Overview
Chaos Labs supports enabling PYUSD as collateral on the Aave V3 Ethereum Core instance. This change does not pose additional risks to the protocol.
Motivation
While this represents a reversal of our prior recommendation to disable PYUSD’s collateral status, made during an earlier optimization proposal, we support this change following discussion with Aave Growth Service Providers. The change stems from the launch of the PayPal incentive program, which ultimately has become contingent on the asset’s collateral status.
The asset was previously enabled as collateral; therefore, this update does not introduce a new risk type but reinstates an already evaluated configuration. Additionally, the DEX liquidity for PYUSD has exponentially improved following the launch of incentive programs and, as such, mitigates some of the concerns raised in the prior post. PayPool and Spark PYUSD Reserve Curve stableswap pools have scaled to as much as $29M and $100M TVL, respectively, in just a few days.
Given the unchanged risk profile and improved liquidity conditions, we believe re-enabling PYUSD as collateral will allow Aave to capture demand driven by the upcoming incentive phase without introducing new systemic exposure.
Specifications
We recommend restoring the previous collateral configuration
| Parameter | Current Value | Proposed Value |
|---|---|---|
| LTV | 0% | 75% |
Next Steps
We will move forward and implement the supply and borrow cap updates via the Risk Steward process.
Disclosure
Chaos Labs has not been compensated by any third party for publishing this recommendation.
Copyright
Copyright and related rights waived via CC0.