Spark Proposal for Integrations into Aave

Governance
1

Cross-posted from here.

Following the ACI temp check for the addition of sUSDS to Aave V3 Main Market and USDS to the Lido Market, Phoenix Labs proposes the following:

  1. sUSDS supplies on Aave V3 Main Market are eligible for the SPK pre-farming airdrop incentive program for 3.33m SPK tokens per month (50% of SparkLend).
  2. USDS D3M to Aave Lido Market with an initial debt ceiling of 100m to boost adoption.

Rationale

Aave is the largest lending market in DeFi with over 11b in TVL across multiple chains. This presents a lot of synergies between the two protocols with USDS being the largest decentralized stablecoin. We view this as a first step to a deeper relationship with Aave to promote both protocols as the core of scalable DeFi.

Aave protocol teams have agreed to split revenue from the sUSDS and USDS markets 50/50 with Spark.

1. sUSDS Incentives Program

sUSDS is used as the asset in the main market to improve capital efficiency for lenders. The idle supply consistently earns the Sky Savings Rate (SSR), allowing the market to outperform the USDC/USDT counterparts. Furthermore, debt is denominated in the yield-bearing version, so the minimum borrow rate is the SSR.

The following formula will be used to prevent USD stablecoin looping: sUSDS Supplies - Sum_i(Stablecoin_i Borrow Amount (in USD) / Stablecoin_i Liquidation Threshold)

This program will help Sky to boost adoption of USDS after launch, and the incentives program will boost Aave’s TVL and revenue by attracting new borrowers.

The Aave team has agreed to place rewards on the sUSDS market and will update their UI to display the SPK rewards.

2. USDS D3M to Lido Market

Aave has recently launched a Lido-specific instance of their V3 market. In collaboration with Aave and Lido, Phoenix Labs recommends deploying a D3M to this market to boost the adoption of USDS and wstETH. A 100m initial debt ceiling is proposed with the expectation that it will be used until the rates align with the broader market.

The collateral in the market will be highly liquid ETH and wstETH, so we expect this debt ceiling to be raised to match demand. If for some reason there is not enough demand then liquidity can be removed if the borrow rate remains below SOFR.

The following contracts will be used for the D3M:

The operator plan will allow the governance facilitator multisig to adjust the exposure to match demand in a faster cadence than the spell process.

Next Steps

Pending approval from the Sky governance process, both proposals will be implemented at the next available opportunity after the USDS and sUSDS tokens launch on September 18th.

The SPK rewards program will start on the block that the market is onboarded into the Aave V3 Main Market.

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