[TEMP CHECK] Add PEPE as a Supported Asset on AAVE
Summary
This is a proposal to add PEPE as a supported collateral asset on the AAVE lending platform.
Motivation
PEPE is a widely held, highly liquid asset in the crypto ecosystem. Its rapid growth in adoption, substantial trading volumes, and deep liquidity across major centralized and decentralized exchanges make it a natural candidate for integration into AAVE.
Adding PEPE could:
Expand AAVE’s market reach and attract a new demographic of depositors and borrowers.
Help fuel the growth of GHO, AAVE’s native stablecoin, by increasing the available collateral base for GHO minting.
Generate additional liquidation income for the AAVE protocol. Given PEPE’s nature as a meme-driven asset, it is reasonable to expect elevated levels of borrowing, speculation, and resulting liquidations — all of which could accrue value to the AAVE DAO.
Further diversify the asset options available to users while carefully managing risk through isolated market controls.
Specification
This proposal would achieve the following:
Add PEPE as an isolated collateral asset within the AAVE ecosystem.
Assign conservative risk parameters appropriate for a volatile asset (to be proposed by risk managers and community discussion).
Notes:
Initial risk parameters (such as Loan-to-Value ratios and liquidation thresholds) would be recommended by our risk management partners as part of the next steps.
Disclaimer
I hold 98,465 AAVE tokens personally. I do not hold PEPE tokens personally. This proposal reflects my opinion that PEPE’s inclusion could be beneficial to AAVE’s growth and diversity, but users should independently evaluate any risks.
Next Steps
I am posting this [TEMP CHECK] to invite discussion and feedback from the community. If there is positive sentiment, I would encourage AAVE governance and risk teams to engage in further analysis, risk modeling, and formal onboarding steps for PEPE.
Hey @Tor_GAINS — good question! You are correct — I don’t think there will be significant demand to borrow PEPE. Instead, I think there will be significant demand for long-term holders of PEPE to deposit their PEPE with AAVE and then borrow stablecoins (like GHO) against their position.
Essentially, they want to hold on to their PEPE tokens — but they can use the AAVE platform for liquidity against their PEPE holdings.
You are right, though, to expect that the audience looking to borrow PEPE may be small. There may be a narrow group of people that think the PEPE memecoin is ultimately going to zero in the long run — so they want to short the asset by borrowing PEPE, selling it for stablecoins, and then buying back the PEPE coin at a lower price in the future.
It’s really important to understand the revenue opportunity from this listing. From our perspective (and we could be completely wrong), holders may likely not want to borrow against PEPE because it isn’t really a long-term hold. We’ve seen numerous times that longer-tail assets do not generate a lot of revenue for Aave and therefore, a convincing revenue analysis needs to be conducted to assess the suitability of listing PEPE.
It also is very volatile, and the LT/LTV of the asset would be relatively low, which reduces the benefit from borrowing against it. It may also make it difficult to identify appropriate risk parameters for the asset. On first glance, we’re not very convinced about the opportunity from listing PEPE, but we’re happy to change our minds if proven wrong.
Aave has had virtually no historical exposure to memecoins, despite some Aave V1 DeFi tokens resembling early memecoins in hindsight. One reason is that most Aave users prefer long-term positions, whereas memecoin holders often aim to flip quickly.
That said, certain assets such as Pepe have shown staying power, and PEPE in particular has avoided extreme volatility over the last twelve months.
For ACI, the key question is always the business and growth potential of any integration. Under the current interest rate curve and reserve factors for stablecoins, margins are so thin that the risk-reward profile has been unattractive for Aave.
Aave has since evolved. The protocol now offers both a large and liquid native stablecoin GHO, and Aave 3.2 introduced liquid emode.
This proposal appears to be a promising chance to test a liquid eMode that pairs PEPE with GHO, or with a wrapped version of GHO, at a higher borrow rate. That structure could make the potential profit for the Aave DAO much more appealing. It also aligns with the earlier ACI initiative to create an “emergence instance” for long-tail collaterasl. Under Aave 3.2, a segregated instance is no longer required, so the asset could be added to the main Aave markets.
In summary, I am in favor, provided the integration is limited to a liquid eMode where GHO is the only borrowable asset, the borrow cap is modest at around 5/10M, and the interest rate on GHO is set slightly above the regular rate to account for the collateral’s risk premium.
Pepe and maybe a few other memecoins as well could be tested. It’s been around for quite a while and seems like it’s not going away that fast. That being said we could give it a try again to support a long tail asset but just like Marc said with a liquid emode combined with GHO. Also risk parameter should be chosen carefully to assure there is no risk vector in terms of oracle manipulation, liquidations and LTV.
Interesting proposal. But I’m not in favor of any MEME coin being used as collateral to borrow stable coins or any other valuable assets. Meme is a meme.
I am not favour for having a meme coin in the Aave Core or Prime markets given it would change the risk narrative of these markets in particularly when professionalized LPs assess risk, even with low supply caps. I don’t belive the revenue will overcome the risk and perception here.
I would be in favour of creating a Spoke on Aave V4 dedicated to memecoins and allocating liquidity from the main Liquidity Hub and additional GHO facilitator to a capped amount if the DAO wants to seed the liquidity and take some exposure.
Michigan Blockchain doesn’t support adding PEPE as an asset on AAVE. PEPE’s extreme price swings make it too risky to use as collateral. This instability could harm both borrowers and the Aave protocol. Additionally, there is no clear evidence that users want to borrow against PEPE long-term. Adding PEPE also risks damaging Aave’s reputation as a trusted, professional DeFi platform. Until supporters can prove strong borrower demand and show how this aligns with Aave’s long-term goals, we do not support adding PEPE as collateral.
-nsks
After Snapshot monitoring, the current TEMP CHECK Snapshot ended today, reaching out both Quorum and YAE as winning option, with 471K votes (and 129.1K NAY votes).
Next step will be the publication of an ARFC to continue to gather feedback from both Community and Risk Service Providers before escalating it to ARFC Snapshot if applicable.
Closing thread to focus on ARFC post, once is live.