[ARFC] USDC Allocation for GHO Market Making on Gnosis Chain

Governance
1

[ARFC] USDC Allocation for GHO Market Making on Gnosis Chain

Author: kpk
Date: 2025-07-14

Summary

This ARFC proposes allocating funds for market making activities of the GHO token on Gnosis Chain. It will be managed non-custodially under kpk’s mandate with Aave. Our goals are both enhancing GHO liquidity, particularly for GHO / USDC.e and GHO / EURe, and minimising price impact, all without incurring additional fees to the DAO. This deployment will be made gradually in tranches:

  • Initial tranche: 250k USDC bridged to Gnosis Chain, upon GHO deployment.

  • Milestone tranches: Tied with GHO’s TVL, scaling up to a total of 5M USDC across all tranches.

Motivation

Deploying GHO on Gnosis Chain is a critical step in expanding its reach and utility, particularly as Gnosis Chain grows as a hub for real-world assets (via Backed Finance’s assets) and connects stablecoins with fiat rails (via Gnosis Pay). Aave can position GHO as a key stablecoin for these use cases, driving adoption and protocol revenue. Deep and responsive onchain liquidity is essential to support this GHO expansion.

When GHO is launched on a new blockchain, significant incentives are typically required to bootstrap liquidity, which is foundational for enabling composable DeFi services on top of existing markets. This early liquidity, however, is often passive and does not respond dynamically to price imbalances or shifts in market demand.

This proposal addresses that challenge by deploying active, non-custodial liquidity through kpk-managed positions. This approach tackles two key limitations at once:

  1. It eases the need for high incentive costs typically associated with passive liquidity mining, and
  2. It ensures liquidity can respond to market conditions, contributing to healthier and more efficient pools.

Liquidity will be provided to key pairs, mainly GHO / USDC.e and GHO / EURe at this stage, and leveraging a non-custodial management system for transparency and security. It aligns with Aave’s goals and requires no additional compensation, as it falls under kpk’s mandate with Aave. This is expected to increase revenue for the Aave DAO due to both cost savings and the generated swap fees.

Specification

Funding

Funding for this initiative is tied to the asset performance (measured in TVL) on the chain and the activity level we target to support, providing an optimal experience for users regarding liquidity and price impact on swaps. This phased approach will enable the DAO to assess the strategy’s performance and scale it accordingly.

The funding will be divided into:

  • Tranche 1: Bridge 250k USDC to Gnosis Chain, upon GHO’s official launch on Gnosis Chain to kickstart liquidity.
  • Milestone Tranches: Additional funds, up to a total of 5M USDC across all tranches, are allocated when GHO’s TVL reaches the specified GHO TVL milestones on Gnosis Chain, with reviews conducted monthly to assess progress.
  • Upon the approval of this ARFC, subsequent tranches will be managed through the direct-to-AIP process (i.e. without requiring an additional ARFC), as long as milestones are met.
GHO’s TVL Milestone (Gnosis Chain) Tranche (USDC) Total Allocated Liquidity (USDC)
At GHO deployment 250 k 250 k
2.5 M 250 k 500 k
5 M 500 k 1 M
10 M 1 M 2 M
25 M 3 M 5 M

Use of Funds

The funds will be allocated across a series of liquidity pools and strategies to support the GHO token’s stability and adoption. The core activities under the initial tranche will include:

  • Concentrated liquidity provisioning between GHO / USDC.e, to support deep liquidity with other major stablecoins in the GC ecosystem.
  • Concentrated liquidity provisioning between GHO / EURe, to facilitate future integrations with Gnosis Pay, enhancing GHO’s utility.
  • Deposit or withdraw GHO from AMM pools to stabilise prices during volatile periods.

Liquidity pools will be deployed mainly in Balancer and Uniswap v3 (especially once sGHO is deployed).

As additional fiat-backed stablecoins are added (e.g. with Gnosis Pay expansion to other countries like Brazil), new GHO pairs may be introduced.

The strategies will aim to:

  • Kickstart liquidity with key stablecoin pairs
  • Maintain tight spreads
  • Reduce price impact for standard trade sizes (e.g. less than 0.05% for $100k swaps at 5M liquidity)
  • Enable healthy arbitrage and cross-pair parity among GHO and other stables
  • Generate fees for the Aave DAO

By providing liquidity and actively managing the position through kpk, the DAO will benefit from the fees generated by those pools, which are expected to increase after sGHO’s launch, as there will be demand for GHO to deposit in the sGHO contract.

Reporting

kpk will provide monthly progress reports on the Governance Forum, including updates on GHO liquidity and TVL growth on Gnosis Chain, price impacts for typical trade sizes, spreads and fees generated for the DAO. Additionally, a dashboard will be made available at https://reports.kpk.io/ to monitor funds and results for each position in detail on a monthly basis (e.g. CoW example).

Asset Management Operational Architecture

To achieve the operational agility needed for this strategy and ensure that the funds remain at AaveDAO’s custody at all times, funds will be managed using kpk Permissions in a dual multisig system:

1. Avatar Safe (Portfolio Wallet)

  • Holds custody of funds
  • Controlled by trusted Aave-affiliated signers
  • kpk will act as a transaction proposer for permission updates, without direct signing authority over assets. This ensures accountability and separation of roles.

2. Manager Wallet Safe

  • Holds permissions to execute pre-approved transactions
  • Does not hold DAO assets
  • Controlled by kpk

Between these multisigs, onchain permissions contracts specify narrow and specific permissions to perform individual functions on specified DeFi protocol smart contracts (e.g. deposit X amount of Y asset into Aave V3). No calldata can be passed from the Manager Safe to the Avatar Safe without first receiving explicit permissions from AaveDAO’s Avatar Safe. For further information on our onchain permissions systems, see our explainer article.

This non-custodial and trust-minimised operational setup illustrates kpk’s core asset management pipeline: kpk controls a Manager Wallet (Safe) assigned with a manager role, which enables us to execute transactions on behalf of the Portfolio Wallet (Safe) within the scope of the On-Chain Permissions Policy. This system ensures:

  • Flexibility: kpk will be able to manage positions within the scope of the On-Chain permissions with the required agility to interact with market movements.

  • Security without compromising execution speed. The only actions allowed are the ones validated on the On-Chain Permissions Policy, ensuring the scope defined will be respected while granting execution agency to the Manager Wallet.

  • Ownership without increasing operational workload for the Portfolio Wallet signers. The Portfolio Wallet retains ownership of all assets, but the Manager Wallet handles all operational maintenance of the positions.

Proposed Signers:

Avatar Safe (Portfolio Wallet):

  • Representatives from ACI, Aave Labs, TL, and BGD/Certora. These entities were selected for their long-standing contributions to Aave’s governance and technical expertise.

Manager Wallet Safe:

  • Signers from kpk

Next Steps

After community feedback, the proposal will proceed to an ARFC Snapshot vote. If approved, kpk will:

  • Set up Safe infrastructure and share initial permissions for review

  • Coordinate with Tokenlogic to produce the proposal for transferring the requested assets to the Avatar safe

  • Deploy liquidity pools

  • Provide monthly progress reports

Copyright

Copyright and related rights waived via CC0.

4 Likes
2

Hello,
first of all thanks for the revamped proposal.
But I still do think that we shouldn’t proceed with it.
Right now the DAO is pursuing so many different GHO strategies (CEX, Avalanche, etc.). In my opinion we really need to focus on the ones bringing in the most effectiveness and also capital efficiency.
For a stablecoin to grow its only about distribution, and while I would really like to see an Aave branded Gnosis Pay card that allows me to pay with GHO I do think that Gnosis chain isn’t currently the most important/best solution for GHO to grow.
Just comparing Avalanche with Gnosis clearly shows that from an economical perspective we can expect a way bigger growth on Avalanche than on Gnosis.
Avalanche currently holds 1.7bn in stables while Gnosis only 171m (Source: https://defillama.com/chains).

And while 250k also seems very low compared to what the DAO is holding its still money that couldn’t be used for other initiatives or buybacks, etc.

If and when Gnosis will be growing more I would consider this proposal again, but right now I am against it.

1 Like
3

Thank you for the thoughtful feedback - your points on prioritization are valid and appreciated.

From our perspective, Gnosis Chain can play a strategically important role in the GHO growth. As the home of key payment infrastructure like Gnosis Pay and a growing hub for real-world assets, it offers a unique distribution avenue that aligns closely with Aave’s GHO goals. Strengthening GHO liquidity on Gnosis supports these foundations and can position GHO as the stablecoin of choice within these emerging use cases. We expect significantly increased brand exposure and GHO adoption in the regions where Gnosis Pay is active and quickly growing (e.g. Brazil and Europe).

Additionally, this proposal follows a capital-efficient design, with funds managed non-custodially and all fees accruing directly to the DAO. Internal modelling projects a 4.2% annual net benefit on top of Aave’s lending yield. This outperforms simply parking treasury funds in Aave, as the 4.2% represents extra returns from active management and cost savings compared to passive incentives, making it a highly productive allocation, even in a comparative sense.

We understand the need for prioritisation, but we see this as a low-cost, revenue-positive step that strengthens GHO’s multi-chain presence without compromising larger initiatives.

2 Likes
4

Thank you kpk, for putting forward this proposal.

Within the context of this proposal, we would like to learn how kpk intends avoid a repeat of Gnosis’s EURe/sDAI position happening to Aave’s GHO/EURe position. This report Balancer sDAI/EURe incident report - NolanV indicates LPs, one being Gnosis DAO whos funds are managed by kpk, incurred a total 700k USD loss pre-fees and slippage collected by the pool.

kpk’s engagement officially ended on June 21st 2025. During the 6 month term, neither sGHO nor GHO on Gnosis was achieved. sGHO is not yet at audit stage and the Aave DAO has paid the full 250k amount to kpk.

2 months into kpk’s term, there was no visible progress on sGHO and as a direct result, TokenLogic delivered one of kpk’s key deliverables, the TEMP CHECK introduced the Aave Savings Rate and outlined sGHO.

When the Umbrella upgrade was implemented, 5th June 2025, users were meant to have the choice of migrating to either sGHO or the new post Umbrella stkGHO. Due to sGHO not being ready, users could not migrate to the the new sGHO. Instead, the pre-Umbrella stkGHO was rebranded with great success to sGHO with weekly emissions via Merkl as an interim solution. Several service providers were involved in the discussion and the Aave DAO benefited from a significant cost saving that has had minimal impact on GHO’s growth.

However, Aave DAO is currently sustaining a temporary solution (stkGHO with no Cooldown or Slashing) at a cost of $250k per week, whilst we await the delivery of sGHO. kpk’s service provider term finished 3 weeks ago and we still not yet received delivery of sGHO.

Given the lack of delivery from the kpk to date, we do not support allocating capital to kpk for active management. Instead, we propose assigning this role to the Aave Liquidity Committee from which the liquidity pool(s) can be funded and vlAURA votes can be managed seemlessly.

TokenLogic does not support this proposal being implemented by kpk and we also, do not support renewing kpk as a service provider.

We appreciate the community’s time reviewing this perspective and remain available for further discussion on alternative pathways for GHO liquidity expansion.

2 Likes
5

Thank you, tokenlogic, for your feedback. We appreciate the opportunity to clarify and address these concerns.

On the EURe/sDAI Pool reference: The Balancer LP mentioned and managed for Gnosis DAO, is unrelated to this proposal’s GHO/EURe strategy. The cited 700k USD loss figure is inaccurate and has been clarified with relevant parties. For GHO/EURe, we’re applying a different approach with active management and strict risk controls to ensure deep liquidity and price stability, tailored to Aave’s goals of fostering GHO adoption.

On sGHO and GHO Delivery Timelines: We understand concerns about delays, which stem from coordination challenges in a decentralised environment with multiple service providers pursuing parallel priorities. Nonetheless, we ensured deliverables were shared for review well within the anticipated mandate period. To be specific:

  • GHO on Gnosis Chain: The PR was submitted on 8 May 2025 (link) and approved by Aave Labs on 14 July 2025. It’s ready to merge, and deployment is expected soon. This aligns with the DAO’s prioritisation of other chains like Avalanche, which took precedence.
  • sGHO Deployment: The initial contract design, ratified via ARFC, was delivered on 4 June 2025. Following BGD’s request for architectural changes on 19 June, we delivered a revised version on 26 June, as detailed here. We’re finalising this today (i.e. gas optimisations, math precision and test coverage), with a PR being submitted to BGD, pending final review.

On Funding and Delivery

Contrary to the claim that kpk failed to deliver during our six-month term, we’ve made significant progress on GHO and sGHO, as outlined above, despite external delays from shifting priorities and their impact on review cycles (e.g., sGHO’s architectural overhaul requested just two weeks ago). As the previous payment covered our full scope of work, we continue to deliver these milestones at no additional cost after the payment period, demonstrating our commitment to Aave’s success.

On This Proposal
The proposed 250k USDC market-making tranche is a low-cost, revenue-positive step to boost GHO’s liquidity on Gnosis Chain, with fees accruing to the DAO. Our non-custodial, dual-Safe system ensures security and agility, leveraging kpk’s expertise in treasury management.

We remain fully aligned with supporting GHO’s growth and providing transparent, non-custodial liquidity management where it adds value for the DAO. We appreciate the ongoing dialogue and are happy to engage further to address any outstanding concerns.

1 Like
6

Hello,

The @ACI has no sunk cost bias.

We tried with KPK and were ambitious about Gnosis deployment as a privileged venue for GHO adoption, especially in the context of GnosisPay and payments.

We still think there’s a path to get there, and we also believe GHO would be an amazing gas token for this friendly blockchain.

But we will support, from now on, to walk this path with the help of the ALC.

We are grateful for kpk contributions to the Aave DAO.

1 Like