TL;DR Summary:
This proposal seeks to enable $AERO as collateral on Seamless Protocol, whitelisting USDC and DAI as borrowable assets against it. Additionally, this proposal seeks to grant emergency permissions to a Guardian wallet for managing lending markets.
Proposal for AERO Collateral Listing:
List AERO as Collateral? YES
Borrowing Pairs? USDC, DAI
Context & Motivation:
The addition of AERO as collateral will expand the utility and attractiveness of the Seamless Protocol. By enabling borrowing against AERO, we aim to increase the overall liquidity and user engagement on the platform. This is a natural extension to the original AERO listing proposal and Chaos Lab’s recommendation to enable e-mode, found here in PCP-12.Given the dynamic nature of lending markets, granting emergency permissions to the Guardian wallet ensures quick and effective responses to any market anomalies or emergencies.
Background:
AERO Token: Since launch, the $AERO market has amassed over 500 participants, many of whom have larger positions holding sAERO. Currently $AERO cannot be used as collateral for borrowing purposes however due to its time on the platform and its tenure as an established token on Base, propose being able to borrow against it with specific assets.
USDC/DAI Borrowing: Stablecoins such as USDC and DAI are in high demand for their stability and utility in various DeFi activities.
Specifications/Technicals:
Under this proposal, the Seamless Protocol will:
List AERO as Collateral: Implement the necessary smart contract changes to allow AERO to be used as collateral with whitelisted assets while on isolation mode.
Enable USDC and DAI Borrowing: Modify the borrowing parameters to support AERO collateral for USDC and DAI loans.
In addition to the listing of $AERO as collateral, also proposing the granting The Gaurdian wallet emergency admin roles on the lending markets. The Guardian should have the ability to pause markets in case of emergencies. The proposal for this is as follows:
Granting the EMERGENCY_ADMIN role to the Protocol Guardian multisig at 0xA1b5f2cc9B407177CD8a4ACF1699fa0b99955A22. Breakdown of role permissions can be found in the Aave docs here.
Emergency permissions will be limited to critical actions required to maintain market stability and will be revoked once the situation is resolved.
Next Steps:
Technical specifications/payload will be presented as soon as possible if the discussion period ends with positive support.
We encourage the community to participate in the discussion and share their thoughts on this proposal. Your input is valuable to ensure the success and security of the Seamless Protocol.
I fully support moving this to a vote onchain. I see this as simply taking action that already has support from the community based on discussions in previous Discourse threads.
@lewis Thanks for presenting this proposal. While I see the potential benefits of listing AERO as collateral and enabling borrowing of USDC/DAI, I have some concerns regarding the risks associated with this move.
Firstly, AERO has demonstrated significant volatility, fluctuating from $0.02 to $2 and currently trading at $0.69. This kind of volatility introduces a high level of risk when considering it as collateral for stablecoin borrowing. The potential for rapid price changes could lead to substantial liquidations, which might destabilize the lending market.
Secondly, the distribution of AERO holdings raises red flags. According to data from Arkham, approximately 15 accounts hold over 1-2 million $ unlocked AERO tokens. This concentration of holdings increases the risk of liquidity withdrawal…
Given these factors, it would be proposed to implement strict borrowing limits and risk management strategies to mitigate the potential impact of AERO’s volatility.
I encourage the team to carefully consider these risks and discuss possible measures to address them before moving forward with this proposal.
I support this proposal, but do think the points of @Smailov above are very valid. Like every market, but especially for AERO, I’d suggest the risk analysis firms to thoroughly look into potential liquidity/volatility risks and set the parameters accordingly. Overall, this is an exciting step forward for Base as a whole, strengthening the utility of more Base assets.
This is a reasonable follow-up to the AERO listing as collateral; AERO has been extremely popular on Base in the last while, and enabling borrowing against it can increase traction for the Seamless pool even more.
I do believe that it is a relevant proposal. However I would like to echo what @Smailov highlighted.
All in all it’s all about risk management. Having said that, I would like to see the risk analysis by @chaoslabs and opt for the most conservative scenario at first
I do not believe a new risk analysis is required here. For additional context, this proposal would be to enable USDC/DAI as assets that are borrowable in isolation mode. This has long been supported in all past Chaos risk analysis reports but was never executed onchain. AERO is already enabled as collateral in isolation mode per the AERO listing proposal (and associated Chaos risk analysis), reference. But since no assets have been enabled as borrowable by isolation mode assets, it is effectively disabled, this was not the intention nor the recommendation from Chaos. This proposal simply seeks to remedy this discrepancy and implement changes that has been long supported and recommended by Chaos.