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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
