Summary
This analysis covers the listing of osGNO within the Aave V3 Gnosis instance.
Techincal Overview
osGNO is a GNO LST created by Stakewise. The token represents GNO staked in “Vaults” and earns yield from validators. osGNO can be permissionlessly minted against any Gnosis Chain node. Unlike traditional LSTs, whereby the associated receipt token represents the pooled underlying at a 1:1 rate, minting osGNO requires a user to be overcollateralized in staked GNO with respect to his osGNO, at a ltvPercent ”minting threshold” of 90%. The rationale behind this is to leverage the excess backing of staked GNO to protect holders against slashing and poor performance risks from permissionless nodes. Effectively, this implies that the associated stakers in Vaults are exposed only to the performance of their respective Vault’s validators, while external holders of osGNO benefit from this GNO-denominated slashing loss buffer. To this effect, while stakers can only mint osGNO worth up to 90% of their staked GNO, they still retain rewards on 100% of their stake.
Protocol Incentives
In addition to the autonomy presented at the node operator/vault level, the protocol effectively creates and maintains a competitive marketplace between respective vault operators through economic (dis)incentive alignment at the protocol level. In addition to siloed slashing risks within respective vaults, the protocol enshrines a “fair exchange rate,” as referenced in the PriceFeed contract, which represents the weighted average APY across all vaults with feePercent ≤ 15%, acting as the effective reward baseline for all osGNO in circulation in ERC-4626 fashion. In the event that a user delegates to underperforming vaults, stemming from operator MEV extraction, substantial operator fees or suboptimal infra, the underlying LTV of the associated osETH vault positions can scale accordingly, as the effective number of shares collateralizing the underlying staked GNO is no longer in line with the protocol.
External Redemptions
If the value of a user’s osGNO position reaches 91.5% of the staked GNO value, any osGNO holder can redeem for GNO held in the vault, totally ordered with respect to the LTV of the position. The amount redeemed is calculated using the following equation.
These third-party redemptions can only be conducted to bring a user’s health level back to 90%, minimizing the amount that stakers can lose, and are only profitable to perform under the assumption that the market price of osGNO is trading lower than the associated exchange rate, thereby implicitly aligning incentives to maintain protocol safety while explicitly contributing to peg reversion.
Liquidations
Furthermore, if the value of an osGNO position deviates further, past the enshrined liqThresholdPercent of 92% relative to the staked GNO, maintaining protocol solvency is no longer conditionally performed as a function of the negative market price deviation from the PriceFeed value, rather the position can be fully liquidated with a liqBonusPercent of 1% to the external actor.
Withdrawals
Burning osGNO and withdrawing staked GNO follows the underlying dynamics of the Gnosis exit queue, which, with a CHURN_LIMIT_QUOTIENT value of 212 as opposed to Ethereum’s 216 and 3.5x fewer validators, allows users to receive the underlying GNO exponentially faster than staked ETH, typically occurring in 24 hours.
Market Price Deviations
As a result of the mechanisms at play, we have observed periods where the asset was trading at a large premium relative to its exchange rate. In this sense, there exists an associated deterrent in capital efficiency such that arbitraging the upward deviation requires a user to adhere to the ltvPercent, capping the effective maximum upward deviation at ~1.11 osGNO/GNO, nearly akin to a CDP stablecoin such as LUSD. This effect, coupled with the relatively quick exit queue and redemption/liquidation mechanisms, makes it such that negative deviations will be short-lived, while positive deviations solely benefit the protocol.
The associated market dynamics overlayed with mint/burn events further exemplify this. Significant upward deviations lead to an implicit incentive to mint osGNO, as the effective APY realized will thus be higher. While an upward market price deviation can deter Stakewise redemptions and liquidations from occurring, the net accrual rate of the LTV is significantly reduced given by the rate difference between the lower-performing vault positions and the weighted average staking APY, thus we expect the market price to revert into a profitably liquidatable range within such a long timeframe. Moreover, as the LTV converges upward, the associated collateralizing stake relative to the total osGNO in circulation would thus be deteriorating, thereby resulting in the expected market price reacting accordingly.
Market Cap and Liquidity
The asset currently has a total supply of 29,400 osGNO ($4.4M), however it is worth noting that thanks to the use of Stakewise vaults, osGNO does not represent all of the GNO staked. The total supply of GNO staked with Stakewise, which can be minted as osGNO when there is demand for its usage within defi, is of 132,000 GHO.
The asset currently boast one significant DEX liquidity pool, the osGNO-GNO pool on Balancer, which, while its liquidity has dropped significantly since December 2024, is sufficent to support the listing of the asset.
LT, LTV, and LB
Given the asset’s somewhat limited liquidity on Gnosis, as well as its anticipated use case in leveraged yield generation strategies, we propose setting conservative parameters outside of the E-mode. Given the yield-bearing aspect of the asset, we recommend the introduction of an osGNO/GNO Liquid E-Mode to enable efficient leverage staking. In the E-Mode, we recommend the following parameters of 90%, 92.5%, and 2.5% for LTV, LT, and Liquidation Penalty, respectively.
Given the overcollateralized nature of osGNO, which enables upward deviations under a 1.11 GNO market price, liquidating osGHO/GHO positions on Aave becomes increasingly profitable during events of upward deviations. Hence, we consider the proposed 2.5% Liquidation Bonus to be sufficient to maintain a competitive and profitable liquidation market.
Supply and Borrow Caps
Given the safe techincal aspect of osGHO and its greater non circulating supply, we recommend setting the supply cap at 4x the liquidity available beneath the Liquidity Penalty of 2.5%. Hence, we recommend a supply cap of 32,000 osGNO.
Oracle
We recommend using the GNO/USD oracle augmented with the exchange rate contained in Stakewise’s PriceFeed contract.
CAPO Configuration
Following the methodology in this post, we recommend using a 14-day MINIMUM_SNAPSHOT_DELAY and a maxYearlyRatioGrowthPercent of 13.01%.
| maxYearlyRatioGrowthPercent | ratioReferenceTime | MINIMUM_SNAPSHOT_DELAY |
|---|---|---|
| 13.01% | monthly | 14 days |
Specification
| Parameter | Value |
|---|---|
| Asset | osGNO |
| Isolation Mode | N/A |
| Borrowable | No |
| Collateral Enabled | Yes |
| Supply Cap | 32,000 |
| Borrow Cap | - |
| Debt Ceiling | - |
| LTV | 40% |
| LT | 45% |
| Liquidation Bonus | 10% |
| Liquidation Protocol Fee | 10% |
| Variable Base | - |
| Variable Slope1 | - |
| Variable Slope2 | - |
| Uoptimal | - |
| Reserve Factor | - |
| Stable Borrowing | Disabled |
| Flashloanable | Yes |
| Siloed Borrowing | No |
| Borrowable in Isolation | No |
E-Mode Specifications
| Parameter | Value | Value |
|---|---|---|
| Asset | osGNO | GNO |
| Collateral | Yes | No |
| Borrowable | No | Yes |
| Max LTV | 90% | - |
| Liquidation Threshold | 92.5% | - |
| Liquidation Bonus | 2.50% | - |
Disclaimer
Chaos Labs has not been compensated by any third party for publishing this ARFC.
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