[ARFC] BGD. Correlated-asset price oracle (CAPO)

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Title: [ARFC] Correlated-asset price oracle (Aave CAPO)

Author: BGD Labs @bgdlabs

Date: 2024-02-05

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Summary

Proposal for pre-approval on the activation of the Correlated-asset price oracle (Aave CAPO), introducing extra price protections for assets highly correlated with an underlying, like LSTs (Liquid Staking Tokens) or stablecoins. This first iteration will be focused on upper price protection on Aave v3 assets.

Motivation

On the Aave protocol, the pricing of assets is done in different ways: some feeds are coming directly from the Chainlink network and its algorithms, others combine multiple Chainlink feeds into one, and a last type combines some Chainlink and/or on-chain data to get a final price.

The most representative case of the last group of feeds using on-chain data is the price oracles for LSTs listed in Aave, like wstETH, stMATIC, or sAVAX. In these cases, the method of calculation is usually considering the price of the underlying, and multiplying by some type of exchange rate between the LST and the underlying. For example, for wstETH, the price is high-level calculated as the price of ETH in USD * exchange rate between stETH and ETH (assuming a 1:1 peg between ETH and stETH).

This approach for pricing is sound, as it reduces important price manipulation risks. However, there have been different discussions in the community surrounding the topic, and there is even the Killswitch project being developed in order to apply protective measures whenever the price of an LST based on the exchange rate deviates too much from a secondary market.

However, there is another protection that could be applied based on a clear principle: for certain type of assets, the price should never be above a certain threshold that can be defined with pretty high certainty in advance.

Specification

This proposal introduces adapters for different Aave v3 assets: LSTs and the majority of the stable-coins. The codebase of the adapter can be found on https://github.com/bgd-labs/aave-capo.

Even if the initial configuration will be done at AIP stage following recommendations from the risk providers of the community (Gauntlet & Chaos Labs), the list of assets to apply the solution on is the following:

Aave v3 Ethereum

USDT, USDC, rETH, DAI, cbETH, sDAI, LUSD, FRAX, crvUSD, wstETH

Aave v3 Polygon

MATICx, USDC.e, USDC, stMATIC, USDT, DAI, wstETH, agEUR

Aave v3 Avalanche

sAVAX, USDC, USDt, DAI.e, FRAX

Aave v3 Optimism

wstETH, USDC.e, USDT, sUSD, USDC, DAI, rETH, LUSD

Aave v3 Arbitrum

wstETH, USDC, USDT, USDC.e, DAI, rETH, LUSD, FRAX, EURS

Aave v3 Metis

m.USDC, m.USDT, m.DAI

Aave v3 Base

cbETH, USDbC, USDC, wstETH

Aave v3 Gnosis

wstETH, sDAI, xDAI, USDC, EURe

Aave v3 BNB Chain USDC, USDT

If any further listing of applicable assets happen before AIP (new stablecoins and/or LSTs), the asset will be added to the list at that stage.

Voting options

• YES. Proceed with the release of the Aave CAPO.
• NO. Don't proceed with Aave CAPO.
• ABSTAIN. No opinion