[ARFC] Onboard Native USDC to Aave V3 Markets

Governance New Asset
1

title: [ARFC] Onboard Native USDC to Aave V3 Markets

author: Aave Chan Initiative and @EzR3aL

created: 2023-11-30

Abstract

There are currently multiple proposals in discussion to onboard native USDC to the Aave v3 markets where it is currently not listed. This meta-proposal will onboard native USDC into the Aave V3 pools on Base, OP Mainnet and Polygon PoS.

Motivation

With the evolution of L2 networks, adopting native USDC versions becomes vital for efficiency. This proposal seeks a balanced transition from USDC.e to native USDC on all Aave v3 pools where native USDC is not already onboarded. TEMP CHECK proposals and some ARFC proposals have already been created on the forum, this proposal aims to combine these into a single meta-proposal for voting and execution to reduce governance overhead and speed up the onboarding process.

You can see the existing proposals on the forum below.

TEMP CHECK forum post stage:

ARFC forum post stage:

To streamline the process, we propose moving the Base and Polygon PoS native USDC onboarding proposals straight to ARFC, then combine all three ARFC proposals into a single ARFC snapshot vote.

Note that as part of the risk parameter harmonization, the liquidation threshold for some USDC.e markets will decrease. Risk managers will need to monitor potential liquidation effect of this change and give feedback accordingly.

Specification

Base

Token symbol: USDC

Base Contract: 0x833589fCD6eDb6E08f4c7C32D4f71b54bdA02913

Chainlink oracle: 0x7e860098f58bbfc8648a4311b374b1d669a2bc6b

Risk Parameter Value
emode Yes
Isolation Mode No
Borrowable in Isolation No
Stable Borrow No
Enable Borrow Yes
Enable Collateral Yes
Loan To Value (LTV) 77%
Liquidation Threshold 80%
Liquidation Bonus 5%
Reserve Factor 10%
Liquidation Protocol Fee 10%
Supply Cap 10m USDC
Borrow Cap 9m USDC
Debt Ceiling N/A
uOptimal 90%
Base 0%
Slope1 5%
Slope2 60%

For USDC.e:

  • Supply Cap: 2m
  • Borrow Cap: 2m
  • Emode: No
  • Reserve Factor (RF):
    • USDC.e: Increase to 20% to incentivize native USDC usage.
  • Slope1:
    • USDC.e: Increase to 7% to incentivize native USDC usage.
  • Slope2:
    • USDC.e: Increase to 80% to incentivize native USDC usage.

OP Mainnet

Token Symbol: USDC

Address: 0x0b2C639c533813f4Aa9D7837CAf62653d097Ff85

Chainlink oracle: 0x16a9fa2fda030272ce99b29cf780dfa30361e0f3

Risk Parameter Value
emode Yes
Isolation Mode No
Borrowable in Isolation No
Stable Borrow No
Enable Borrow Yes
Enable Collateral Yes
Loan To Value (LTV) 77%
Liquidation Threshold 80%
Liquidation Bonus 5%
Reserve Factor 10%
Liquidation Protocol Fee 10%
Supply Cap 25m USDC
Borrow Cap 20m USDC
Debt Ceiling N/A
uOptimal 90%
Base 0%
Slope1 5%
Slope2 60%

For USDC.e:

  • Supply Cap: 18m
  • Borrow Cap: 15.5m
  • Reserve Factor (RF):
    • USDC.e: Increase to 20% to incentivize native USDC usage.
  • Slope1:
    • USDC.e: Increase to 7% to incentivize native USDC usage.
  • Slope2:
    • USDC.e: Increase to 80% to incentivize native USDC usage.

Note: As part of the risk parameter harmonization, the liquidation threshold for the Optimism USDC.e market will decrease from 85% to 80%. Risk managers will need to monitor potential liquidation effects of this change and give feedback accordingly.

Polygon PoS

Token Symbol: USDC

Address: 0x3c499c542cef5e3811e1192ce70d8cc03d5c3359

Chainlink oracle: 0xfe4a8cc5b5b2366c1b58bea3858e81843581b2f7
emode Yes
Isolation Mode No
Borrowable in Isolation No
Stable Borrow No
Enable Borrow Yes
Enable Collateral Yes
Loan To Value (LTV) 77%
Liquidation Threshold 80%
Liquidation Bonus 5%
Reserve Factor 10%
Liquidation Protocol Fee 10%
Supply Cap 50m USDC
Borrow Cap 45m USDC
Debt Ceiling N/A
uOptimal 90%
Base 0%
Slope1 5%
Slope2 60%

For USDC.e:

  • Supply Cap: 40m
  • Borrow Cap: 36m
  • Loan To Value (LTV): 77%
  • LT: 80%
  • LB: 5%
  • Reserve Factor (RF):
    • USDC.e: Increase to 20% to incentivize native USDC usage.
  • Slope1:
    • USDC.e: Increase to 7% to incentivize native USDC usage.
  • Slope2:
    • USDC.e: Increase to 80% to incentivize native USDC usage.

Note: As part of the risk parameter harmonization, the liquidation threshold for the Polygon USDC.e market will decrease from 85% to 80%. Risk managers will need to monitor potential liquidation effects of this change and give feedback accordingly.

Arbitrum

Token Symbol: USDC

Address: 0xaf88d065e77c8cC2239327C5EDb3A432268e5831

Chainlink oracle: 0x50834F3163758fcC1Df9973b6e91f0F0F0434aD3

Risk Parameter Value
emode Yes
Isolation Mode No
Borrowable in Isolation No
Stable Borrow No
Enable Borrow Yes
Enable Collateral Yes
Loan To Value (LTV) 77%
Liquidation Threshold 80%
Liquidation Bonus 5%
Reserve Factor 10%
Liquidation Protocol Fee 10%
Supply Cap 64m USDC
Borrow Cap 60m USDC
Debt Ceiling N/A
uOptimal 90%
Base 0%
Slope1 5%
Slope2 60%

For USDC.e:

  • Supply Cap: 26m
  • Borrow Cap: 24m
  • Loan To Value (LTV): 77%
  • LT: 80%
  • LB: 5%
  • Reserve Factor (RF):
    • USDC.e: Increase to 20% to incentivize native USDC usage.
  • Slope1:
    • USDC.e: Increase to 7% to incentivize native USDC usage.
  • Slope2:
    • USDC.e: Increase to 80% to incentivize native USDC usage.

Note: As part of the risk parameter harmonization, the liquidation threshold for the Arbitrum USDC.e market will decrease from 86% to 80%. Risk managers will need to monitor potential liquidation effects of this change and give feedback accordingly.

Incentives

To facilitate a seamless transition from USDC.e to Native USDC, relevant foundations, DAO & Circle, are welcome to propose incentive programs to increase the attractiveness of USDC compared to USDC.e

If any proposition is made for this, this proposal will be updated accordingly, the ACI, via the Skyward program, will prepare the AIP implementation accordingly.

Next Steps

  1. Community feedback and gather consensus
  2. Proceed to ARFC snapshot stage.
  3. If successful, escalate to AIP stage.

Disclaimer

This proposal is powered by Skyward, The Aave Chan Initiative (ACI) is not compensated in any form by Circle or any affiliated entities for creating this ARFC proposal.

Copyright

Copyright and related rights waived via CC0 4.

5 Likes
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Recommendations for Native USDC on Base, Polygon

We support the listing of native USDC on Polygon and Base with the proposed parameters, aligning them with those on other L2s.

Considering the current on-chain liquidity, in addition to the current supply and borrow of USDC.e on Polygon and USDbC on Base we recommend the following caps, which will allow migration of existing positions:

Supply Cap Recommendation Borrow Cap Recommendation
Base 10M 9M
Polygon 50M 45M

Screen Shot 2023-11-30 at 17.39.44
Screen Shot 2023-11-30 at 17.39.442492×840 180 KB

Source: Chaos Labs Risk Platform - 11.30.2023
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Untitled (3)2458×852 195 KB

Source: Chaos Labs Risk Platform - 11.30.2023

Recommendations for Native USDC on Optimism

Slope1 for the recently deployed Native USDC on V3 Optimism is currently set at 3.5%. Following the proposal to increase stablecoin borrow rates across Aave deployments, we recommend aligning the IR parameters of USDC on Optimism

Chain Asset Parameter Current Recommendation
Optimism USDC Slope1 3.5% 5%

Deprecation of Older Versions of USDC

If the community chooses to initiate the offboarding of older versions of USDC, we present two options: a moderate (Chaos recommended) and an aggressive approach. The key difference between these options is that the moderate approach does not include a recommendation to reduce Liquidation Thresholds, thereby avoiding any potential risk of liquidation for existing users.

These recommendations are intended to make native USDC supply and borrow more attractive than the older versions. This will be achieved by offering more favorable interest rates and preventing new supply, borrow, and collateralized positions involving the older versions of USDC.

Parameter Optimism Arbitrum Polygon Base
LT (Moderate / Aggressive) 80% / No Change 80% / No Change 80% / No Change No Change
LTV 0% 0% 0% 0%
Supply Freeze Freeze Freeze Freeze
Borrow Freeze Freeze Freeze Freeze
Slope1 7% 7% 7% 7%
Slope2 80% 80% 80% 80%
RF 20% 20% 20% 20%

As of 11.30.2023, reducing LTs of older versions of USDC on the various chains to 80% would have the following impact in terms of users eligible for liquidation:

Value Liquidated Accounts Liquidated
Optimism $7,096 183
Arbitrum $65,003 774
Polygon $25,416 224

Following the implementation of this proposal, we will monitor the impact of the updated parameters on the migration to native USDC and make additional parameter update recommendations as necessary.

3 Likes
3

Post has been edited to reflect @ChaosLabs recommendations.
Next step will be AIP as direct to AIP conditions are met with the new framework shortly approved by the DAO. @0xTogbe

1 Like
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On recommendations for native USDC

From a risk perspective, we support the following parameters for native USDC across relevant v3 deployments. It is worth noting that in an earlier poll from Gauntlet, the community did not approve LT reductions due to the amount of liquidations they will cause (more details on estimated liquidations below). That being said, we agree that these changes can make native USDC more attractive.

Risk Parameter Value
emode Yes
Isolation Mode No
Borrowable in Isolation No
Stable Borrow No
Enable Borrow Yes
Enable Collateral Yes
Loan To Value (LTV) 77%
Liquidation Threshold 80%
Liquidation Bonus 5%
Reserve Factor 10%
Liquidation Protocol Fee 10%
Debt Ceiling N/A
uOptimal 90%
Base 0%
Slope1 5%
Slope2 60%

With regards to the proposed LT; given native USDC has launched on Optimism and Arbitrum, the parameter changes in the ARFC decrease the Optimism native USDC LT from 85% to 80%, and Arbitrum native USDC LT from 86% to 80%, and may cause the following liquidations.

  • ~$550 on Arbitrum v3, as of 2023-12-04

We are aligned with the proposed caps for native USDC on v3 deployments.

Parameter Optimism Arbitrum Polygon Base
Supply Cap 25m 64m 50m 10m
Borrow Cap 20m 60m 45m 9m

On deprecation of bridged USDC

Interest rates for bridged USDC

We are aligned with the proposed IR changes for bridged USDC as a first step. Depending on equilibrium utilization following the change, the community may wish to further increase RF for bridged USDC.

Liquidations from LT reductions

Under the proposed framework of lowering LT to 80% for bridged USDC, the following borrow amounts may be liquidated, as of 2023-12-04.

Chain Borrows Liquidated
Optimism ~$8,500
Arbitrum ~$50,000
Polygon ~$39,000
4 Likes
5

Just a quick technical note to mention that on Base there is no stablecoin Emode yet, thus USDC on Base can’t be added to it ^^

1 Like
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An AIP has been published reflecting previous governance voting & results. Voting will start tomorrow. We encourage you to participate!