Use of GHO or LP (GHO/stable) within AAVE Safety Module

Other
1

Hi,

We would like to discuss the addition of GHO or a LP token (i.e. GHO/USDC) within the AAVE Safety Module alongside AAVE and ABT and incentivise deposits with SI (staking rewards)

The benefits of adding either proposal is to:

  • Increase demand for GHO
  • Provide incentive in holding GHO
  • Increase Safety Module Assets
  • Diversify Safety Module assets & Reduction of reliance on AAVE price to backstop the system

The second option (addition of LP token) would have the added benefits of:

  • Increase liquidity for GHO
  • Given cooldown, increase sticky liquidity in extreme volatility period.
  • Further incentives (trading fees + yield DEX) for users to provide liquidity.

with the LP position solution, users depositing in the DEX would have the choice to provide liquidity without the need to deposit in the Safety Module (in which case, they wouldn’t be streamed AAVE rewards but wouldn’t be subject to a cooldown) while users staking on the AAVE safety module would be rewarded for doing so by being streaming AAVE rewards. This provides optionality for users given their preference.

The pool could be incentivised through the recent purchase of CRV, or through BAL.
Exact parameters (e.g. Staking Value Ceiling in SM, cooldown period, rewards streams, etc) has to be discussed further.

1 Like
2

@Dydymoon i think this one is for you.

2 Likes
3

Does it make sense to use GHO in the safety module? Isn’t GHO backed by collateral on Aave.

So using it in the safety module would add some risk?

I think GHO utility should come from partners in the ecosystem and it shouldn’t have a use within Aave. I think it would add risk to the system. But I am no expert.

4

Already answered on Twitter @chippervan but posting here as well.

imo relying on AAVE token (and some ETH) solely in the safety module doesn’t make much sense - if anything, I would argue that it is not safe (at least for a large bailout) GHO, being a multi-CDP is imo safer.

the view is: GHO being minted and deposited in the SM or sent outside of the AAVE ecosystem lead to the same outcome. If a liquidation has to happen, it will.However, having the GHO in the SM has a benefit:

  • With GHO within the SM then users can willingly commit their GHO (= mixture of collateral, mostly ETH, BTC and USDC) to backstop the protocol.
  • The collaterals are less volatile in general and are more liquid than Aave. This could least alleviate some of the liquidity constraints.
  • Also, as we approach liquidation thresholds, AAVE price will tend to drastically decrease and thus there is a non-zero chance that it is not being able to bail out the system.

image

Obviously a LP position (GHO/USDC) would have added benefits v.s. GHO (while increasing other sets of risks).

there might be a set of risks not foreseen though - happy to hear everyone’s thoughts!.

5

Hello this is not a standard TEMP CHECK following governance guidelines: [ARFC] ARFC and TEMP CHECK Framework

Please refrain from posting in the governance categories non-standard proposals.

while your discussion can have added value, this is not the right venue to post it. feel free to get in contact with @TokenLogic working on the main topic of your post and sync off chain with them.

moved your thread to ‘other’ section.

6

i think if something like this is proposed there should be a proper risk assessment done by a quant or someone similar.
i think rehypothecating GHO could be a big risk to the system.