Summary
We propose listing GHO as a collateral currency on Notional V3 Mainnet. We propose listing GHO with its dedicated variable rate market as well as with 3 months and 6 months fixed rate markets. This listing would enable the following usecases for the growing GHO holder base:
GHO depositors
- Earn variable or fixed yield on GHO
- Borrow other crypto assets against GHO
GHO borrowers
- Borrow GHO to enter whitelisted yield strategies
- LP in the Aura boosted Balancer USDC/GHO/USDT pool
- LP in the Convex boosted Curve crvUSD/GHO pool
GHO is a stablecoin developed by the Aave DAO and was deployed in July 2023. The current GHO supply stands at $48M.
Proposed listing parameters
We propose listing GHO as a collateral currency with the following parameters.
Collateralization parameters
| Parameter | Proposed value |
|---|---|
| Collateral Haircut | 0.85 |
| Debt Buffer | 1.11 |
| Liquidation Discount | 1.05 |
These parameters imply the following minimum collateral ratios for GHO:
| Pair | Implied minimum collateral ratio |
|---|---|
| GHO collateral / USDC debt | 128% |
| USDC collateral / GHO debt | 120% |
Based on these parameters, the protocol will effectively be able to withstand a decrease of 18% in the GHO price once a position becomes undercollateralized. As liquidity develops and as GHO becomes more integrated across DeFi those parameters could be updated.
The 5% liquidation discount is set to cover liquidation gas costs, differences between the oracle price and the market price as well as slippage resulting from a liquidation.
We also propose listing GHO with an initial supply cap of $1M with the ability to increase the supply cap up to $5M over time as GHO demand increases and GHO liquidity develops.
Variable Interest Rate Model
We propose using the same variable interest rate model for GHO that the protocol uses for USDC. The first kink is set at 65% utilization at a rate of 10% and the second kink is set at 85% at a rate of 30%. As a reference the current GHO borrowing cost on Aave ranges between 9.72% and 13.88%.
| Parameters | Values |
|---|---|
| kinkUtilization1 | 65% |
| kinkUtilization2 | 85% |
| kinkRate1 (1/256) | 10% |
| kinkRate2 (1/256) | 30% |
| maxRate25BPS | 150.00% |
| feeRatePercent | 20.00% |
| minFeeRate5BPS | 0.50% |
| maxFeeRate25BPS | 40.00% |
Fixed Interest Rate Models
We propose using the following fixed interest rate models for GHO:
| Parameters | Values (3 Month market) | Values (6 Month market) |
|---|---|---|
| kinkUtilization1 | 20% | 20% |
| kinkUtilization2 | 80% | 80% |
| kinkRate1 (1/256) | 8% | 8% |
| kinkRate2 (1/256) | 20% | 20% |
| maxRate25BPS | 40% | 40% |
| feeRatePercent | 8.00% | 8.00% |
| minFeeRate5BPS | 0.15% | 0.15% |
| maxFeeRate25BPS | 2.00% | 2.00% |
| Initial proportion | 35.00% | 35.00% |
| Deposit share | 60.00% | 40.00% |
| Leverage threshold | 88.00% | 88.00% |
Analysis
Volatility
We analyzed the historical oracle prices for GHO and looked at the historical volatility and maximum drawdowns to select appropriate collateral parameters.
| Since inception | Last 30 days | |
|---|---|---|
| Min oracle price | $0.95275732 | $0.99448302 |
| Max oracle price | $0.99881659 | $0.99684391 |
| Oracle price volatility (1H) | 0.07% | 0.01% |
| Oracle price volatility (24H) | 0.25% | 0.03% |
| Max drawdown (1H) | -1.32% | -0.08% |
| Max drawdown (24H) | -2.09% | -0.11% |
Liquidity
We analyzed the on-chain liquidity for GHO to better understand GHO’s liquidity profile. The amount of on-chain liquidity for GHO informed the selection of GHO’s supply cap and it’s liquidation discount. GHO liquidity can be monitored here.
| Trade size | GHO → USDC slippage | USDC → GHO slippage |
|---|---|---|
| $100K | -0.69% | +0.59% |
| $500K | -0.89% | +2.84% |
| $1M | -2.4% | +5.15% |
Other considerations
Aave V3 and GHO have been audited by multiple security firms:
Aave v3 Audit Details
GHO Audit Details