[ARFC] Deprecation of Small-cap Stablecoins on V2 Ethereum
Summary
A proposal to deprecate USDP, GUSD, LUSD, FRAX, and sUSD on Aave V2
Motivation
Following our ongoing efforts to deprecate the V2 markets and following the recent USDP volatility and subsequent freeze, we propose deprecating smaller market cap stablecoins on V2.
Deprecation Phase I
Recent events have highlighted the need for Aave to reduce its V2 exposure to lesser-used stablecoins, many of which have limited liquidity, thus allowing for price manipulation and other potentially harmful events. Previously, the community followed a two-phase process to deprecate stablecoins, with BUSD and TUSD as examples. Given the success of these, we propose a similar path forward. Notably, none of the below stablecoins are collateral assets, reducing the complication of the process.
For USDP, GUSD, LUSD, FRAX, and sUSD we propose the following parameters:
| Parameter | Proposed Value |
|---|---|
| Reserve Factor | 95% |
| Borrowing Enabled | No |
| Base Rate | 3% |
| Slope1 | +3% |
| Slope2 | 200% |
| UOptimal | 20% |
The goal of Phase I is to increase borrower APR to encourage borrowers to repay their loans; this is achieved through higher Base Rate, Slope1, Slope2, and lower UOptimal. Additionally, we recommend leaving them frozen to prevent new supplies and borrowings. Finally, we increase the reserve factor to reduce supply APY, reducing the attractiveness of supply as borrowers pay increased rates.
Following observations from Phase I, we may move to further decrease UOptimal, increase Reserve Factor, and increase Slope2.
Specification
Deprecation Phase I
USDP
| Parameter | Current Value | Proposed Value |
|---|---|---|
| Reserve Factor | 35% | 95% |
| Borrowing Enabled | Yes | No |
| Base Rate | 0% | 3% |
| Slope1 | 12% | 15% |
| Slope2 | 75% | 200% |
| UOptimal | 80% | 20% |
GUSD
| Parameter | Current Value | Proposed Value |
|---|---|---|
| Reserve Factor | 35% | 95% |
| Borrowing Enabled | Yes | No |
| Base Rate | 0% | 3% |
| Slope1 | 12% | 15% |
| Slope2 | 150% | 200% |
| UOptimal | 70% | 20% |
LUSD
| Parameter | Current Value | Proposed Value |
|---|---|---|
| Reserve Factor | 40% | 95% |
| Borrowing Enabled | Yes | No |
| Base Rate | 0% | 3% |
| Slope1 | 12% | 15% |
| Slope2 | 65% | 200% |
| UOptimal | 80% | 20% |
FRAX
| Parameter | Current Value | Proposed Value |
|---|---|---|
| Reserve Factor | 45% | 95% |
| Borrowing Enabled | Yes | No |
| Base Rate | 0% | 3% |
| Slope1 | 12% | 15% |
| Slope2 | 100% | 200% |
| UOptimal | 80% | 20% |
sUSD
| Parameter | Current Value | Proposed Value |
|---|---|---|
| Reserve Factor | 45% | 95% |
| Borrowing Enabled | Yes | No |
| Base Rate | 0% | 3% |
| Slope1 | 12% | 15% |
| Slope2 | 100% | 200% |
| UOptimal | 80% | 20% |
Next Steps
- Following community feedback, submit the ARFC for a snapshot vote for final approval.
- If consensus is reached, submit an Aave Improvement Proposal (AIP) to implement the proposed updates.
Disclaimer
Chaos Labs has not been compensated by any third party for publishing this ARFC.
Copyright
Copyright and related rights waived via CC0
Off-Chain Vote
YAE
685.95K AAVE100%
NAY
2.26 AAVE0%
Abstain
0.3 AAVE0%
Timeline
May 02, 2024Proposal created
May 03, 2024Proposal vote started
May 06, 2024Proposal vote ended
May 06, 2024Proposal updated