[TEMP CHECK] Aave V3 Deployment on Celo

Title: [TEMP CHECK] Aave V3 Deployment on Celo

Author: @Michigan_Blockchain - Michigan Blockchain, @Isha - Isha Varshney (Celo Foundation)

Date: 2023-08-08


Summary

This Temperature Check aims to provide general background information on the Celo blockchain and seeks the community’s input on the opportunity to deploy Aave V3 on Celo, an emerging L2 on Ethereum.

Motivation

As detailed in the Background section below, the Celo ecosystem offers a unique value proposition featuring real-world usage and ReFi. As Aave will be given a prominent role on Celo, this deployment offers Aave differentiated expansion and revenue opportunities.

  1. A deployment on Celo expands AAVE’s utility and user base to a unique population of Celo’s mobile-first community which has grown significantly over the past few months led by key launches that have brought in returning real-world users in emerging markets.
  2. Aave will be heavily utilized for real-world DeFi and ReFi use cases, particularly in emerging markets given Celo’s growing presence in these regions led by protocols like GoodDollar and Grassroots Economics.
  3. The Celo Foundation will allocated 0.5% of CELO circulating supply as an incentive for Aave users to support the adoption and bootstrap growth on Celo. This deployment will bring new users to the Aave platform and reach more users from the Celo community. The Celo Foundation can also support Aave DAO in setting up a verified node for the Celo network (subject to technical requirements being met and voting by the community) for which Celo can provide a grant.
  4. The Mento protocol on Celo proposed returning 120M CELO to the Celo Community Fund, which the Celo community has expressed interest in placing in Aave to boost on-chain liquidity for CELO (pending a governance process). More details here. Additionally, they proposed a $10M CELO / wETH pool on Uniswap which is expected to pass through Celo governance.
  5. In the long-term, this Celo x AAVE deployment has the potential opportunity to expand into natural capital-backed assets such as tokenized carbon credit and other ReFi assets (conditional upon rigorous liquidity and credit assessments by Chaos Labs and others).

Background

Celo is an open-source, mobile-first EVM-compatible Layer 1 blockchain, on a mission to foster an inclusive financial system for everyone. With an ecosystem thriving on 9.4M addresses, around 1M daily transactions, ~500,000 monthly active wallets, and over 234M transactions since inception, Celo sets the stage for real-world applications from day one. Celo has been one of the fastest-growing blockchains over the past few months.

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Source: Nansen

Key Features:

Mobile Accessibility: Utilizes a decentralized phone verification protocol and SNARK-based light clients such as Plumo 1 for mobile-friendly operations.

Flexible Assets: Celo offers native stablecoins in the form of Mento stable assets (cUSD, cEUR, cREAL), which are eligible for transaction fees. CELO itself natively supports the ERC20 interface, eliminating the need for wrapped versions.

Regenerative Finance: Committed to regenerative finance, Celo is carbon-negative, offsetting over eight times its carbon footprint. An upcoming proposal, the Ultragreen Money, looks to further push Celo’s green initiatives.

Real World Usage: CELO TVL continues to grow and is at 193M CELO showing continued locking of assets into Celo DeFi protocols. Additionally, Celo has been chosen by Kickstarter for its upcoming decentralized product (to date, Kickstarter has successfully supported over 214,000 projects with over $6B in funding and 20M backers) and Deutsche Telekom which will attract new users to the ecosystem.

The Celo ecosystem emphasizes real-world applications—real-world usage has been the core focus since day 1 of the blockchain. Several of the many solutions actively being used by people around the world on the Celo blockchain include the following:

Integration with Ethereum: cLabs recently proposed that Celo return home to Ethereum by transitioning from an EVM-compatible Layer 1 blockchain to an Ethereum Layer 2. Following months of research by the cLabs team as well as initial discussions among core Celo and Ethereum community members, the cLabs team detailed an architecture in which the Celo blockchain becomes an Ethereum L2, with key differentiators including

  • Decentralized sequencer powered by Celo’s existing validator set running Byzantine Fault Tolerance consensus.
  • Off-chain data availability layer, powered by EigenLayer and EigenDA, operated by Ethereum node operators, and protected by restaked ETH. EigenDA brings the design of danksharding to Ethereum early, enabling Celo to maintain its low fees.
  • A design that retains Celo’s 1-block finality.

This proposal was overwhelmingly approved by the Celo ecosystem in a temperature check to continue this work.

Security: The chain consensus is Proof of Stake with validators taking delegation. There is no multisignature contract that can change the network. On-chain governance proposals and hard-forks are the only ways to make changes to the network. The Smart Contract was audited by OpenZeppelin and a Security Audit was conducted by Trailofbits. There is also a formal verification of Celo governance protocols by Certora.

Native Mobile Solutions: FiatConnect allows Celo users to natively handle onramps and offramps through mobile wallets in multiple countries.

Emphasizing global utility, Celo has been a touchstone for decentralized solutions worldwide. From UBI, community currencies, and digital microwork, to climate action, Celo propels web3 solutions with a real-world impact.

For a detailed dive, head over to https://docs.celo.org/.

Specification

Risk Parameters

Chaos Labs advised us on initial parameter recommendations, given the current liquidity levels on Celo. Please note that these recommendations would be updated closer to launch. We encourage other risk managers for updated analyses post temperature check. Crucially, the metrics below do not include a governance proposal in which $10M of liquidity is proposed by the Celo ecosystem for a CELO / wETH pool on Uniswap.

Based on current liquidity levels, we believe a Metis-type of initial deployment would be most suitable—the emphasis here being the Celo blockchain’s real-world and social impact use cases. Over time, we expect we can continue to increase caps as the Celo blockchain grows through the development of more real-world use cases and the transition to an L2 on Ethereum.

Risk Parameters WETH USDC CELO cUSD
Isolation Mode NO NO NO YES
Enable Borrow YES YES YES YES
Enable Collateral YES YES NO YES
Emode Category N/A N/A N/A N/A
Loan To Value 80% 75% N/A 70%
Liquidation Threshold 82.5% 80% N/A 75%
Liquidation Bonus 7.5% 5% N/A 5%
Reserve Factor 15% 10% 15% 10%
Liquidation Protocol Fee 10% 10% 10% 10%
Borrow Cap 110 880,000 60,000 3,400,000
Supply Cap 140 1,100,000 80,000 4,300,000
Debt Ceiling N/A N/A N/A TBD
uOptimal 80% 80% 45% 75%
Base 1% 0% 0% 0%
Slope1 3.8% 4% 7% 7%
Slope2 80% 60% 300% 75%
Stable Borrowing Disabled Disabled Disabled Disabled
Stable Slope1 13.00% 13.00% 13.00% 13.00%
Stable Slope2 300.00% 300.00% 300.00% 300.00%
Base Stable Rate Offset 3.00% 3.00% 3.00% 3.00%
Stable Rate Excess Offset 5.00% 5.00% 5.00% 5.00%
Optimal Stable To Total Debt Ratio 20.00% 20.00% 20.00% 20.00%
Flashloanable YES YES YES YES
Siloed Borrowing NO NO NO NO
Borrowed in Isolation NO YES NO NO

Oracle: Chainlink recently deployed on Celo as part of the Chainlink SCALE Program.

Cross-chain Interactions: Celo has integrations with token bridges like Portal (Wormhole), Allbridge, and Squid–along with cross-chain messaging partners including Wormhole, Hyperlane, LayerZero, and Axelar.

Disclaimer

The information provided above about Celo is from public sources and Michigan Blockchain cannot guarantee that it is or will stay accurate.

The Celo Foundation has been collaborating with Michigan Blockchain to work through the details of this proposed deployment and communicate the merits to the broader Aave community. Michigan Blockchain was not provided consideration as a result of this collaboration as both proposers believe the passing of this proposal is in the best interest of the Aave protocol.

As a cautionary measure to prevent an appearance of a conflict of interest, Michigan Blockchain will abstain from voting on this proposal.

This TEMP CHECK has been prepared solely to facilitate community discussion.

Next Steps

Temperature Check: Gather community feedback and assess sentiment towards the proposal of deploying Aave V3 on Celo.

ARFC: If the Temperature Check Snapshot indicates positive sentiment, proceed to the ARFC stage for further discussion, risk parameter evaluation network analysis, and finalization of the proposal.

AIP: If the ARFC stage Snapshot is successful, submit the proposal as an AIP for voting and on-chain governance approval.

Copyright

Copyright and related rights waived via CC0.

11 Likes

Thx for the temp check. I would love to see a @bgdlabs analysis here like for the BNB deployment.

1 Like

hello @Michigan_Blockchain and thanks for publishing this proposal.

The ACI L2 doctrine is to support diversity by deploying “MVP” versions of Aave V3 with limited risk & exposure.

we’re thus supportive of this TEMP CHECK.

@EzR3aL while bgd & any service provider are welcome to weight-in during TEMP CHECK stage, the deployment checklist is at the ARFC stage.

10 Likes

As a long-term Aave user, as well as a DeFi builder on top of Celo, I 100% support this temp check. The Celo ecosystem has been looking forward to an Aave deployment since 2021, and with the recent availability of Chainlink on Celo this should now be finally possible - if the Aave DAO approves.

Aave has a good chance of becoming a dominant player in the Celo ecosystem. Current lending markets are suboptimal. For example, there is currently no way to borrow USDC, or use ETH as collateral on Celo. Yet, there is high demand for this type of borrowing in the communities where Celo is gaining traction. Other developments on Celo also align very nicely with an Aave deployment (i.e. focus on providing microcredit and real-world loans in the Global South). It will enable a bunch of apps like HaloFi and others, to built on top of Aave v3 directly, instead of a fork of Aave v2.

The token allocation for the Aave DAO, is a nice added touch. Which would indeed be a good way to bootstrap liquidity.

Some things to clear out: which bridged assets (WETH and USDC) will be supported - those bridged via Portal (Wormhole)? Or those via Axelar (Squid)?

7 Likes

Celo has been intentional in creating an offering which is attractive to Aave

They have been patient for the right infrastructure (Chainlink SKALE), thought about incentives (0.5% of CELO circulating supply [~$1.2mm]), and building liquidity on-chain via Uniswap.

For these reasons and their commitment to Aave, we’d support exploring a Celo “MVP” deployment.

8 Likes

We are supportive of this proposal!

We support Aave’s multichain growth and a deployment on Celo could showcase Aave’s use for alternative assets. The CELO incentives are a welcomed addition, and hopefully, with greater activity after deployment, Aave will be able to support a larger list of assets on CELO.

7 Likes

As an early adopter and long-term staker of AAVE - I’m delighted to see the positive reactions on this temp check.

I see the potential for projects like EthicHub and ImpactMarket to scale up their operations by leveraging AAVE! Win/Win

My team and I are also working on a new ReFi-focused DEX to launch in Q4 on Celo and are eager to integrate AAVE assets.

4 Likes

We’re supportive of having a CELO MVP deployment!

4 Likes

Hi @Deepcryptodive -Thank you for your support.

Regarding the bridges - for the moment we think Portal (Wormhole) bridged assets (ETH and USDC) would be relevant given deeper liquidity of these assets in the Celo eco-system currently.

2 Likes

Thank you to those who have contributed to making this deployment possible, we see it as a strong opportunity for Aave and are in support.

Franklin DAO is committed to enabling sustainability and inclusivity, which is well represented in this deployment.

Some things that stood out:

  • Integration with Ethereum, enabling Celo to inherit the security of Ethereum, would make this deployment even stronger.
  • Being natively mobile is unique and has the potential to increase the number of DeFi users. It makes sense to support builders who have tailored their technical and business development for this user experience.
3 Likes

We are supportive of this proposal!

4 Likes

Thank you everyone for your questions and support! The temp check is now live on snapshot!

https://snapshot.org/#/aave.eth/proposal/0x3d3cae04cca35a36b278449831a985ba8520ef127784f2724360d8d956eddf7e

4 Likes

We voted in favor of this temp check. We believe that the deployment of Celo would benefit Aave for the following reasons:

• Celo is incentivizing liquidity on Aave (with 0.5% of CELO supply), which increases the possibility of bootstrapping liquidity.
• With this deployment, AAVE can be a leading lending protocol on Celo while also contributing to the diversity of protocols available on the Celo chain.
• This deployment could be a stepping stone for a future GHO launch on Celo, as it is a chain with few choices of stablecoins.

4 Likes

Gauntlet recs for Aave v3 Celo 2023-08-16

Given current circulating supply and liquidity, Gauntlet recommends increasing supply and borrow caps for all assets, to avoid impeding growth, in the event risk steward functionality has not been activated.

We recommend the below changes.

Parameter Michigan Gauntlet
WETH LB 7.50% 5%
WETH Borrow Cap 110 300
WETH Supply Cap 140 300
USDC Borrow Cap 880k 2m
USDC Supply Cap 1.1m 2m
CELO Borrow Cap 60k 1m
CELO Supply Cap 80k 1m
cUSD Slope 1 7% 5%
4 Likes

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