[ARFC] Onboard sUSDS to Aave V3 Base Instance

[ACI]

[ARFC] Onboard sUSDS to Aave V3 Base Instance

Author: ACI

Date: 2025-04-08

Risk Parameters have been provided by Risk Service Providers and proposal has been updated accordingly. 2024-05-10

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Summary

This ARFC proposes to onboard sUSDS as a supported asset on the Aave V3 Base Instance. The proposal aims to expand the utility of sUSDS within the DeFi ecosystem and provide users with additional yield-generating opportunities on Base, including custom eMode categories to optimize borrowing and collateral efficiency.

The current proposal will be Direct to AIP following its successful onboarding to the Aave V3 Ethereum (Core) instance.

Motivation

The successful deployment and usage of both USDS and sUSDS in the Aave V3 Core instance demonstrate a growing demand for high-quality fiat-pegged stablecoins. Bringing sUSDS to Aave V3 Instance furthers the reach of Aave markets into L2 ecosystems and increases user optionality for borrowing and liquidity provision.

sUSDS, being a yield-generating asset earning the SSR yield from the Sky ecosystem, is a great collateral candidate for the Aave ecosystem.

Specification

Risk Parameters have been provided by Risk Service Providers and proposal has been updated accordingly. 2024-05-10

Suggested E-modes:

sUSDS <> EURC
sUSDS <> USDC, GHO

sUSDS Market Configuration (Base Instance)

Parameter	Value
Asset	sUSDS
Isolation Mode	No
Borrowable	No
Collateral Enabled	Yes
Supply Cap	40,000,000
Borrow Cap	-
Debt Ceiling	-
LTV	75%
LT	78%
Liquidation Penalty	4.5%
Liquidation Protocol Fee	10.00%
Variable Base	-
Variable Slope1	-
Variable Slope2	-
Uoptimal	-
Reserve Factor	-
Stable Borrowing	Disabled
Flashloanable	Yes
Siloed Borrowing	No
Borrowable in Isolation	No
E-Mode Category	sUSDS/USDC/GHO; sUSDS/EURC

sUSDS/USDC/GHO E-mode Configuration

Parameter	Value	Value	Value
Asset	sUSDS	USDC	GHO
Collateral	Yes	No	No
Borrowable	No	Yes	Yes
Max LTV	92%	-	-
Liquidation Threshold	94%	-	-
Liquidation Bonus	1%	-	-

sUSDS/EURC E-mode Configuration

Parameter	Value	Value
Asset	sUSDS	EURC
Collateral	Yes	No
Borrowable	No	Yes
Max LTV	88%	-
Liquidation Threshold	90%	-
Liquidation Bonus	1%	-

CAPO

maxYearlyRatioGrowthPercent	ratioReferenceTime	MINIMUM_SNAPSHOT_DELAY
13.50%	Monthly	7 Days

Disclaimer:

This proposal is powered by Skywards. ACI is not directly affiliated with Sky and did not receive compensation for creation of this proposal.

Next Steps

1. Publication of a standard ARFC, collect community & service providers feedback.
2. Publish an AIP vote for final confirmation and enforcement of the proposal

Copyright:

Copyright and related rights waived under CC0

[ChaosLabs]

Overview

Chaos Labs supports listing sUSDS on Aave V3’s Base Core instance. Below is our analysis and initial risk parameter recommendations.

Technical Overview

USDS is the stablecoin of Sky Protocol (formerly MakerDAO) and serves as an upgraded version of DAI. It supports 1:1 conversion with both DAI and USDC. Through the Sky.money platform, users can convert DAI to USDS at a 1:1 ratio. The process is fully reversible, allowing users to convert USDS back into DAI using the same contract.

Savings USDS (sUSDS) is an enhanced version of sDAI, offering a higher yield. It represents tokenized USDS staked to earn the Sky Savings Rate (SSR). Although sUSDS does not support direct conversion from sDAI, it follows the ERC-4626 token standard, allowing atomic conversion from USDS. Each sUSDS token is fully fungible and can be instantly redeemed for USDS at any time. Deposited USDS is never locked, ensuring immediate withdrawal availability.

The sUSDS bridging uses SkyLink, Sky’s canonical bridge, to transfer USDS and sUSDS tokens across supported networks. Both tokens follow a simple ERC20 implementation. sUSDS accumulates value over time through the SSR, and liquidity is ensured via the Spark PSM, allowing swaps between stablecoins with no slippage or fees beyond gas. The bridging process does not involve ERC-4626, which is specific to Ethereum mainnet.

Market Cap & Liquidity

sUSDS has maintained an overall upward trend on Base. As of this writing, the total supply of sUSDS stands at 202.72M, corresponding to a market cap of approximately $212.25M.

PSM

The majority of sUSDS liquidity is sourced from the Sky PSM, a stability module designed to facilitate seamless conversions between USDS, USDC, and sUSDS. Within this module, the conversion rate between USDS and USDC is fixed at 1:1, while the conversion rate between sUSDS and USDC/USDT is determined by a rate provider oracle.

USDC liquidity within the PSM is periodically replenished via the Spark Liquidity Layer (SLL) ALM Proxy, based on off-chain configurations set by the protocol’s risk teams. These updates are guided by the Optimal USDC Level parameter, which reflects a balance between two key considerations:

1. Growth in USDS supply on a given chain.
2. Size of the largest holder on the respective chain.
3. Conversely, the opportunity cost associated with deploying idle USDC liquidity into the module.

Further insights into the rationale and history behind these adjustments can be found in this forum thread.

Below is a historical overview of USDC availability within the PSM, which closely aligns with the optimal level defined by the Spark Liquidity Layer (SLL). As of this writing, $20 million in USDC is available for immediate swaps through the module.

To maintain adequate liquidity, the SLL is configured to automatically replenish the PSM back to $20 million whenever nominal USDC balances fall below $15 million. This mechanism ensures continuous liquidity availability and is supported by up to $4 billion in capacity from the PSM Lite on Ethereum, which leverages Circle’s native CCTP bridging infrastructure.

Given the rising demand for USDS on Base, it is anticipated that USDC liquidity will scale proportionally—reinforcing the protocol’s commitment to supporting sustainable and scalable growth.

LTV, Liquidation Threshold, and Liquidation Bonus

Given the above analysis, the total supply of sUSDS on Base has shown a steady growth trend, and the deployment of the Spark PSM module on Base, with $20M in USDC liquidity, ensures sufficient liquidity to support stable swaps. For these reasons, we recommend setting the initial generalized parameters for sUSDS in line with the sDAI parameters used on the Ethereum Core instance.

Supply and Borrow Cap

We recommend setting the initial sUSDS supply cap based on the liquidity available in the PSM. With 20M USDC currently available, we propose establishing an initial supply cap of 40M sUSDS. This would provide a justifiable starting point, with future adjustments to be made as user behavior evolves.

Given the yield-bearing nature of sUSDS, we anticipate limited borrowing demand. Therefore, we recommend making sUSDS non-borrowable.

Oracle/Pricing

We recommend using the getConversionRate function from the ssrOracle contract to obtain the sUSDS/USDS conversion rate, combined with the USDS/USD Chainlink Price Feed on Base, for pricing sUSDS. The cross-chain SSR Oracle reports SSR values across various bridges and is also the oracle utilized by the Spark PSM.

E-Mode

We recommend establishing a stablecoin E-Mode for sUSDS, GHO, and USDC to support the anticipated leverage looping use case of sUSDS and to enable higher initial risk parameters. Additionally, while we recognize the potential use case for an E-Mode between sUSDS and EURC, given EURC’s distinct risk profile, we recommend creating a separate isolated liquid E-Mode specifically for sUSDS and EURC.

CAPO

The observed smooth APY trend suggests that sUSDS’s yield distribution is consistent and free from drastic fluctuations, through its deterministic output. Based on this, we recommend setting the MINIMUM_SNAPSHOT_DELAY to 7 days. Accordingly, we propose setting the maxYearlyRatioGrowthPercent at 13.5%.

Recommendations

Following the above analysis, alongside @LlamaRisk, we recommend the following parameter settings:

sUSDS Market Configuration (Base Instance)

Parameter	Value
Asset	sUSDS
Isolation Mode	No
Borrowable	No
Collateral Enabled	Yes
Supply Cap	40,000,000
Borrow Cap	-
Debt Ceiling	-
LTV	75%
LT	78%
Liquidation Penalty	4.5%
Liquidation Protocol Fee	10.00%
Variable Base	-
Variable Slope1	-
Variable Slope2	-
Uoptimal	-
Reserve Factor	-
Stable Borrowing	Disabled
Flashloanable	Yes
Siloed Borrowing	No
Borrowable in Isolation	No
E-Mode Category	sUSDS/USDC/GHO; sUSDS/EURC

sUSDS/USDC/GHO E-mode Configuration

Parameter	Value	Value	Value
Asset	sUSDS	USDC	GHO
Collateral	Yes	No	No
Borrowable	No	Yes	Yes
Max LTV	92%	-	-
Liquidation Threshold	94%	-	-
Liquidation Bonus	1%	-	-

sUSDS/EURC E-mode Configuration

Parameter	Value	Value
Asset	sUSDS	EURC
Collateral	Yes	No
Borrowable	No	Yes
Max LTV	88%	-
Liquidation Threshold	90%	-
Liquidation Bonus	1%	-

CAPO

maxYearlyRatioGrowthPercent	ratioReferenceTime	MINIMUM_SNAPSHOT_DELAY
13.50%	Monthly	7 Days

Disclaimer

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

Copyright

Copyright and related rights waived via CC0

[LlamaRisk]

Summary

LlamaRisk supports onboarding sUSDS to Aave V3 Base Instance. The unstaked version of the asset has demonstrated good product-market fit on mainnet, meaning the arrival it has staked counterpart on Base is a natural extension—both this proposal’s recommended E-modes and the asset itself present limited incremental risk to the protocol. We align with @ChaosLabs’ proposed parameters and E-modes.

The unstaked version asset has been reviewed by LlamaRisk previously, who found key risks to include an upcoming freeze function, jurisdictional exclusions and counterparty risk stemming from governance processes. This was brought to light in late February, to which Risk Stewards responded. In the interest of clarity, LlamaRisk has focused on Base-specific considerations while explaining this recommendation. Given that this asset may be unstaked at a fixed ratio instantly into USDS or USDC, they are essentially analogous (unlike, say, sUSDe, which has a 7-day unstake period).

Thanks to careful cross-chain dependency implementation, Base’s sUSDS market risk is low, and incremental dependency risk is limited.

Base Asset Risk

sUSDS on Base presents few incremental risks to Aave.

sUSDS is accessed on Base after the Spark Peg Stability Module was deployed on the network. sUSDS may be converted to USDC/USDS as priced by a fixed-rate, crosschain Savings Rate Oracle. This introduces a Chainlink-based dependency. This oracle may also use a chain’s canonical bridge, reducing additional dependency risk.

Something traders looking to leverage long this asset and short a non-yield-bearing stable will want to pay attention to is how sUSDS APY is modified frequently based on market dynamics. While this may not affect the Aave protocol, it will affect user profitability and should be priced in by users looking to take advantage of this use case.

Source: USDS collateral, MakerBurn, April 10th, 2025

While this asset is already onboarded to the mainnet core, it is worth noting that the following (s)USDS’s backing is complex. Users may access backing at MakerBurn, where collateral and debt ceilings are listed. Significant intraday changes are detailed in supply moving from PSM-LITE-USDC (down 225M, 5% 24H) to Spark Liquidity Layer (up 155M, 13% 24H). While transparency on the Spark Liquidity Layer and RWA allocations are detailed in the forum, even sophisticated users may struggle to follow the application of methodology. This presents some degree of risk.

Significant differences in Base versus Mainnet contract are utilized. These newer contracts are heavily audited and have an impressive $10M bug bounty covering them.

Base Market Risk

Source: sUSDS to USDC, Odos Router, April 9th, 2025

This asset is liquid, with over a $20M trade resulting in less than 5% price impact. This is mostly routed through Spark’s PSM, which is highly reliable liquidity. This means that exit liquidity risk is low.

The Spark PSM may be refilled at any point from the mainnet PSM should reach a threshold of $15M. An upcoming PSM change will programmatically direct liquidity from other sources across the Sky ecosystem, resulting in even deeper liquidity. This liquidity refill currently operates through CCTP, which takes roughly 20 minutes. This will further reduce liquidity risk.

Source: Token Holder Distribution, Basescan, April 9th, 2025

This asset is held more than 75% of this network by 3 addresses. This indicates some concentration risk, which could result in liquidity instability. However, the largest holding address is the Spark PSM, with the second, third, and fourth linked to Fluid, Compound Spark, or Morpho. This means that these addresses are controlled by a far more fragmented set of entities than appears to be the case, reducing risk. The methodology for allocating PSM liquidity is publicly discussed by their risk provider, Block Analitica. This helps monitor liquidity, further reducing risk.

Source: sUSDS bridge liquidity, Oku, April 9th, 2025

Bridge liquidity is limited to just 7.3M sUSDS and concentrated to just one provider. This may result in large users being unable to access (should the PSM be exhausted) additional liquidity outside of Base instantly. Fortunately, up to 15M sUSDS may be bridged in under 5 minutes at 0% lost to add additional liquidity. This will increase arbitrage incentives and help reduce bridge liquidity risk.

Parameter recommendations

LlamaRisk aligns with @ChaosLabs’ recommendations for onboarding both to the Base instance and specific E-modes. Of note is the lower LTV on the sUSDS-EURC E-mode, which price in potential currency deviation related to global macroeconomic events.

Price feed Recommendation

LlamaRisk suggests using the Chainlink aggregator feed, which calls this Sky Savings Rate Oracle. This oracle is audited, well documented and used by other large markets. CAPO should also be used to protect against potential rate inflation.

Disclaimer

This review was independently prepared by LlamaRisk, a community-led 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.

[ACI]

Thank you @ChaosLabs and @LlamaRisk . We have updated ARFC accordingly.