[ARC] Add LUSD to Ethereum V3
Vote Result: YES
Rationale
LUSD is a decentralised stablecoin which has shown resilience in difficult market conditions in 2022 and espouses the core values of the crypto space. Chaos Labs and Gauntlet are in agreement about the parameters, while the initial parameters are risk-averse as LUSD is not initially enabled as collateral, with conservative supply and borrow caps to minimise risk. A potential concern is that LUSD liquidity is really low with daily trading vol < $1 million. However, this is mitigated by the conservative borrow/supply cap recommendations and LUSD not being enabled as collateral.
Therefore, we will vote YES in favour of this proposal.
[ARC] Onboarding sfrxETH to Aave V3 Ethereum Market
Vote Result: NO
Rationale
FRAX is one of the more blue-chip names in DeFi, and sfrxETH is a valuable decentralised LSD that would bring revenue, diversity, and liquidity to the Aave ecosystem. This proposal also is in line with the recent proposals to onboard stETH, rETH, and cbETH onto Aave v3 Ethereum, and another positive is that Chaos Labs is in favour of the proposed risk parameters, which account for the lower supply cap. The risk is also mitigated by the ability to unstake to frxETH and the deep liquidity for frxETH on Curve, and by it not being borrowable, or listed in isolation mode or eMode.
However, a main issue is that the protocol contracts have permissions that grant administrators mint/burn capabilities. Leaving withdrawal keys, mint/burn capabilities for sfrxETH, and control of frxETH Curve LPs generated in the hands of the Frax team adds counterparty risk to Aave. sfrxETH has also not been used across other lending and borrowing protocols, and is relatively small in terms of holding with only 3,000 transactions and 858 holders. Its TVL is also almost 7x smaller than the TVL of rETH, the smallest other LSD onboarded by Aave.
Therefore, it may be better to wait for the asset to mature further, decentralise, and reduce counterparty risk from the Frax team before onboarding it to Aave, especially since an Aave v3 onboarding will put Aave in a top position of sfrxETH holding.
[ARFC] Add BAL Ethereum v3
Vote Result: YES
Rationale
Balancer is a strategic asset and partner to Aave and listing BAL on Ethereum v3 represents the strategic relationship between the two communities. The revenue earned from the pool could be used by Aave to bootstrap the adoption of GHO and/or the new aToken being developed by Aave Companies. Given that the risk parameters have been reviewed by Gauntlet, and their proposed changes have been implemented by Llama, we will vote YES in favour of this proposal.
[ARC] Add Safety Module Support for Aave V3 Ethereum Market
Vote Result: YES
Rationale
The safety module will incentivize token holders to stake their tokens and expose their staked assets to be mobilized to cover excess protocol debt, which will be a protection mechanism for Aave in the event of a shortfall. Continuing safety module coverage on V2 for another year makes sense in that it allows V2 users enough time to transfer their liquidity to V3. Therefore, we will vote YES in favour of this proposal.
[ARFC] Add CRV to Ethereum v3
Vote Result: YES
Rationale
Listing CRV has both short-term and long-term benefits to Aave. In the short run, Aave can earn revenue from the increased borrowing activities involving CRV, due to the veTokenomics and the extrinsic use cases created by Convex Finance and projects built on top of veCRV. There is also a demand for extra liquidity pools besides Polygon v3 to avoid extreme deposit rates volatility. In the long run, Aave can use the CRV interest on hand to generate veCRV, which will enable Aave to vote on any combination of pools, potentially bootstrap the adoption of GHO and incentivize the Safety Module. Lastly, Gauntlet has reviewed the recommended parameters and their suggested changes have been implemented by Llama. Therefore, we will vote YES in approval of this proposal.
Add LUSD to Aave Ethereum V3 Pool
Vote Result: YES
Rationale
This is the on-chain vote for this Snapshot proposal we voted YES for. Therefore, we will vote YES for this proposal as well.
[ARC] Community Risk Preference on Aave V3 Borrow & Supply Cap
Vote Result: CONSERVATIVE ASSUMPTION ONLY FOR SMALLER MARKETS
Rationale
A completely conservative or aggressive assumption has too many trade-offs in terms of risk and revenue on both sides of the scale. It is important to balance risk and revenue on a more bespoke basis for assets, since each asset or type of asset has different considerations that may drive more risk or revenue to Aave, and hence need to be judged on an individual level.
In choosing the ‘Conservative Assumption for Smaller Markets’ option, we have considered that the top ‘X’ assets in terms of market cap etc., which would have a more aggressive assumption applied, should have ample liquidity and protection against manipulation attacks or other attacks of the sort mentioned by Gauntlet in the forum post. Moreso, focusing on assets that generate revenue today and allowing them room for organic growth would be beneficial for Aave’s overall growth while minimising risk from the smaller assets that are more prone to price manipulation.
It is important to note that there needs to be a clear discussion, analysis, and subsequent methodology for deciding which markets are ‘smaller’ and which are ‘major’. We expect this discussion to commence post this Snapshot vote.
In conclusion, we will be voting for the CONSERVATIVE ASSUMPTION ONLY FOR SMALLER MARKETS option with an expectation to clearly decide upon a methodology to determine ‘smaller’ and ‘major’ markets following this Snapshot.
Supply & Borrow Cap Updates Polygon and Arbitrum V3
Vote Result: YES
Rationale
There is a need to update caps proactively if they are reaching max utilisation or if the supply caps are too high. Chaos’ proposal has been vetted by Gauntlet, and Chaos has incorporated their suggestions, while the supply caps for the assets have been increased in line with Chaos’ Borrow and Supply Cap methodology. In this case, using the fast-track process makes sense since the utilisation of the caps is already too high (in some cases >100%) and needs to be updated quickly to avoid inertia and stagnation. Chaos has also incorporated the suggestions from @sakulstra to change the supply caps for EURS, DAI, USDC, and USDT on Polygon to not have them be unreasonably high at 2 billion.
All in all, this proposal is in line with Aave’s aim of increasing revenues while managing risk, and given that we are consistently using Chaos Labs’ Borrow and Supply Cap methodology across Aave v3, we will vote YES in favour of this proposal.
Update MAI Caps Aave Polygon V3 Pool
Vote Result: YES
Rationale
This is the on-chain vote for this Snapshot proposal we voted YES for. Therefore, we will vote YES for this proposal as well.
[ARFC] Freeze BUSD on Aave V2
Vote Result: YES
Rationale
Given that BUSD will stop being minted on 21 Feb and the circulating supply will trend towards zero, it makes sense for Aave to freeze the market on V2 and incentivise a move to other stablecoins. This mitigates the risk from the inability to mint new BUSD impacting the asset peg, and Gauntlet also agrees with freezing BUSD. Therefore, we will vote YES in favour of this proposal.
Onboard wstETH to Aave Optimism V3 Pool
Vote Result: YES
Rationale
In the Snapshot vote, we were in favour of onboarding wstETH to Optimism without eMode enabled, and this is the on-chain vote for the same. We will vote in favour of this AIP.
[ARFC] MaticX Risk Parameter Interest Rate Polygon v3 Upgrade
Vote Result: YES
Rationale
The rising deposit trends of MaticX, the borrow and deposit loop after enabling borrowing (i.e., the recursive strategy), and the new Balancer pool all point towards the need to set a higher SupplyCap of MaticX. Also, the arbitrage scenario through borrowing is clear. Gauntlet and Chaos Labs have both analysed this proposal, and while it is a bit too aggressive (at 8.6 million, the supply cap is on the higher end of Gauntlet’s aggressive recommendations and higher than Chaos’ suggested 7.8 million), it is necessary given that the supply cap of MaticX has already been reached. Some of the risk of MaticX is also mitigated by the fact that unstaking is live on the Polygon blockchain and anyone can mint / burn MaticX for the underlying asset in roughly 3 days. Any peg variations are also arbitraged and there is no particular reason to consider MaticX as illiquid.
We support the growth of Aave V3 Polygon’s usage through adjusting risk parameters to promote the recursive MaticX/wMATIC strategy, which is what most MaticX/wMATIC is used for on v3 Polygon, by voting YES on this proposal.
Chaos Labs Risk Parameter Updates - Aave V3 Avalanche
Vote Result: YES
Rationale
The proposed changes suggested here are relatively minor and lead to increased utilisation with minimal increase to risk. Given that the updated parameter changes (WAVAX and LINK) now reflect consensus between Gauntlet and Chaos, we will vote YES in favour of this proposal.
[ARC] Gauntlet Risk Parameter Updates for Optimism Aave V3
Vote Result: YES
Rationale
This is a straightforward proposal to update the Liquidation Bonus risk parameter on two assets (WBTC and sUSD) to improve capital efficiency without significantly increasing risk. Given that the recommended changes are relatively small (10% → 9.4%, 5% → 5.4%), and have no modelled impact on VaR, liquidations at risk and other metrics while increasing capital efficiency, we will vote YES in favour of this proposal.
1 Like
[ARFC] Avalanche wAVAX Interest Rate Upgrade
Vote Result: YES
Rationale
Llama has identified that there is a need to increase the capital efficiency of and Aave’s revenue from the wAVAX reserve and increase the flow of funds into the recursive yield strategy sAVAX/wAVAX. Currently, Aave v3 Avalanche’s risk parameters for wAVAX do not fully support the most profitable recursive yield strategy for sAVAX/wAVAX, and this proposal’s logic for changing the wAVAX interest rate parameters (increasing UOptimal from 45% to 65% and reducing Slope2 from 300% to 144.28%) makes sense. The proposal has also been vetted by Gauntlet and Llama has incorporated their changes, while the Supply Cap of sAVAX being doubled is in line with the Borrow and Supply Cap methodology of not more than doubling the supply cap in one proposal.
Therefore, we will vote YES in favour of this proposal.
Note: When speaking to Llama to understand some of the figures used in this proposal better, they mentioned that the ‘70%’ figure used to calculate the interest rate at the UOptimal point results in the recursive strategy generating 2x the sAVAX. The figure of 2x has been used since teams building structured products agreed that this was a good starting place as at 2x the reward, the strategies are profitable and it is believed there is sufficient reward for entering the recursive risk on strategy. This is a constantly evolving methodology and Aave needs to develop and refine the strategy over time, with the methodology used for this proposal moving us in the right direction.
Update xSushi Price Feed on Aave V2
Vote Result: YES
Rationale
This is a fairly trivial proposal that swaps the current xSUSHI price adapter feed for the Chainlink calculated xSUSHI/ETH feed. There should be very low technical risk in implementing this proposal. Therefore, we will vote YES in favour of this proposal.
Increase Supply Cap for cbETH Aave Ethereum V3
Vote Result: YES
Rationale
cbETH has reached its supply cap on Aave V3 and allowing an increase will allow new Aave users to use Aave V3 and enable current users to increase the size of their positions. The current cap being hit indicates that market demand is strong, and both Chaos Labs and Gauntlet support the proposal.
A potential point of concern is that the SEC actions against Kraken’s staking services and the Paxos-BUSD actions may impact cbETH as well. Given that the Shanghai upgrade has not gone through yet and cbETH cannot yet be redeemed for the underlying ETH, the asset has higher risk of a depeg. However, the Shanghai upgrade is likely to occur on mainnet around April 2023, and devnet upgrades have been a success while testnet upgrades are currently being rolled out. Moreover, since LSDs are liquid and the majority of currently staked ETH is more or less liquid as of today, the withdrawal queue post-Shanghai should not be too long. Lastly, in terms of the depeg risk, there will be no more minting and a period to allow redemption, which does not greatly impact Aave or the peg in general.
Therefore, we will vote YES in favour of this proposal.
Freeze BUSD on Aave v2 ETH
Vote Result: YES
Rationale
This is the on-chain vote for this Snapshot proposal we voted YES for, and we will therefore vote in favour of this proposal as well.
Add wstETH to Arbitrum Aave v3
Vote Result: YES
Rationale
This is the on-chain vote for this Snapshot proposal we voted YES for, and we will therefore vote in favour of this proposal as well.
Risk Parameter Updates for Aave V3 OP Market (2023-02-16)
Vote Result: YES
Rationale
This is the on-chain vote for this Snapshot proposal we voted YES for, and we will therefore vote in favour of this proposal as well.