[ARFC] wGHO Aave V3 Onboarding

Governance
13

Thanks @MarcZeller for putting this proposal forward. Below is Gauntlet’s analysis regarding wGHO on Aave v3.

Gauntlet recommends against listing wGHO as collateral in the proposed format. Listing wGHO may increase the surface area for a liquidity driven attack and introduce excessive recursive borrowing risk, without contributing positively to GHO peg stability in a material manner, especially with the GSM. Any parameters associated with wGHO collateral may be stale, making it difficult to guard against such attacks.

Enabling wGHO as collateral introduces the possibility of the following non-atomic manipulation. The magnitude of attacker profitability depends on a number of factors - such as available GHO liquidity and current GHO price and is inherently uncertain due to this non-atomic nature.

  1. Borrow large amount of GHO
  2. Deposit half into wGHO, emode borrow maximum USDC. Keep half borrow as GHO.
  3. Sell borrowed GHO in market for USDC. At current liquidity levels for GHO, the impact may cause GHO << 0.9 (since pool is only $3m on the bb-a-USD side on Balancer)
  4. (**) Use new USDC to self-liquidate your wGHO - USDC position, recover all of GHO + keep some initial borrowed USDC.
  5. repay your remaining 5m GHO debt from the recovered wGHO position.
  6. You end up with free USDC, initially borrowed from the wGHO collateral.

(**) Whether or not self liquidation can happen is for debate, since the GHO CL feed does not update atomically.

  • The attacker is able to self liquidate their wGHO collateralized position.
    • Profitability depends on liquidity levels for GHO.
  • The attacker is unable to self-liquidate (other agents liquidate the wGHO position).
    • use USDC borrowed from wGHO position + USDC from GHO market sell proceeds to buy GHO and repay GHO debt
    • Amount of leftover USDC depends depends on GHO price and liquidity.

To conclude, while the profitability and success of the attack is dependent on GHO price and GHO liquidity, this mechanism introduces excess risk with respect to its GHO repegging benefits, which will be a significant use case for the GSM.

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