[Temp Check] BUIDL GSM

Governance General
1

[TEMP CHECK] BUIDL GSM

Author: Aave Labs

Date: 2024-08-26

Summary

This Temp Check proposes to build and deploy GHO Stability Module (GSM) to support reserve allocation and management features enabling third party integrations, specifically supporting integration into the BlackRock BUIDL infrastructure.

Motivation

The primary purpose of GHO Stability Module (GSM) is to ensure the stability of GHO in scenarios of increasing or decreasing demand, effectively providing 1:1 convertibility between GHO and the other asset within the specific GSM. In the case of GHO:USDC, this can result in a surplus of USDC that in current deployed implementation remains idle.

Aave Labs proposes to build a new instance of GSM that supports external integrations and related control mechanisms, specifically supporting BlackRock’s BUIDL. With this implementation GSM can be more capital efficient while maintaining the high standards of backing as USDC is backing the GHO.

BUIDL is deployed on the Ethereum network, providing onchain access to traditional financial assets managed by BlackRock Financial Management Inc., with BNY Mellon as custodian, Securitize as transfer agent, and PricewaterhouseCoopers LLP as the appointed fund auditor. BUIDL offers a novel approach to the digital asset space by combining the reliability of traditional financial mechanisms with the efficiency and transparency of blockchain technology.

BlackRock has partnered with Coinbase, Anchorage, Fireblocks, and Digital Bank NA as infrastructure providers, and with Circle for the onchain USDC redemption fund, ensuring instant liquidity for onchain participants.

BUIDL is priced at $1 per token and pays daily accrued dividends directly to holders wallets in the form of new tokens each month. The fund allocates 100% of its assets in cash, U.S. Treasury bills, and repurchase agreements, allowing holders to earn yield while holding the token on the blockchain. BUIDL holders can transfer their tokens 24/7/365 to other pre-approved holders. Additionally, fund participants have flexible custody options, allowing them to choose how to hold their tokens.

The BUIDL fund currently has over $500 million in issuance, with Circle providing a $100 million USDC redemption fund that guarantees conversion from BUIDL back into USDC for use in the USDC GSM. As of now, the redemption fund has $74.7 million USDC available.

This GSM implementation sets the technical ability for the Aave DAO, essentially expanding yield sources into real-world assets (RWAs), and increasing the partnership opportunities with BlackRock. Additionally, it provides a hedge against fluctuating yield opportunities in DeFi markets.

Specification

The proposed GSM instance that will run in parallel with already existing GSMs, will enable 1:1 fixed-ratio swaps between USDC and GHO, utilizing the USDC surplus to mint BUIDL tokens. Thanks to instant redeemability between USDC and BUIDL, the GSM can mint and burn BUIDL in exchange for USDC based on user demand, ensuring a seamless experience similar to the existing GHO:USDC GSM. Swap fees will be accumulated in GHO, and dividends will be paid monthly in BUIDL.

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Architecture may or may not integrate a USDC buffer to compensate the gas redemption cost of BUIDL for small swaps, subject to further evaluation.

The GSM contract code requires modifications to support GHO <> USDC conversions and dividend reception. Additionally, BUIDL holders must be registered/allowlisted, meaning the GSM itself must also be registered.

A detailed specification will be shared during the ARFC phase.

Next Steps

  1. Gather feedback from the community.
  2. If consensus is reached on this [TEMP CHECK], escalate this proposal to the Snapshot stage.
  3. If Snapshot outcome is YAE, escalate this proposal to the ARFC stage.

Copyright

Copyright and related rights of this Temp Check waived via CC0.

19 Likes
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This proposal is a great addition to the current GSM and on top taps the Aave protocol into RWA with a product by Blackrock.
It’s a small but logical step and probably a great start to learn from RWA in a tokenized fund.
How is the registration being done for the GSM itself?
Do we have an estimated timeline?

Overall Im supportive of this proposal.

9 Likes
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BlackRock’s controversial nature aside (obviously the internal sentiment is “it’s worth it”), the only thing that really bothers/isn’t clear to me is this –

“Additionally, BUIDL holders must be registered/allowlisted, meaning the GSM itself must also be registered.”

Does this mean only certain Aave holders/users would be able to participate and/or receive BUIDL as yield/incentives, a permissioned pool of sorts? I would understand this as only certain Aave holders/users will directly benefit and most indirectly, if at all (you could consider a move like this to be growth which of course would be good for the entire Aave community).

I’d really like to know how or if this integration would directly affect any of Aave’s borrowing, lending or minting of GHO. Is it simply that this would grow Aave’s overall AUM/fees/revenue? The community of course would see a benefit but if it is only PERMISSIONED users…I don’t like that.

1 Like
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Thank you for your feedback, @EzR3aL @Blinkin

Registering the GSM instance is a straightforward technical procedure, essentially enabling the GSM instance to hold tokens just like any other authorized BUIDL user. This step is essential for the GSM <> BUIDL integration, facilitating the swaps between USDC and BUIDL tokens.

The new GSM instance provides an alternative for users to swap between USDC and GHO without DEX-related aspects such as slippage. The inflow of USDC tokens will be automatically converted into BUIDL, thereby generating yield for the DAO. Note that users do not require authorization from BUIDL, as the GSM handles these conversions independently.

Currently, we do not have a specific timeline established. However, despite the technical considerations, we believe it will require relatively low effort to align the existing GSM code with BUIDL. We aim to implement this as quickly as possible so that the DAO can begin experimenting with RWAs.

6 Likes
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After Snapshot monitoring, the current Snapshot recently ended, reaching both Quorum and YAE as winning option with 783000 votes.

Next step will be the publication of an ARFC.

1 Like
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In order to facilitate a seamless integration of more RWA markets in the future, we believe that it is essential to adapt the current GSM implementation as much as possible. This approach not only simplifies technical integration but also mitigates risk complexity, resulting in a more robust and scalable solution.

Given the architecture of the GSM, it is crucial for asset swaps to be executed atomically for both buy and sell operations. This ensures that users receive the swapped asset immediately within the same transaction, maintaining the integrity of the user flow. Constraints on minimum enforced subscription and redemption amounts could also pose additional barriers for the implementation.

For BUIDL, atomic redemptions are already operational through the Circle BUIDL off-ramp. However, atomic subscriptions are still in development. Aave Labs is actively engaged in discussions with the Securitize team to establish this subscription process.

We are committed to keeping the community informed and will provide updates on our progress in the coming weeks.

4 Likes