[ARFC] Mint & Deploy 10M GHO into Aave v3 Lido Instance

[karpatkey_TokenLogic]

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title: [ARFC] Deploy 10M GHO into Aave v3 Lido Instance
author: @karpatkey_TokenLogic
created: 2024-11-05

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Summary

Following on from the publication to Add GHO to the Lido instance of Aave v3 on Ethereum, this publication proposes supporting GHO liquidity by minting and depositing 10M units of GHO.

Motivation

With a GHO Facilitator expected to be deployed in the near future, this publication proposes Minting 10M Units and depositing GHO into the Lido instance of Aave v3. With the introduction of the facilitator, the Aave DAO is expected to be an early GHO liquidity provider with GHO from the Treasury and newly minted GHO being deposited into the reserve.

In the near future, a proposal to onboard sUSDe to Lido instance will be presented on the governance forum. Onboarding sUSDe is expected to drive significant demand for stablecoins on the Lido instance. A combination of making available liquidity, having an appropriate Borrow Rate and Borrow Cap enables the GHO Stewards to balance growing GHO’s circulating supply and peg resilience. By providing liquidity on the Lido instance, the Aave DAO shall provid the initial bootstrapping liquidity in a very cost efficient manner and in doing so, enahnce the DAO’s revenue generated from the Lido instance. GHO holders will be able to deposit GHO to earn the deposit yield whilst benefit from small than otherwise concentration risk within the reserve due to the DAO providing the bootstrapping liquidity.

With strong demand for GHO using wstETH as collateral resulting in 23.7% of GHO supply sourced from the Main market being backed by wstETH, this demonstrates that users actively seek to benefit from the capital efficiency of using an LST as collateral. Deploying additional GHO into the Lido instance is expected to further encourage this positive behavior, reinforcing the appeal of wstETH as a reliable, yield-bearing collateral for GHO.

Specification

The below table details the amount of GHO to be Minted by the Facilitator to be deposited into Lido instance upon, or shortly after, listing GHO. This is to be implemented via two AIP submissions and contain any required Supply Cap increase to facilitate the Aave DAO depositing GHO into the reserve.

Parameter	Value
Mint	10M Units

The GHO Stewards are responsible for determining how much and when to mint GHO that is to be deposited into the Lido instance of Aave v3.

Future proposals shall use the fast track, Direct-to-AIP, process for implementing GHO Steward proposed amendments.

Disclosure

TokenLogic and karpatkey receive no payment for this proposal.

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, an AIP will be submitted to implement the proposal.

Copyright

Copyright and related rights waived via CC0.

[LlamaRisk]

Summary

LlamaRisk supports the proposal to mint and deploy 10 million GHO into the Aave Lido instance, viewing it as a prudent step to bolster GHO after its initial onboarding to the Lido market. However, it is important to note that upon implementation of the Onboarding GHO on Lido instance proposal, approximately 7.3 million GHO from the Treasury would be supplied to the GHO reserve. This would partially utilize the proposed 11 million supply cap, meaning that the immediate deployment of an additional 10 million GHO would not be feasible. We therefore recommend minting and deploying this allocation in stages, with Risk Stewards gradually raising the supply caps to accommodate these GHO injections.

Additionally, we have addressed the risk considerations for this GHO deployment in a note accompanying the initial Onboarding GHO on Lido proposal and found no risk-related issues this deployment. We therefore expect that the proposed additional GHO will be deployed optimally, as directed by the Risk Stewards, without affecting the risk profile of either GHO or Aave’s Lido market. As outlined in our note, and in agreement with @karpatkey_TokenLogic, we also believe that adding yield-bearing stablecoins to the Lido would enhance the utility of stablecoin borrowing in this market.

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.

The information provided should not be construed as legal, financial, tax, or professional advice.

[ChaosLabs]

Summary

Chaos Labs supports the creation of a GHO Facilitator to mint 10 million GHO tokens, which will be deposited into the Lido instance of Aave v3.

The primary objectives are to enhance liquidity within the Lido instance and generate substantial revenue for the Aave DAO.

Liquidity

The initial listing of GHO on the Arbitrum instance highlighted challenges in attracting sufficient liquidity without offering aggressive incentives. Despite the availability of GHO, user participation remained low because staking GHO (stkGHO) and providing liquidity in DEX pools on Ethereum offered more attractive returns. A notable increase in GHO supply on Arbitrum was observed only after the introduction of substantial incentives.

By depositing 10 million GHO into the Lido instance, the Aave DAO can bootstrap liquidity effectively, allowing users to borrow GHO without first requiring expensive incentive campaigns to attract GHO supply to the market.

Backing

This proposal presents minimal risk as GHO is fully backed by the collateral used to borrow it. While the facilitator allows selected entities to mint uncollateralized GHO, the minted GHO is deposited directly into the Lido instance as supply, ensuring it remains within the Aave ecosystem until borrowed against collateral. Moreover, all assets approved as collateral for GHO in the Lido instance are already authorized in the main Ethereum Facilitator, and as such, they have been previously approved as GHO collateral from the Aave DAO. This structure guarantees that each GHO token is backed by equivalent assets held within Aave, preserving the integrity of GHO’s backing. Consequently, this approach does not introduce significant risk to the DAO or its users.

Demand

Most of the anticipated demand for GHO borrowing is expected to originate from WETH depositors in the Lido instance, who are currently restricted from borrowing due to the LTV ratio being set at 0%. Plans to increase the LTV for WETH, as outlined in this proposal, will unlock significant borrowing capacity, enabling these users to borrow GHO against their WETH holdings.

Additional demand may come from wstETH, which is the most widely used collateral for minting GHO in the Ethereum main market, representing approximately 22% of GHO’s supply. Borrow demand against wstETH collateral is expected to come from users of the main GHO Ethereum Facilitator who could earn additional yield by depositing wstETH in the Lido instance.

Furthermore, the anticipated addition of sUSDe to the Lido instance could boost borrowing demand. The potential introduction of a sUSDe/GHO E-Mode would allow users to engage in yield-looping strategies, borrowing GHO against sUSDe to leverage returns.

Together, these factors indicate that the 10 million GHO deposit will encounter substantial borrowing demand, promoting rapid utilization and supporting the growth of DAO revenue.

Revenue

The proposed initiative has the potential to generate significant revenue for the Aave DAO. Assuming that the 10 million GHO deposited into the Lido instance is borrowed quickly and considering a utilization rate of 92% with an interest rate slope of 6.5% as recommended in the GHO Lido listing, the DAO could earn up to $600,000 per year on the minted GHO.

Disclaimer

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

Copyright

Copyright and related rights waived via CC0

[karpatkey_TokenLogic]

A Snapshot vote has been created.

Start date Nov 19, 2024, 5:29 PM
End date Nov 22, 2024, 5:29 PM