👻Aave: Add Terra USD (UST) to AAVE v2
Summary:
If passed, this proposal will allow for Terra’s stablecoin $UST to be used for deposits and borrowing on Aave V2.
About $UST
$UST is the native stablecoin on the Terra blockchain, and was founded by Terraform Labs (TFL) on October 1st, 2022. $UST is considered an ‘algorithmic, seigniorage-based stablecoin’ and is pegged to the $LUNA token. Each $UST can be redeemed for $1 of $LUNA, and $1 worth of $LUNA can be redeemed for one $UST. At the time of writing, $UST is ranked #14 in terms of market cap on Coingecko, with a valuation of $13.9B. The version of $UST proposed here is USTw, or wormhole UST. How $UST maintains its peg:
The version of UST added will be USTw (Wormhole UST). The Terra ecosystem is migrating from the centralized Shuttle Bridge to the decentralized Wormhole V2 bridge. The UST peg is maintained through an open market arbitrage system facilitated by Terra’s market module. An explanation of the contraction system is outlined below:If 1 UST is trading at .99 USD, users can buy 1 UST for .99 USD. Users then utilize Terra Station’s market swap function to trade 1 UST for 1 USD of Luna. The swap burns 1 UST and mints 1 USD of Luna. Users profit .01 UST from the swap. This arbitrage continues, and UST is burned to mint Luna until the price of UST rises back to 1 USD.The reverse works if 1 UST is trading above 1.00 USD. Through this system, UST has been able to maintain its peg within a relatively tight range.
Rationale:
$UST already has a strong place within the Ethereum ecosystem. Integrations within Curve, Uniswap, Mirror, and Anchor are examples of the demand for $UST on the Ethereum blockchain. With this proposal, Aave has an opportunity to add a stablecoin that is both proven, and respected throughout the ecosystem.
Initial Parameters:
Strategy: rateStrategyStableTwo
Base LTV As Collateral: 0
Liquidation Threshold: 0
Liquidation Bonus: 0
Borrowing Enabled: true
Stable Borrow Rate Enabled: false
Reserve Decimals: 6
Reserve Factor: 2000
Proposal:https://app.aave.com/#/governance/65-QmYcKbka4WWgwVTcxE7esz2NJfzQbza5ya6oTUKhuFzPrN
Links:
Terra:https://www.terra.money/
$UST Coingecko:https://www.coingecko.com/en/coins/terra-usd
Recommendation:
I recommend that the Rabbithole metagovernance pod vote ‘Yes’ to enable the depositing and borrowing of $UST on Aave V2. Terra has a high reputation amongst most crypto enthusiasts. Terraform labs would benefit from exposure by Aave’s listing of $USTw. Additionally, Aave and Aave’s users would benefit from the addition of a decentralized and reputable stablecoin such as $USTw. This proposal appears to be positive sum, and the addition of $USTw brings an exciting new stablecoin market for Aave’s users!
Open Questions:
Feedback:
Discord community member @gm_on#9437
thanks for the writeup and totally support the proposal. just curious do you happen to know the differences btwn this proposal and the previous proposals to add UST that were rejected in the past (nov '21 and maybe one other time). is it just the fact that UST can be lent/borrowed but it is not added to the collateral pool? thinking that is likely the add'l risk measure included in this proposal that might push it over the line vs previous attempts
Execution status: Pending Execution
Vote: Yes
Community Vote
12 Y
0 N
Pod Vote
20 Y
0 N
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