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Proposal overview

AIP 6: Add Gemini USD (GUSD)

Executed

Executed on 

Jan 02, 2021

aip: 6 title: Adding GUSD to AAVE status: WIP author: Gemini discussions: https://governance.aave.com/t/proposal-add-support-for-gemini-gusd/384 created: 23.12.2020 updated: 28.12.2020

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Simple Summary

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The Gemini dollar is a cryptographic token that is issued by Gemini, strictly pegged 1:1 to the U.S. dollar, and built on the Ethereum network according to the ERC20 standard for tokens.

Abstract

<!--A short (~200 word) description of the technical issue being addressed.-->

Add GUSD to the AAVE V2 market.

Motivation

<!--The motivation is critical for AIPs that want to change Aave. It should clearly explain why the existing protocol specification is inadequate to address the problem that the AIP solves. AIP submissions without sufficient motivation may be rejected outright.-->

GUSD is an additional fiat on-ramp into the DeFi ecosystem that will help diversify fiat sources inside of AAVE markets.

Specification

<!--The technical specification should describe the syntax and semantics of any new feature.-->

GUSD can be exchanged for USD at a fixed 1:1 rate on the Gemini exchange. I have personally tested this out and was impressed with the results: withdraw of GUSD from Gemini exchange was sent within 1 minute using fast gas, and deposit back into Gemini was credited within ~17 block confirmation. It should be possible for liquidators (who are willing/able to KYC) to flip GUSD collateral directly through Gemini for the time being. GUSD also has a few trading pairs on other centralized exchanges such as OKEx, HitBTC, and ZB. I plan on submitting a proposal to create a GUSD Curve pool in the near future as well, if this is supported by veCRV voters the on-chain liquidity for GUSD should improve substantially.

Rationale

<!--The rationale fleshes out the specification by describing what motivated the design and why particular design decisions were made. It should describe alternate designs that were considered and related work, e.g. how the feature is supported in other languages. The rationale may also provide evidence of consensus within the community, and should discuss important objections or concerns raised during discussion.-->

Benefits for Aave:

Diversification of centralized assets: GUSD relies on a different issuer and custodian compared to USDC, TUSD, USDT, or BUSD. Credit, custody, or regulatory risks may be less correlated across these assets, which could reduce risk to Aave security module stakers. New DeFi on/off ramp: Gemini has good linkage with US bank wire and ACH networks, comparable to Coinbase as a fiat ramp. While Coinbase have played nice so far, it’s dominance in regulated crypto liquidity and USDC on/off ramp has huge influence over the space. I see Gemini and GUSD as a viable competitor. From an industrial economics standpoint, Aave and other Defi protocols like Maker may benefit from breaking down monopolies of their key counter-parties.

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Risk Analysis

The Risk Team has applied Aave’s Risk Framework to GUSD leading to an overall risk rating of B-

GUSD is issued by Gemini Trust Company. It has been created for practical use in innovative applications, among which to facilitate Gemini’s institutional solutions and exchange operations.

GUSD Smart contract Risk: C+

GUSD was launched in September 2018 – at the same time then USDC – yet it has only experienced 120k blockchain transactions.

The GUSD smart contract only supports 2 decimals meaning that interest accrual can only occur for more than 1 cent.

USDC Counterparty Risk: C+ cannot use as collateral (centralisation D-)

As it is backed by real US dollars, GUSD is centralised. Moreover it has few holders with most of the transactions off-chain on the centralised Gemini environment.

An independent accountant’s audit report is published at the end of each month on the website. GUSD is regulated bringing trust to the token. Still, the infrastructure is based on the Ethereum blockchain where regulators have little power.

GUSD Market Risk: B -

GUSD has a small market capitalisation at less than 20m with a small trading volume. The price has diverged from 1 a few times in the last 3 months with up to 3% price variation. Given the reduced market capitalization and the possibility of market price manipulation, the oracle will fix the price of GUSD to $1. This does not bring additional risk because the asset cannot be used as collateral and even if the market price swings considerably, the asset is still redeemable 1:1 for USD. The risk team will reevaluate the asset periodically to validate the viability of an actual market based oracle as the GUSD supply grows.

Risk Parameters ~ BUSD sUSD Not a collateral Reserve Factor 10%

Variable Interest Rate Model ~ BUSD sUSD UOptimal 80%

R_0 0%

R_s1 4%

R_s2 100%

References

Copyright

Copyright and related rights waived via CC0.

Your voting info

Voting results

YAE

388,238

AAVE

100.00%

NAY

0

AAVE

0%

Top 10 addresses

Votes

State
Executed

Executed on 

Jan 02, 2021
Quorum
Reached
Current votes

Required

388.23K

320.00K

Differential
Reached
Current differential

Required

388.23K

80,000.00

Total voting power

16,000,000

Proposal details

Created

Block

29 Dec 2020, 15:21 UTC +00:00

11549719

Started

Block

29 Dec 2020, 15:21 UTC +00:00

11549719

Ended

Block

1 Jan 2021, 15:21 UTC +00:00

11568919

Executed

2 Jan 2021, 18:49 UTC +00:00