Chaos Labs supports this proposal to effectively deprecate the legacy USDC reserve on the Aave Gnosis Chain deployment. Over the past year, the USDC reserve on the Gnosis Chain has shown clear signs of contraction, with the reserve decreasing by ~70% and aggregate borrows consistently remaining below $1M over the last 6 months. At current rates and a 40% reserve factor, the reserve generates only around $23K annually in protocol revenue, immaterial relative to overall market activity.
Borrowing demand is highly concentrated, with a single entity accounting for virtually all of the outstanding borrows, indicating that the market no longer serves a meaningful function for broader users. In addition, most USDC-collateralized debt, roughly $300K in value, is denominated in EURe, implying delta risk from the USDC migration is highly minimal given the composition of active positions.
Given these dynamics, we are aligned with an immediate increase of the Reserve Factor to 80% to improve operational efficiency and simplify management of the frozen reserve. However, we recommend freezing the reserve in its entirety rather than only disabling borrowing, to ensure that existing USDC-collateralized debt positions cannot increase their effective debt exposure. Overall, Chaos Labs views this as a prudent and operationally sound measure that supports the continued efficiency and consolidation of liquidity on Aave’s Gnosis deployment, while aligning the protocol with the broader stablecoin standardization efforts across the ecosystem.
Disclaimer
Chaos Labs has not been compensated by any third party for publishing this recommendation.
Copyright
Copyright and related rights waived via CC0