Oracle Improvement for Pegged Assets

Users of AAVE that lend and borrow pegged assets are at a higher risk of liquidation than justified due to the implementation of the oracle. I propose that prices for stablecoin assets be calculated by making use of lower variance price feeds. This proposal would be limited to USDC, USDT, and DAI for now, but could expand if Chainlink adds more price feeds.

Background: The prices of assets in AAVE, and by extension the debt ratio, are calculated by Chainlink oracles which convert all asset prices directly to ETH (which are converted in the frontend to a dollar price). Chainlink price feeds to ETH are designed to update only when the price deviates from the previous price by 1% or more. This means that your debt ratio can rise by about 2% simply by random chance. This is not to mention the fact that Chainlink may update different price feeds at different blocks creating a further divergence in debt ratio.

The Proposal: When the relevant price feeds are available and can be considered reliable, convert assets to their pegged equivalents before converting the price to ETH. Because the variance of the USD to ETH price calculation would be shared by all USD pegged assets that supported the feed, the debt ratio between pegged assets would only be affected by the variance of the asset's price around the peg.

Before: USDC -> ETH USDT -> ETH

After: USDC -> USD -> ETH USDT -> USD -> ETH

https://data.chain.link/ethereum/mainnet/stablecoins https://governance.aave.com/t/proposal-provide-better-oracle-mechanism-for-stablecoins/4720

feels weird being the first one in here....