Enhancements in Aave v3 Gnosis Chain Instance
01Summary
Proposal to optimize capital efficiency on Aave's Gnosis Chain instance by promoting USDC.e adoption over USDC, making sDAI borrowable, and creating a sDAI/USDC.e E-mode pairing. Changes include increasing USDC.e supply/borrow caps, reducing USDC parameters to discourage its use, enabling sDAI as a borrowable asset, and establishing an E-mode for efficient looping strategies.
- Type
- parameter change
Key changes
- Increase USDC.e supply cap from 10M to proposed amount and borrow cap from 9M to proposed amount via Risk Steward(high)
- Create sDAI/USDC.e E-mode pairing with 90% max LTV and 92% liquidation threshold to enable efficient looping strategies(high)
- Reduce USDC LTV from 75% to 65% and lower supply cap from 11M to 2.5M and borrow cap from 11M to 2M to discourage USDC usage in favor of USDC.e(high)
- Make sDAI borrowable by enabling borrow functionality, transitioning from non-borrowable collateral-only asset(high)
- Increase USDC reserve factor from 25% to 40%(medium)
- Enable USDC.e participation in E-mode(medium)
Notable concerns
- Phasing out USDC in favor of USDC.e may impact existing USDC positions with reduced LTV and caps
- sDAI becoming borrowable represents a significant change from current non-borrowable status that warrants market monitoring
- Capital fragmentation between USDC and USDC.e during transition period
- A subsequent AIP will be required to implement these parameter changes after proposal approval
Generated by Kvorum
02Description
Simple Summary
This publication proposes changes in the Gnosis Chain instance to improve the capital efficiency of USDC.e and sDAI assets by promoting changes on its parametrisation.
Motivation
The Gnosis Chain’s DeFi landscape has evolved considerably since these assets were first introduced. With a vibrant ecosystem now in place, it’s time to enhance capital efficiency, reduce capital fragmentation, and create useful debt vs no risk looping within the Aave GC instance to attract more capital and increase utilisation.
USDC to USDC.e Transition:
Gnosis Chain is committed to making USDC.e (the version that aligns with Circle’s standards) the defacto version of this stablecoin within its ecosystem, by accelerating the transition from USDC and making it the major market within Aave’s GC instance (replacing xDAI). To incentivise this migration and accommodate increased capital inflows, we propose the following adjustments for USDC.e:
- Supply and Borrowing Cap Increase: Enacted via the Risk Steward.
- Emode Creation: Establish an Emode pairing between USDC.e and sDAI, similar to the existing sDAI/EURe Emode.
Those changes will incentivise looping strategies with USDC.e similar to those with EURe/xDAI.
To further promote the transition to USDC.e, we propose reducing the LTV factor for USDC. This measure will prevent the initiation of new borrowings using USDC, thus encouraging users to adopt USDC.e.
sDAI Borrowability
This proposal also asks to make sDAI a borrowable asset. There is little justification for depositing xDAI into Aave on Gnosis, as sDAI offers the same risk profile. The optimal configuration, then, would be to phase out xDAI in favour of sDAI (this will be presented in a future proposal). sDAI becoming borrowable ensures a more efficient and market-driven borrowing system on the platform.
Specification
The tables below show the current and proposed parameters for each asset. A subsequent AIP will be submitted to implement these changes upon implementing this proposal.
- USDC.e
| Parameters | Current | Proposed |
|---|---|---|
| Isolation Mode | No | - |
| Borrowable in Isolation | Yes | - |
| Enable Borrow | Yes | - |
| Enable Collateral | Yes | - |
| Loan To Value (LTV) | 75% | - |
| Liquidation Threshold | 78% | - |
| Liquidation Bonus | 5% | - |
| Reserve Factor | 10% | - |
| Liquidation Protocol Fee | 10% | - |
| Supply Cap | 10M | - |
| Borrow Cap | 9M | - |
| Debt Ceiling | N/A | - |
| Optimal | 90% | - |
| Base | 0% | - |
| Slope1 | 9.5% | - |
| Slope2 | 40% | - |
| Emode | No | Yes |
- Create sDAI/USDC.e E-mode
| Parameters | Value | Value |
|---|---|---|
| Asset | sDAI | USDC.e |
| Collateral | Yes | No |
| Borrowable | No | Yes |
| Max LTV | 90% | - |
| Liquidation Threshold | 92% | - |
| Liquidation Bonus | 4% | - |
- USDC
| Parameters | Current | Proposed |
|---|---|---|
| Supply Cap | 11m | 2.5m |
| Borrow Cap | 11m | 2m |
| Reserve Factor | 25% | 40% |
| LTV | 75% | 65% |
- sDAI
| Parameters | Current | Proposed |
|---|---|---|
| Isolation Mode | No | - |
| Borrowable in Isolation | No | - |
| Enable Borrow | No | - |
| Enable Collateral | Yes | - |
| Loan To Value (LTV) | 75% | - |
| Liquidation Threshold | 78% | - |
| Liquidation Bonus | 5% | - |
| Reserve Factor | 10% | - |
| Liquidation Protocol Fee | 20% | - |
| Supply Cap | 48M | - |
| Borrow Cap | 0 | - |
| Debt Ceiling | N/A | - |
| Optimal | 90% | - |
| Base | 0% | - |
| Slope1 | 4% | - |
| Slope2 | 75% | - |
| Emode | No | Yes |
References
- Implementation: AaveV3Gnosis
- Tests: AaveV3Gnosis
- Snapshot
- Discussion
Copyright
Copyright and related rights waived via CC0.
03Mismatch analysis
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04Actions
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