Aave’s lending pool. Additional safeguard mechanisms include the GSM and Flashminter facilitators.

image
Source: Tokenlogic GHO Analytics, October 9th, 2024

Unlike Mainnet, GHO cannot be minted natively on-demand in the Aave Arbitrum market; it must be directly supplied to the lending pool. GHO is first minted on Mainnet and then bridged to Arbitrum using the CCIP Bridge Facilitator. Currently, the supply of GHO on Arbitrum is 5M tokens.

If GHO is deployed on new chains, the minting/bridging mechanics will work the same way on Arbitrum, with Chainlink CCIP facilitator enabling the bridge capabilities. We covered these mechanisms in a recent article.

Liquidity

GHO liquidity trends are positive, with nearly $50M TVL in liquidity pools on Curve, Balancer, Maverick, and a small portion on Uniswap v3, thanks to integration efforts from @TokenLogic. The GHO balance in these pools is 21M, mainly paired with other stablecoins such as USDC, crvUSD, fxUSD, and USDe. This liquidity portion resides on Ethereum Mainnet.

image
Source: Tokenlogic GHO Analytics, October 9th, 2024

Additional GHO liquidity is present on Arbitrum. The GHO liquidity pools on Balancer and Gyroscope contain $7.5M in TVL with 1.2M GHO paired with USDC, USDT, USDe, and aUSDC.

image
Source: Balancer, 9th of October, 2024

Given that GHO cannot be used as collateral on Aave Arbitrum, the liquidity needs for GHO remain lower. A similar setup would be expected for other networks until the liquidity is fully bootstrapped. As mentioned by ACI, ALC will create a plan to bootstrap initial liquidity for GHO, potentially including incentives or partnerships with existing protocols.

Borrowing Trends

GHO borrowing on Mainnet remains healthy, with one large borrow outlier of 15M GHO but no general borrow concentration.

image
Source: Chaoslabs Aave Dashboard, October 9th, 2024

In the Arbitrum market, ARB rewards and incentivizes GHO borrowing, leading to a cycle in which the borrowed GHO is resupplied to the lending pool. While this doesn’t pose additional risks due to GHO’s non-collateral status, it has resulted in an inflated GHO supply and elevated utilization rate (~79%) in the Arbitrum market. Importantly, no GHO borrow positions are collateralized by GHO itself.

image
image
Source: Aave, October 9th, 2024

GHO User Analytics

Our recent report about GHO users and their interaction patterns reveals some details that are relevant to GHO cross-chain expansion:

  • Approximately half of GHO borrowers are new to Aave, suggesting the stablecoin’s potential to attract fresh participants to the platform.
  • GHO users demonstrate higher engagement with other DeFi protocols than regular Aave v3 users, indicating a more active user base.
  • GHO loans show lower liquidation rates than established stablecoins like USDC and USDT, indicating that GHO users, despite being wealthier and more experienced, do not present higher risk preferences when borrowing.

All of this demonstrates that onboarding GHO to more chains can contribute to the stablecoin’s sustainable growth and increase the attractiveness of the whole Aave ecosystem. In-depth insights and visualizations can be found in the report.

Network specific considerations

Base Network

Base Network

Base has been one of the fastest-growing L2 networks in 2024. To evaluate the ability of this chain to accommodate GHO, it is important to assess the scale of the network, Aave market status, and the state of liquidity venues on Base.

Network Size

The TVL for this network has recently reached $2.3B. The aggressive growth from March to May 2024 has been renewed, with the network gaining $0.8B more. The network has caught up with Arbitrum regarding TVL becoming the 6th largest chain.

image

Source: DefiLlama, October 9th, 2024

Liquidity Venues

The main DEXes for this network are the following:

Uniswap: TVL of $141M with main pools pairing ETH, USDC, and ETH LSTs.
Aerodrome: TVL of $1.2B with the largest pools pairing ETH, USDC, and ETH LSTs.

While there are smaller TVL exchanges, altogether, these two venues contribute to more than 93% of the total DEX volume on this chain.

image
Source: Dune Analytics, October 9th, 2024

Aave’s Scale on Base

Aave’s Base market size is currently $218M with the market being used widely for ETH LST looping.

image
Source: Aave, October 9th, 2024

Aave is also a large and impactful player on the network, as the supply for some of the LSTs on Base is highly concentrated on Aave. Whenever Aave’s supply caps grow, the overall supply of these assets also grows as assets are being bridged over to the Base network. This is an interesting observation covered in-depth from the risk perspective in our recent reports.

Avalanche Network

Avalanche Network

Over the years, Avalanche has become an established chain in the DeFi ecosystem. To evaluate the ability of this chain to accommodate GHO, it is important to assess the scale of the network, the Aave market status, and the state of liquidity venues on Avalanche.

Network Size

After reaching a $10B TVL in 2022, the network’s TVL quickly faded to $1B. The capitalization has been trending around this level since then, indicating a continued utility of the chain.

image

Source: Dune Analytics, October 9th, 2024

Liquidity Venues

The main DEXes for this network are the following:

Trader Joe: TVL of $80M with the largest pools combining stablecoins, WETH, and AVAX.
Pharaoh: TVL of $17.2M with the largest pools pairing WETH, BTC, AVAX, sAVAX, and stablecoins.
Uniswap: TVL of $10M with the largest pools pairing WETH, BTC, AVAX, sAVAX, and stablecoins.
Balancer: TVL of 8.5M with the largest pools containing AVAX, sAVAX, ggAVAX, and USDC.

While there are smaller TVL exchanges, these four venues contribute to more than 99% of the total DEX volume on this chain.

image
Source: Dune Analytics, October 9th, 2024

Aave’s Scale on Avalanche

Aave’s Avalanche market size is currently $650M, and the market is mostly used for stablecoin and AVAX borrowing.

image
Source: Aave, October 9th, 2024

Technological Layout

Bridging

The bridging process will be facilitated by Chainlink’s CCIP Bridge, with Aave DAO managing the facilitator bucket caps. BGD and Avara will cover further details on the implementation.

Price Feed

GHO oracles on both current markets are now using a fixed 1:1 price ratio:

It is expected that all oracles on different Aave markets should have a fixed 1:1 ratio set for GHO.

Additional Safeguard Mechanisms

While deploying GSM modules is unnecessary at the initial state, the need for GSMs will appear as the GHO supply increases.

Nonetheless, Flashmint functionality will be available out-of-the-box for GHO on Aave’s Base market as GHO would be supplied to the Lending Pool like any ordinary asset.

Aave V3 Specific Parameters

To be provided shortly

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.

Summary

Chaos Labs supports the launch of GHO on new networks to further emphasize the successful growth of Aave’s stablecoin. This analysis covers the current state of GHO and provides parameters for its deployment on Base.

Growth

GHO has shown impressive growth of over 70% in the past three months, reaching a market cap of $160 million. This rapid expansion highlights significant demand for the asset, reinforcing the case for expanding GHO cross-chain to make it accessible to a wider audience and further drive its adoption.

image - 2024-10-11T022035.262

While demand for GHO on Ethereum is growing rapidly, the supply bridged to Arbitrum remains relatively modest at 5 million GHO, representing 3.3% of the total GHO supply. This underscores the importance of strategically using incentives to encourage growth and adoption on other chains.

Liquidity

GHO liquidity on Ethereum has seen remarkable growth over the past month, with its TVL surpassing $48 million and buy-side liquidity reaching $28 million. This robust liquidity provides a safe environment for handling large liquidations, which is crucial given that 65% of GHO is minted using volatile collateral.

image - 2024-10-11T022037.616

Liquidity concentration has strengthened alongside the TVL growth, with a sell order of 9 million GHO now causing only a 1% price impact, and the same is true for a buy order of the same size.

Screenshot 2024-10-10 at 15.05.30

Liquidity on Arbitrum is also expanding rapidly, with TVL exceeding $8 million and buy-side liquidity reaching $6 million. While this liquidity covers a significant portion of the on-chain supply, the relatively small amount of GHO in liquidity pools presents some risk if a large GHO borrow position were to be liquidated.

image - 2024-10-11T022043.566

Volatility

Over the past 180 days, GHO has exhibited a volatility rate of 2.35%, which has slightly increased to 2.78% in the last 30 days. The most significant price change recorded during this period was 0.6%. Compared to other stablecoins, GHO’s volatility is relatively low.

image - 2024-10-11T022046.410

Since recovering from a depegging event at the start of 2024, GHO has demonstrated impressive resilience and adherence to its peg. Since that recovery, its price has consistently remained within 1% of its $1 target, showcasing its strong use case and market balance.

Screenshot 2024-10-11 at 2.31.17

Usage

The majority of the demand for GHO is driven by stkGHO, which currently accounts for 73.54% of the total GHO supply on Ethereum. Meanwhile, on Arbitrum, Aave deposits attract 68.95% of the GHO supply, indicating a significant concentration of GHO utilization across these two platforms.

The backing distribution of GHO did not significantly change over time and is evenly distributed across highly liquid assets such as:

  • ETH related - 59.58%
  • BTC related - 18.53
  • Stablecoins - 13.4%
  • Other - 8.49%

image - 2024-10-11T022051.683

Users

The demand for borrow is well distributed among the top GHO borrowers on Ethereum, with the most common collateral assets being stablecoins and ETH correlated assets. The positions using volatile collateral maintain safe health scores and don’t pose significant liquidation risks.

image - 2024-10-11T022908.787

On Arbitrum, the top GHO borrowers maintain riskier positions as GHO, being a non-collateral asset, doesn’t provide collateral value in the positions. The most commonly used asset to borrow GHO is WBTC, and combined with the acceptable health scores, the top GHO borrowers on Arbitrum pose a tangible liquidation risk.

image - 2024-10-11T022056.202

Incentives

The current Arbitrum borrow incentives encourage looping, and the prominent use of volatile collateral combined with the relatively thin DEX liquidity poses a tangible liquidation risk. To mitigate this risk, incentives could be redirected toward enhancing on-chain liquidity, thereby ensuring sufficient market depth to handle large liquidations.

image - 2024-10-11T022059.415

Base

With Arbitrum’s successful deployment, we suggest aligning parameters on Base, except for supply and borrow caps. Since GHO supply and liquidity are not yet established on Base, we base our estimates on the leverage demand reflected by stablecoin borrowings on each chain.

image - 2024-10-11T022102.410

Given that stablecoin borrows on the Base deployment on Aave amount to roughly 15% of those on the Aave Arbitrum deployment, we propose starting with a supply cap of 2.5M and a borrow cap of 2.25M for GHO on Base. This 2.5M cap is derived from 15% of the current 18M deposited on Arbitrum. Notably, we can immediately double these caps post-listing through the risk steward and then adjust them every five days. This approach sets a potential maximum supply cap of 10M within five days of listing.

Furthermore, Chaos Labs supports the proposed 25M$ bridge cap matching the Arbitrum value.

Parameter Value
Asset GHO
Market Base
Isolation Mode No
Borrowable Yes
Collateral Enabled No
Supply Cap 2,500,000
Borrow Cap 2,250,000
Debt Ceiling -
LTV -
LT -
Liquidation Bonus -
Liquidation Protocol Fee -
Variable Base 0%
Variable Slope1 12%
Variable Slope2 65%
Uoptimal 90%
Reserve Factor 10%
Stable Borrowing Disabled
Flashloanable Yes
Siloed Borrowing No
Borrowable in Isolation No
E-Mode Category N/A

Thank you @ChaosLabs and @LlamaRisk.

The current proposal has been escalated to ARFC Snapshot.

Vote will start tomorrow, we encourage everyone to participate.

After Snapshot monitoring, the current ARFC Snapshot ended recently, reaching both Quorum and YAE with 771K votes.

Therefore the ARFC has PASSED.

Next step will be the publication of an AIP for final confirmation.

Thank you @ACI for this initiative. Likewise, @LlamaRisk and @ChaosLabs’s insights are very much appreciated.

Following steady growth of GHO on Ethereum and its successful integration into the Arbitrum ecosystem over the past four months, we agree that it is indeed timely to consider expanding to additional networks. From Aave Labs’ point of view, the benefit of this expansion is not only increased liquidity and adoption, but also enhancement of the protocol’s versatility across various blockchain ecosystems.

Aave Labs is stepping forward to provide technical support for this initiative, striving to support the DAO to be well-prepared for the expansion. Our current focus includes

  • Collaborating with Chainlink CCIP to ensure the bridge supports GHO and to establish new lanes between Base, Ethereum, and Arbitrum.
  • Developing the proposal payload to establish the canonical instance of GHO token on Base and list the asset within the Aave Pool, in accordance with the risk parameters agreed upon by the DAO.
  • Offering technical assistance to teams interested in integrating with GHO and the CCIP bridge on Base.
  • Updating the Aave Interface to facilitate GHO bridging to/from Base and manage GHO interactions within the Aave Pool.

We will provide detailed information about the technical work being undertaken and technical specifications in a later phase of the governance process.

1 Like