This is an archive of our post on Aave governance forum. Read the full thread here.

Summary

LlamaRisk supports this ARFC and the proposed parameters and believes that the change will have a material impact on GHO’s risk profile. GSM modules help reinforce GHO’s stability, and the opportunity to improve Aave’s capital efficiency makes it even more of a net positive for the DAO.

As outlined by @TokenLogic, USDC and USDT GSMs expect to retain the stablecoin buffer for longer periods, serving as an additional sell-side buffer for GHO secondary market peg. As this USDT/USDC amount sits idle, it is desirable to generate yield while retaining fast redemption properties and low associated risks. Supplying these assets to Aave’s lending pools achieves these objectives.

Impact on Aave’s Core market

Under current conditions, if an additional 8M USDC is supplied to Aave’s lending pool, this portion would represent ~0.3% of the total current USDC supply on Aave’s Core market. Therefore, the USDC borrow APY would only be lowered by ~0.1% at current borrow levels. Similarly, an additional 16M USDT would represent ~0.5% of the total current USDT supply on Aave Core. Therefore, the USDT borrow APY would only be lowered by ~0.15% at current utilization. Consequently, USDC’s and USDT’s borrow/supply utility would be impacted insignificantly. Moreover, the gain from the supply rate would outweigh the loss from the lower borrow rate, resulting in a net positive for the Aave’s DAO. A large supply of both stablecoins in Aave’s core market minimizes liquidity and instability risks.

Projected Opportunities

The GSM opportunity cost has sharply increased since the previous aUSDC GSM proposal, underlining the size of possible upside and capital efficiency increase for Aave’s DAO.

Source: TokenLogic GHO Analytics, January 19th, 2025

Recommended Parameters

We support the proposed parameters for both stataUSDC and stataUSDT GSMs. The continued GHO burn fee at 0.2% will help to ensure that the allocated USDT/USDC buffer in the GSMs remains deposited for the longer term while providing a GHO stability safeguard at a 0.2% GHO secondary market discount threshold.

Disclaimer

This review was independently prepared by LlamaRisk, a community-led non-profit decentralized organization funded in part by the Aave DAO. LlamaRisk is not directly affiliated with the protocol(s) reviewed in this assessment and did not receive any compensation from the protocol(s) or their affiliated entities for this work.

The information provided should not be construed as legal, financial, tax, or professional advice.