Title: [TEMP CHECK] Onboard STG to Ethereum Aave v3
Author: Marc Zeller @marczeller - Aave Chan Initiative
Date: 2023-09-07
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Summary:
This TEMP CHECK proposes the onboarding of the STG token to the Ethereum Aave v3 Liquidity Pool.
Motivation:
Stargate is a fully composable liquidity transport protocol central to Omnichain DeFi. It enables users and dApps to transfer native assets across chains while tapping into the protocol’s unified liquidity pools with immediate guaranteed finality.
Over the past month, Stargate has processed transactions exceeding $3.4 Billion, marking its position as the largest bridge in the crypto domain. The STG token, serving as the utility and governance token for the Stargate protocol, boasts a market capitalization of roughly $110,000,000 and a circulating supply nearing 200,000,000 STG.
Integrating the STG token into the Ethereum Aave v3 will enhance asset diversification, offering borrowers and lenders expanded avenues to leverage the protocol. This integration will empower users to deposit STG as collateral and also borrow STG, paving the way for new revenue streams for Aave.
This onboarding is considered in isolation mode with conservative LTV and debt ceiling parameters to limit protocol exposure.
(Note: If this proposal reaches ARFC stage, the risk Teams will be invited to provide feedback and fine-tune these parameters)
Next Steps:
Gather community feedback on this TEMP CHECK.
If consensus is reached, escalate this proposal to the TEMP CHECK Snapshot stage.
if TEMP CHECK snapshot outcome is YAE, publish forum ARFC and collect both community & service providers feedbacks
If consensus is reached, escalate this proposal to the ARFC Snapshot stage.
If ARFC snapshot outcome is YAE, escalate to AIP stage.
Disclaimer:
This proposal is part of the Skyward program.
The ACI has not been paid by Stargate or any third party to propose this TEMP CHECK, at the time of writing, the Author does not own any STG token.
Following the successful Snapshot for this [TEMP-CHECK], we have conducted an analysis and provide risk parameter recommendations for the initial listing of STG.
Liquidity and Market Cap
When analyzing market cap and trading volumes of assets for listing, we look at data from the past 180 days. The average market cap of STG over the past 180 days was ~$120M, and the average daily trading volume was ~$20M (CeFi & DeFi).
Liquidation Threshold
Analyzing STG price volatility over the past, we observed daily annualized volatility of 102.47% and 30-day annualized volatility of 46.09%. While we could propose a higher LT based on volatility considerations, we recommend a more conservative launch with a 40% LT due to the asset’s relatively low market cap.
We support listing STG as borrowable under reasonable limits of supply cap, as we do not observe a significant risk to the protocol by allowing to borrow the asset.
Debt Ceiling
Following Chaos Labs’ Isolation Mode Methodology, we recommend an initial debt ceiling of $3M. Under the methodology for Isolation Mode, we consider two levels of probabilities for extreme price drops - Medium-High and High. We estimate the probability of an extreme price drop for STG as 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, we propose setting the Supply Cap at 2x the liquidity available under the Liquidation Penalty price impact.
Given the concentrated liquidity of STG we recommend a 10% Liquidation Bonus and support the supply cap of 10,000,000 STG, in the original post. We recommend setting the initial borrow cap at 5.5M STG.
Recommendations
Following the above analysis, we recommend the following parameters:
