title: [TEMP CHECK] Deploy aUSDC GSM on Avalanche
author: @karpatkey_TokenLogic
created: 2024-11-21
Summary
This TEMP CHECK proposes deploying a USDC aToken GHO Stability Module (GSM) on Avalanche.
Motivation
This publication proposes deploying a GHO Stability Module (GSM) on Avalanche to enhance price stability during periods of price fluctuation, particularly following launch, as observed on Arbitrum. Upon launching GHO on Avalanche, we expect users to borrow GHO to speculate on asset prices, or to earn yield on various decentralized exchanges (DEXs). The resulting activity in secondary markets has the potential to create price volatility.
Deploying a GSM on Avalanche provides additional flexibility for managing the peg via issuing new supply when GHO trades above $1. By setting a conservative GHO Borrow Cap on Aave v3 and a generous Exposure Capacity limit on the aToken GSM, the DAO can ensure all GHO entering circulating supply is generating revenue whilst also benefiting from peg stability via a funded GSM. With the deployment and funding of a GSM, users can acquire GHO from DEX liquidity pools or from the GSM directly, without needing to create a collateralized debt position on Aave v3. Using an aToken GSM enables the Aave DAO to earn the deposit rate on each newly issued GHO into circulating supply.
For the GSM, we propose using Circle’s USDC stablecoin due to its strong standing on Aave v3, supported by the following metrics:
- Deepest Liquidity;
- Highest native yield; and,
- Additional incentive yield.
All GHO issued by the GSM is backed 1:1 by USDC, ensuring GHO is always over-collateralised. The USDC is deposited into Aave v3 for aAvaUSDC and the yield generated accrues 100% to the Aave DAO.
The Aave DAO will receive the following revenue streams from the aUSDC GSM:
- Swap Fees;
- Surplus aToken Yield; and,
- Any incentives distributed on Aave v3.
The aToken yield acts as a proxy for the GHO Borrow Rate. GHO issued by the GSM generates aUSDC yield and GHO Borrowed on Aave v3 generates interest. The aUSDC revenue is available every block as it accrues, which is unlike the interest accruing from GHO debt that is only received when a user’s loan is repaid.
Specification
This instance of the GSM on Avalanche enables the user to exchange GHO and USDC at a 1:1 fixed-ratio, with surplus USDC used to mint aAvaUSDC tokens to earn yield.
aAvaUSDC is instantly redeemable for USDC within the main Aave v3 deployment on Avalanche. The GSM can mint and burn aAvaUSDC in exchange for USDC based upon user demand.
GSM Configuration
The below provides the initial configuration of the aAvaUSDC GSM.
| Parameter | Value |
|---|---|
| GHO Bucket Cap | 5.00M |
| USDC Exposure Cap | 5.00M |
| Freeze Lower Bound | $0.990 |
| Freeze Upper Bound | $1.010 |
| Unfreeze Lower Bound | $0.995 |
| Unfreeze Upper Bound | $1.005 |
| Mint GHO Fee | 0.00% |
| Burn GHO Fee | 0.20% |
To support supplying GHO liquidity to the GSM, any required amendments to the facilitator on Ethereum and CCIP bridge parameters will be incorporated into the proposal to support minting and transferring GHO to the GSM.
A bot will be deployed that periodicly claims the revenue to the DAO’s treasury. A separate proposal shall detail the GHO Steward role upgrade and is expected to include various GSM parameters.
The ARFC shall incorporate feedback from the community and service providers and detail the final configuration setup before the AIP is submitted.
Disclosure
TokenLogic and karpatkey receive no payment for this proposal.
Next Steps
- Gather feedback from the community.
- If consensus is reached on this [TEMP CHECK], escalate this proposal to the Snapshot stage.
- If Snapshot outcome is YAE, escalate this proposal to the ARFC stage.
Copyright
Copyright and related rights waived via CC0.
