Develop sGHO: A Yield-Bearing GHO Vault for Multi-Chain Integration

Governance
1

Author: @karpatkey
Date: February 25, 2025

Summary

Following the mandate laid down on the AIP-229, karpatkey held meetings with several service providers within the Aave Ecosystem to create the technical foundation for sGHO deployment, an integral part of our scope as GHO Growth Service Provider.

This post results from these efforts and outlines the development of sGHO, a yield-bearing GHO vault designed to provide a seamless, auto-compounding, and predictable yield experience for users. The system consists of two independent, interoperable smart contracts:

  1. sGHO ERC-4626 Vault: An auto-compounding vault that invests deposited GHO into the Aave lending market, offering atomic convertibility with no cooldowns or slashing.
  2. YieldMaestro: An independent contract that harmonizes yield sources, combining base yield from Aave with external rewards to achieve a predictable and stable yield rate.

sGHO will function as a multi-chain solution, enabling yield harmonization across chains and serving as a customer acquisition tool for risk-averse users and liquidity providers. By creating sGHO, we aim to enhance GHO’s utility, attract new users, and strengthen its position as a leading DeFi stablecoin.

This post must be seen as complementary to [TEMP CHECK] GHO Aave Savings Upgrade, as it provides answers on the “how” to achieve the objectives stated there. This development, led by karpatkey, is critical to fulfil the full GHO deployment on GC proposed on our current mandate.

Motivation

The DeFi ecosystem has seen significant adoption of yield-bearing stablecoin vaults, which offer users a simple and efficient way to earn yield on their idle assets. These vaults have become a cornerstone of liquidity provision and protocol integration, setting a benchmark for user expectations. GHO, as Aave’s native stablecoin, has the potential to build on this trend by introducing sGHO, a yield-bearing version of GHO that combines ease of use, cross-chain functionality, and robust risk management.

Key Motivations:

  1. Simplified Integration: sGHO will make it easier for external DeFi protocols to integrate GHO, reducing friction and increasing adoption.
  2. Competitive Edge: By offering a yield-bearing alternative to existing solutions, sGHO can attract liquidity providers and idle depositors who prioritize predictable returns and ease of use.
  3. Multi-Chain Yield Harmonization: sGHO will operate across multiple chains, ensuring consistent yields and reducing fragmentation in the GHO ecosystem. This will make GHO more attractive to users and protocols on different chains.
  4. Customer Acquisition: sGHO will serve as a tool to onboard risk-averse users who prioritize yield-bearing assets with low volatility and predictable returns.

Proposal Details

The development of sGHO will involve two independent, interoperable smart contracts:

1. sGHO ERC-4626 Vault

  • Functionality:
    • The sGHO vault is an ERC-4626 compliant, auto-compounding vault that accepts GHO deposits and invests them into the Aave lending market to earn yield.
    • It automatically reinvests accrued interest and rewards to maximize yield for depositors.
  • Key Features:
    • Fully Convertible: Users can deposit, withdraw, and convert assets atomically without cooldowns, slashing, or limits, ensuring a seamless user experience.
    • Auto-Compounding: Rewards and interest are automatically reinvested into the vault to compound yields over time.
    • Transparent and Interoperable: Fully compliant with the ERC-4626 standard, enabling easy integration with external DeFi protocols.

2. YieldMaestro Contract

  • Functionality:
    • YieldMaestro is an independent contract designed to boost the base yield generated by the sGHO vault’s investment in the Aave lending market.
    • It aggregates and harmonizes external rewards (e.g., incentives provided by the DAO or other entities) to achieve a predictable yield rate for depositors.
  • Key Features:
    • Target Yield Rate: YieldMaestro dynamically adjusts external rewards to ensure the total yield (base yield + boosted yield) aligns with a predefined target yield rate.
    • Yield Harmonization: By balancing base yield and external rewards, YieldMaestro ensures a consistent and reliable yield for depositors.
    • Safety Constraint: The target yield rate should not exceed the umbrella target rate set by the DAO or governing entity, ensuring sustainability and avoiding excessive risk.

Integration Between sGHO and YieldMaestro

  • The sGHO vault and YieldMaestro work together to provide depositors with a seamless and optimized yield-bearing experience:
    • The sGHO vault handles deposits, withdrawals, and auto-compounding of GHO in the Aave lending market.
    • YieldMaestro enhances the yield by integrating external rewards and ensuring the total yield remains predictable and aligned with the target rate.

Benefits for Aave and GHO

  1. Increased Demand for GHO: sGHO will drive demand for GHO by making it more attractive to liquidity providers and idle depositors.
  2. Enhanced Utility: By enabling seamless integration with external protocols, sGHO will expand GHO’s use cases and strengthen its position in the DeFi ecosystem.
  3. Cross-Chain Growth: Multi-chain deployment will facilitate GHO’s adoption across different ecosystems, driving growth and liquidity.
  4. Customer Acquisition: sGHO will attract risk-averse users and liquidity providers who are looking for a reliable, yield-bearing stablecoin.
  5. Predictable Yield: YieldMaestro ensures an attractive and predictable yield rate, making sGHO a trusted option for users.

Next Steps

  1. Technical Discussion: Gather community feedback on the concept of sGHO and its proposed features.
  2. Feasibility Study: Conduct a feasibility study to assess the technical and financial requirements for developing sGHO.
  3. Development and Deployment: If approved, proceed with the development and deployment of sGHO, including audits and testing.

Copyright

Copyright and related rights waived via CC0.

2

So we do now have two sGHO proposal that are same but different?

You are proposing to

While in this proposal [TEMP CHECK] GHO Aave Savings Upgrade its like this

To minimise risk, deposited GHO will remain in the sGHO contract and shall not be deployed to generated yield. This ensures liquidity is always available for users to withdraw and users are not exposed to any protocol risk.

So the question is which way to go now?
One option is giving more yield while the other one more security from my understanding.

Then you said that this proposal

What has been stated? And how does this complement the other proposal?

YieldMaestro and the cross-chain integration seem like a great feature and should be very helpful.

Have these two proposal been worked on together? Did each team know about it? Cause it should have been, because right now we have two different solutions with each having its pros and cons, although the other proposal has already been voted on and is one step ahead.

Its now important on how to merge these and get the best for the DAO in a safe and secure manner.

If I got it totally wrong then please let me know, appreciate it.

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Hello @EzR3aL, thanks for your questions!

karpatkey’s sGHO technical design, presented here for discussion, was constructed in conversations with relevant Service Providers as a direct follow-up from our proposal, approved by the DAO in December.

We see the ideas presented in the current TEMP CHECK for voting as valuable inputs for the solution being built, and are considered as part of this discovery process. If approved, this is a ratification that sGHO is something that Aave DAO wants to see developed. Further talks will be held to come up with the best solution that karpatkey should develop and implement as part of the upcoming ARFC regarding sGHO.

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