[TEMP CHECK] Add ARB to Arbitrum Aave v3

[fig]

Title: [TEMP CHECK] Add ARB to Arbitrum Aave v3
Author: @fig Flipside Crypto
Created: 04/27/203

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This proposal is to add ARB to Aave v3 on Arbitrum.

References

Project - https://arbitrum.foundation/
Documentation - Arbitrum Intro - Governance Docs | Arbitrum Intro - Developer Docs
Github / source code - ArbitrumFoundation · GitHub
Ethereum contracts - Arbitrum | Arbiscan
Chainlink Oracle ARB Price Feed | 0xb2A824043730FE05F3DA2efaFa1CBbe83fa548D6
Audit - Trail Of Bits Report - 01/06/2023
Twitter -https://twitter.com/arbitrum
Blog - https://arbitrumfoundation.medium.com/

Summary

This proposal is to add ARB to Aave v3 on Arbitrum. ARB is Arbitrum’s governance token, an ERC-20 token native to the Arbitrum One chain.

Motivation

Arbitrum represents a governance token in the Ethereum scaling ecosystem. It is widely distributed, initially across 625,000 wallet addresses - including to DAOs like Aave.

Adding support for ARB in Arbitrum v3 pools adds greater TVL and user experience to the increasingly popular Aave v3 Arbitrum market - and additional revenue opportunities for Aave.

By enabling borrowing, it allows users and institutions to take a unique position on this Governance token as the network matures and builds a decentralized community.

Furthermore, it more closely aligns the Aave community with Arbitrum and, by extension, Ethereum.

Specifications

1. What is the link between the author of the AIP and the Asset?

• @Fig is a Governance Contributor at Flipside Crypto, a professional delegate and contributor to Aave, Maker, Optimism, 0x, and additionally Arbitrum.

2. Provide a brief high-level overview of the project and the token

• Arbitrum Rollup and Arbitrum AnyTrust are protocols that make Ethereum transactions faster and cheaper. Developers use Arbitrum One and Arbitrum Nova, the chains that implement these protocols, respectively, to build user-friendly decentralized apps.
• The distribution of the $ARB governance token decentralizes governance of these protocols and their respective chains, as well as any future chains the Arbitrum DAO authorizes.
• $ARB tokens can be used to vote on Arbitrum DAO governance proposals, allowing $ARB holders to shape Arbitrum’s future together

3. Explain the positioning of the token in the AAVE ecosystem. Why would it be a good borrow or collateral asset?

• Owning $ARB makes you a member of the Arbitrum DAO and allows you to participate in Arbitrum’s on-chain governance. A series of smart contracts are responsible for bridging $ARB between Arbitrum One and Ethereum. This will benefit the Aave community by creating a vibrant ecosystem around Aave v3 Arbitrum while being a strong primary use case for ARB.

4. Provide a brief history of the project and the different components: DAO, is it live? Products, are they live? How did it overcome some of the challenges it faced?

• Arbitrum DAO governs a Layer 2 scaling solution for the Ethereum blockchain, represented by delegates and individual token holders. Arbitrum One is built by Offchain Labs, and the DAO is serviced by the Arbitrum Foundation. The Arbitrum Foundation has been seeded as of April 2023 - dedicated to the decentralization, security & growth of Arbitrum technologies, including Arbitrum One & Nova.

5. How is the asset currently used?

• $ARB makes you a member of the Arbitrum DAO and allows you to participate in Arbitrum’s on-chain governance. ARB is currently traded on Coinbase Exchange, Binance, and Uniswap.

6. Emission schedule

For the initial airdrop, 12.75% of the ARB supply was distributed across 600,000+ wallets. The distribution was broken down into individuals and DAOs:

• 11.62% of tokens will be initially distributed to users
• 1.13% distributed to DAOs in the Arbitrum ecosystem (including Aave)

The remaining 87.25% of the token supply is distributed as the following:

• 35.28% to the Arbitrum DAO treasury overseen by governance protocol
• 7.5% to the Arbitrum Foundation (as approved by the DAO)
• 26.94% to the Offchain Labs team and future advisers
• 17.53% to Offchain Labs investors

7. Token (& Protocol) permissions (minting) and upgradability. Is there a multisig? What can it do? Who are the signers?

• The $ARB token is minted by a smart contract that lives on Arbitrum One, a Layer 2 Arbitrum rollup chain. You may find more information about ARB contracts across networks here.

Copyright

Copyright and related rights waived via CC0.

[ChaosLabs]

Chaos Labs Recommendations

Overview

Chaos Labs supports listing ARB in Isolation Mode as part of an overarching strategy to increase the offering of the Aave protocol.

Liquidity and Market Cap

When analyzing the market cap and trading volumes for ARB, we looked at data from the past 30 days. The average market cap of ARB over the past 30 days was $1.7B, and the average daily trading volume was $817M (CeFi & DeFi). We find the market cap adequate and the trading volumes reasonable as long as they are considered when setting appropriate supply caps, a debt ceiling, and borrow caps.

Liquidation Threshold

Analyzing ARB price volatility, we observed a daily annualized volatility of 101.14% and 30-day annualized volatility of 103.93%. Considering this volatility and the fact that ARB is a newly launched token, we recommend launching with an LT of 60%.

We support listing ARB as borrowable as we do not observe a significant risk to the protocol by allowing to borrow ARB.

Debt Ceiling

Following Chaos Labs’ Isolation Mode Methodology, we recommend an initial debt ceiling of $14M. In our methodology, we consider two levels of probabilities for extreme price drops - Medium-High and High. We estimate the probability of an extreme price drop for ARB as Medium-High. Given this debt ceiling, we do not identify a profitable attack vector under the current liquidity levels.

Supply Cap, Borrow Cap, and Liquidation Bonus

Following Chaos Labs’ approach to initial supply caps, as introduced with the Metis deployment recommendations, we propose setting the Supply Cap at 2X the liquidity available under the Liquidation Penalty price impact.

Given the concentrated liquidity of ARB we recommend a 7.5% Liquidation Bonus and a derived supply cap of 30M ARB, and a borrow cap of 16.5M ARB.

Recommendations

Following the above analysis, we recommend listing ARB with the following parameter settings:

Parameter	Value
Isolation Mode	Yes
Borrowable	Yes
Collateral Enabled	Yes
Supply Cap (ARB)	30M
Borrow Cap (ARB)	16.5M
Debt Ceiling	$14M
LTV	55.00%
LT	60.00%
Liquidation Bonus	7.50%
Liquidation Protocol Fee	10.00%
Reserve Factor	20.00%
Variable Base	0.00%
Variable Slope1	7.00%
Variable Slope2	300.00%
Uoptimal	45%
Stable Borrowing	Disabled

[fig]

Thanks @ChaosLabs -

Much appreciate your work here.

Intend to escalate this to Snapshot for polling next week, pending no further feedback.

[ChaosLabs]

We have revised the LT, LTV, and debt ceiling recommendations provided in the post above. The updated values are more conservative to accommodate the limited historical data available for ARB as a new token.

[Gauntlet]

Thanks for the valuable discussion above. Gauntlet suggests initializing the ARB listing with conservative parameters at this time.

Based on the provided information, Gauntlet endorses the proposal and believes that listing the ARB token on Aave would be a sound growth strategy with minimal risk. ARB is a governance token in the Ethereum scaling ecosystem and is widely distributed, including to DAOs like Aave. Adding support for ARB in Arbitrum v3 pools adds greater TVL and user experience to the increasingly popular Aave v3 Arbitrum market and additional revenue opportunities for Aave. Enabling borrowing allows users and institutions to take a unique position on this Governance token as the network matures and builds a decentralized community. It more closely aligns the Aave community with Arbitrum and, by extension, Ethereum.

Given the emission schedule and current supply distribution of ARB token, liquidity concentration and asset flows should be monitored. We want to reiterate that ARB is currently traded on Coinbase Exchange, Binance, and Uniswap, and for the initial airdrop, 12.75% of the ARB supply was distributed across 600,000+ wallets.

Specification: Gauntlet Recs

Parameter	Recommendation
Isolation Mode	YES
Borrowable	YES
Collateral Enabled	YES
Supply Cap (ARB)	20M
Borrow Cap (ARB)	20M
Debt Ceiling	20M
LTV	40%
LT	50%
Liquidation Bonus	10%
Liquidation Protocol Fee	10%
Reserve Factor	20%
Variable Base	0
Variable Slope1	0.07
Variable Slope2	3
Uoptimal	0.45

Borrow and Supply Caps

For initial supply and borrow caps, we use the lower of the conservative and aggressive recommendations generated under Gauntlet’s Borrow and Supply Cap Methodology.

Enable Collateral and Borrow

Since ARB’s initial listing, the asset has seen generous liquidity:

Symbol	Address	Circulating Market Cap	ADV	# Txns	Total Wallets
ARB	0x912CE59144191C1204E64559FE8253a0e49E6548	$1.36B	$569M	489K	13.7M

At present, there is ample liquidity to support listing ARB as a collateral asset.

Furthermore, Gauntlet supports listing ARB as a borrowable asset. Recall that ARB is the official governance token on the Arbitrum network. Given the breakdown of ARB holders, there is low risk of a user borrowing ARB on Aave to make antagonistic voting choices on Arbitrum. Excluding the Arbitrum DAO treasury and Arbitrum Foundation, the top five wallets hold only 9.77% of the total supply of ARB. However, the borrowing use case alone may not generate meaningful borrowing revenue for Aave.

LTV and LT

We recommend setting LTV to 40% and setting LT to 50%. This is in line with the parameters of assets with a similar risk profile set on Aave v3, such as LDO on Ethereum Aave v3 and OP on Optimism Aave v3.

Liquidation Bonus and Liquidation Protocol Fee

We recommend setting LB to 10% and setting Liquidation Protocol Fee to 10%.

Interest Rate Curves and Reserve Factor

Following the parameters set on like assets, we recommend the following interest rate parameters:

Parameter	Recommendation
optimalUsageRatio	0.45
baseVariableBorrowRate	0
variableRateSlope1	0.07
variableRateSlope2	3
stableRateSlope1	0
stableRateSlope2	0
baseStableRateOffset	0.02
stableRateExcessOffset	0.05
optimalStableToTotalDebtRatio	0.2

Likewise, we recommend setting the initial reserve factor at 20%.

Isolation Mode and eMode

Following Gauntlet’s Isolation Mode Methodology, we recommend listing ARB in isolation mode with a debt ceiling of $20M. ARB is a relatively new asset, having only been listed March 23, 2023. Listing ARB in isolation mode allows the asset to undergo further testing. The debt ceiling is limited by the recommended supply cap.

At this time, we do not recommend any eMode pools or isolated assets for ARB. However, we will revisit this if new assets are listed in the future.

[ChaosLabs]

Thanks for putting these forward @Gauntlet

There seems to be a discrepancy between the table and the analysis .

@Gauntlet

Parameter	Value
LTV	50%
LT	60%

@Gauntlet

We recommend setting LTV to 40% and setting LT to 50%.

Could you please clarify which is the intended configuration? In our recommendations above, we leaned towards conservatism and added an additional buffer for the LT setting given the limited historical data available for ARB as a new token. We recommend moving forward with the 60% LT setting.

To simplify the governance process, we suggest converging on a single set of recommendations, choosing the more conservative parameters of the two recommendations.

Parameter	Value
Isolation Mode	Yes
Borrowable	Yes
Collateral Enabled	Yes
Supply Cap (ARB)	20M
Borrow Cap (ARB)	16.5M
Debt Ceiling	$14M
LTV	50.00%
LT	60.00%
Liquidation Bonus	10.00%
Liquidation Protocol Fee	10.00%
Reserve Factor	20.00%
Variable Base	0.00%
Variable Slope1	7.00%
Variable Slope2	300.00%
Uoptimal	45%
Stable Borrowing	Disabled

[Gauntlet]

Updated. We support the combined recommendations.

[EzR3aL]

Any update on this one?

[fig]

@EzR3aL thanks for your patience here.

Was on my to-do list for today.

This has now been migrated to the Snapshot stage and is ready to be voted on tomorrow.

Thanks in advance for the community’s participation.

[MarcZeller]

The ACI supports this proposal and would suggest to deposit DAO owned ARB into aave alongside onboarding to seed liquidity for this new collateral.

[solarcurve]

I’m also interested to see aave boosted ARB pools on Balancer once this proposal is executed.

[EzR3aL]

Snapshot is done. Any ETA when?

[fig]

@EzR3aL you’re quick! Migrating this to ARFC in line with DAO policies.

After that, headed towards AIP for full deployment – will keep the community updated.

[EzR3aL]

Thx, just eagerly waiting for ARB.