Aave

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Title: [TEMP CHECK] BUIDL GSM Author: @aavelabs Date: 2024-09-04

Summary

This Temp Check proposes to build and deploy GHO Stability Module (GSM) to support reserve allocation and management features enabling third party integrations, specifically supporting integration into the BlackRock BUIDL 90 infrastructure.

Motivation

The primary purpose of GHO Stability Module (GSM) is to ensure the stability of GHO in scenarios of increasing or decreasing demand, effectively providing 1:1 convertibility between GHO and the other asset within the specific GSM. In the case of GHO:USDC, this can result in a surplus of USDC that in current deployed implementation remains idle.

Aave Labs proposes to build a new instance of GSM that supports external integrations and related control mechanisms, specifically supporting BlackRock’s BUIDL. With this implementation GSM can be more capital efficient while maintaining the high standards of backing as USDC is backing the GHO.

BUIDL 25 is deployed on the Ethereum network, providing onchain access to traditional financial assets managed by BlackRock Financial Management Inc., with BNY Mellon as custodian, Securitize as transfer agent, and PricewaterhouseCoopers LLP as the appointed fund auditor. BUIDL offers a novel approach to the digital asset space by combining the reliability of traditional financial mechanisms with the efficiency and transparency of blockchain technology.

BlackRock has partnered with Coinbase, Anchorage, Fireblocks, and Digital Bank NA as infrastructure providers, and with Circle for the onchain USDC redemption fund, ensuring instant liquidity for onchain participants.

BUIDL is priced at $1 per token and pays daily accrued dividends directly to holders wallets in the form of new tokens each month. The fund allocates 100% of its assets in cash, U.S. Treasury bills, and repurchase agreements, allowing holders to earn yield while holding the token on the blockchain. BUIDL holders can transfer their tokens 24/7/365 to other pre-approved holders. Additionally, fund participants have flexible custody options, allowing them to choose how to hold their tokens.

The BUIDL fund currently has over $500 million in issuance 10, with Circle providing a $100 million USDC redemption fund that guarantees conversion from BUIDL back into USDC for use in the USDC GSM. As of now, the redemption fund has $74.7 million USDC available.

This GSM implementation sets the technical ability for the Aave DAO, essentially expanding yield sources into real-world assets (RWAs), and increasing the partnership opportunities with BlackRock. Additionally, it provides a hedge against fluctuating yield opportunities in DeFi markets.

Specification

The proposed GSM instance that will run in parallel with already existing GSMs, will enable 1:1 fixed-ratio swaps between USDC and GHO, utilizing the USDC surplus to mint BUIDL tokens. Thanks to instant redeemability between USDC and BUIDL, the GSM can mint and burn BUIDL in exchange for USDC based on user demand, ensuring a seamless experience similar to the existing GHO:USDC GSM. Swap fees will be accumulated in GHO, and dividends will be paid monthly in BUIDL.

Architecture may or may not integrate a USDC buffer to compensate the gas redemption cost of BUIDL for small swaps, subject to further evaluation.

The GSM contract code requires modifications to support GHO <> USDC conversions and dividend reception. Additionally, BUIDL holders must be registered/allowlisted, meaning the GSM itself must also be registered.

A detailed specification will be shared during the ARFC phase.

Next Steps

If Snapshot outcome is YAE, escalate this proposal to the ARFC stage.